Tuesday, January 05, 2010

The Irrationality of Public Teachers' Pay Scales

The justifications for public teacher pay scales--rising sharply over time, regardless of quantifiable merit--are both deeply flawed and representative of the public employee mindset which is dooming local governments to insolvency.

There is very little more incendiary than the pay and benefits of public employees. According to the Survival+ analysis, the reason is simple: public employees have constructed a protected fiefdom which is unaffected by market forces or public interference.

As the Great Recession slashes local and Federal government tax revenues, public employees have an asymmetric stake in the game. Including wages, lifetime healthcare and pension benefits, each one is protecting millions of dollars, while the taxpayer faces death by a thousands cuts: no single tax/fee increase will be large enough to spark outright rebellion because the taxpayer's stake in the game is relatively small.

Thus the public employee union members will fight tooth and nail against any reductions while the taxpayers, though stewing in silent fury over the ever-rising tax burden, will passively accept the tax increases as long as they are cleverly distributed in small doses as "fees," surcharges," etc.

But the reduction in tax revenue is so severe that various public unions are now engaged in what I term internecine conflict between protected fiefdoms. Where the police, firefighters, teachers, prison guards, etc. all increased their take of the government swag together in the flush times, now they are realizing that their enemy is not just the taxpayer but their public employee rivals.

I should mention here for context that the majority of my extended family are public employees: Federal, state, and local, firefighters, police officers, teachers and librarians. Out of 11 cousins and 9 spouses, my brother and I are the only self-employed entrepreneurs in the lot: a mere 10% of this family group pays their own healthcare insurance ($10K a year for basic/bare-bones coverage), pays business license fees ($3K and rising), pays self-employment tax (that wonderful 15% FICA right off the top because we "employ" ourselves), and so on.

So I understand the point of view of the public employee; what I do not know is if they have any conception of what it's like to be an entrepreneural taxpayer, or if they are willing to stand in our moccasins for long enough to feel the crushing weight of the taxes we pay, the insurance we pay and the fact that we have to fund our own pensions, with no guarantees of payouts or increases.

If they don't bother trying to understand, then when they are swept from their fiefdoms by insolvency, they may well be clueless as to the causes.

Correspondent Joe H. offers up a brilliant dismantling of the rationales offered to justify public teacher pay. There is of course another model available: private schools. My sister-in-law happens to work for the elite private school from which President Obama graduated, Punahou School, which by a strange twist of fate is also my alma mater. So I experienced 12 years of public education in California and Hawaii and one year in a private prep school which in effect competes for its teachers and students.

Those of you who have read Survival+ (the free version or the print/Kindle version) know why I expect the protected fiefdoms of public employees to be swept aside by local government insolvency within a few years. That is inevitable, already baked in, unavoidable; the feedback loops are alreadyin place and are strengthening by the day.

So the choice isn't "retain the status quo or choose some other model," it's "choose devolution/breakdown/insolvency or a sustainable market-based model." I say this for the simple reason it is already "obvious" to anyone who examines the locked-in costs of public employees's pay and benefits and the structural declines in tax revenues and the decreasing viability of small-business private employers.

I highly recommend reading Joe's analysis in its entirety, as it touches on many profound issues beyond teacher pay. Here is Joe's commentary.

The simplest commercial transactions are linear. If one Bosc Pear can be had for fifty cents, than two Bosc Pears will cost $1.

Similarly, we expect that hiring one stone mason for $100 will result in 200 cinder blocks being laid, than we expect $200 will result in 400 blocks being laid.

Historically, professional services bucked this trend due to lack of transparency in deliverables. How does one value the disasters the court shaman's incantations prevented?

Another area that has bucked the linear trend has been those trades that have been amenable to collective bargaining. "100 miles is a full day's wages. That is in the contract." Never mind that the train can now travel at 50 miles per hour.

One arena that benefited by being both a "profession" and having the advantage of "collective bargaining" has been teaching...at least in the North-East and the mid-West. As a consequence, pay scales drifted away from the linear model.

Disclaimer: my wife is a union-represented teacher and my father was a Middle School principal.

Pay-scales are important because they are a feedback loop that result in changes of behavior. No system is completely "rational" if simply because of noise and evolution combined with slip-stick. However, a system that is completely untethered from feedback from the greater system will end up in the ditch. From the standpoint of the greater system, it will seem that very large mis-allocations of resources have been institutionalized.

In Michigan, the typical pay-scale for public school teachers is essentially a doubling from years 0-to-10. The pay increase is linear. That is, the pay of a teacher with 5 years experience is almost exactly halfway between what a newbie and a 10 year teacher makes.

In Michigan, the typical pay-scale for public school teachers is approximately +30% between a B.A and a M.A.

Those percentages are uniform across Michigan due to the pattern contract dictated by the Michigan Education Association.

The rational given is that a first year teacher is not nearly as capable as a seasoned teacher. Similarly, it is argued that it is "desirable" for teachers to have advanced degrees, so they should be compensated for their efforts.

Getting back to the Bosc pears: No Child Left Behind mandated standardized testing. The National Education Association will argue that there is too much statistical and socio-economic noise to use standardized testing to be useful.

I disagree.

Regression-to-the-mean is a concept that holds that the ratio of signal-to-noise increases as sample size goes up.

Suppose your entire college GPA waw based on a single exit test. Scary, eh? Suppose that the test were a single, random question and suppose there was no chance of retaking the test.

That would be as stupid as drilling a single core sample to determine the size, purity and closeness to the surface of a massive ore body.

We instinctively know that a single, random data point is of very limited value. We often fail to appreciate that the phenomena can be worked in reverse to our (greater society's) benefit.

Perhaps the signal-to-noise ratio is too weak at the individual teacher level. That is an argument for another day. I will argue that there should be a superabundance of data at the macro level to determine just how much more "learning" is delivered by a first year teacher vs. a second year teacher vs. a fifth year teacher vs. a tenth year teacher.

From ANECDOTAL data, a first year teacher at mid-year will deliver 90% of what a second year teacher delivers and 75% of what a fifth year teacher delivers. After that, the line flattens out.

From ANECDOTAL data, a teacher's performance does improve once they attain their Master's degree, but that is only because they now have time to properly prepare for their day's work rather than commute and study for their Master's.

From ANECDOTAL data, a teacher having attained a Master's degree does not deliver 30% more learning than a similarly tenured teacher without a Master's degree and not pursuing a Master's degree.

The beauty is that we do not need to rely on anecdotal data. All that beautiful data is out there begging to be mined. Why is it not being mined? Who would benefit?

Hypothesis one: The National Education Association already knows that increases in pay for longevity and education are not supported by data. The NEA and their spawn are fantastic at collective bargaining. They would be pushing the results of analysis in our faces if it supported their position. They would not use logic like "desirable" if they had quantifiable data that supported their position.

Hypothesis one, continued: The Universities already know that longevity and education based pay scales are not supportable. Heck, they make enormous profits by churning out pulp fiction Master's degrees. Would the quality of the academic work and research justify a Master's in any other discipline? Likely not.

Let's see, the College of Math has 23 Master's students seeking a degree in Statistics (19 of which are from the Orient). The College of Education has 300 Master's candidates. Hmmm! Do we let a Math genius foreign national pursue a juicy expose and put our profit cow in jeopardy? NOT!

Hypothesis two: The statistics are too complicated by socio-economic factors, survivor bias, only the smart-ambitious go for Master's, etc.

Yes the statistics are complicated. However, the body of data is so massive that one can segregate out some factors, like socio-economics, and still have enough data to perform good work. Millions of kids come from inner-city zipcodes. That should be plenty for a good analysis. Millions more come from second-ring suburbs. That should be plenty for a good analysis. Maybe a Master's has more incremental benefit in Detroit than in Bloomfield Hills? Maybe not.

Yes there is survivor bias. The standardized testing has been going on for so long that test scores from teachers who re-careered before their fifth year can be dropped from the analysis. ANECDOTALLY, some of the improvement in AVERAGE teacher quality improving years 1-through-10 results from the ill-suited leaving the profession. Automatic increases in pay only make them hang on longer!

Maybe only the smart and ambitious pursue a Master's in Education and that would skew the results. One way of testing that is to see how much the non-educational community incrementally values the MA Education vs. other Master's.


Only commentaries that are too long require a summary. Unfortunately, this one needs it.

-The United States now has enough data, spanning enough years, to develop pay scales
that are rational and do not foster mis-allocation of resources.
-Teacher pay scales are distorted.
-Those distortions cause a misallocation of resources.
-Too many teachers are pursuing Master's.
-Kids who have the ill-fortune of being taught by those teachers do not receive the education they deserve.
-The Master's, as delivered by the University, is formulated to satisfy the needs of the contract, not the employer.
-The monetary incentive to get a Master's degree results in districts paying more, and getting less...at least while the teacher is pursuing the Master's.
-Pay-for-longevity (at least as embodied by the Michigan pattern contract) is a protection game shake-down that cannot be supported by data.
-Rational pay for longevity will encourage survivor bias and will result in the more rapid re-careering of the most unsuited for teaching.
-The United States now has enough data, spanning enough years, to develop pay scales that are rational and do not foster mis-allocation of resources (intentionally repeated).
-It is entirely possible that rational pay-scales will vary by socio-economics of the school district.

The True Believers keep spouting their myths and everybody else dutifully nods. The myths have not changed in 20 years.

Myth: a story or background belief that buttresses a world-view. Myth is often forged in the crucible of a community and the stresses they must collectively endure. Myth give collective identity and bonds communities together.

Thoughtful examination of myth can reveal much about a community's world-view, and perhaps yield clues of how to reshape that world-view.

Myth One:
"I can walk out into industry and make twice as much as I do now." Usually embedded between "The public does not appreciate how hard we work." and "They do not appreciate what we give up because of our dedication to their little brats."

This is my favorite because it is the easiest to puncture.

Me: "What do you make now?"
Them: "$70K/year"
Me: "What is 'Twice' as much as $70K/year"
Them: "$140K/year"
Me: "Do you know what percentage of entry level jobs pay $140K/year?"
Them: "No."
Me: "Let's make a bet. I will give you $100 if you can show me a legitimate job offer, tendered to you before January 31, that offers you $140K/year. Otherwise you owe me $100."

The apparent origin of this myth is that first year education majors typically make about half of what the most lucrative Bachelor's candidates make. That is, a first year teacher's salary is about 50% of what a typical graduating Petroleum or Chemical or Software Engineer is offered. It is unspoken that the Engineer in high demand will be expected to put in 3000 hours his/her first year and that their wages will not AUTOMATICALLY double, in inflation adjusted dollars, in the next ten years. So our self-absorbed teacher automatically assumes that EVERYBODY in industry makes twice what they make because that is the total depth of their research.

Myth Two:
"We really do get better for ten years. A teacher with ten years experience really is twice as good as a first year teacher."

Self reporting is not a robust way of judging quality. The earlier post bypassed the issue by going to data. Going directly to data is always the best answer.

Paul Slovic chose to research Financial Experts because there is enough real data to compare self-reported expertise to actual market performance. There is also enough real data to compare practitioner's self-reported methods to what their actual cognitive processes are via linear regression.

He found out that new practitioners have a more accurate awareness of their cognitive processes. Older, "expert", practitioners believed their processes were much more complicated and convoluted than what was actually the fact. Interpreting what Slovic wrote, a practioner's judgment of 'goodness' and 'professional growth' is based on the comfort the practitioner feels rather than any measurable outcome.

A more accurate statement of the myth would be '"Teachers' comfort zone increases for the first ten years they practice." Referring back to the earlier post, would any rational person pay a stone mason a bonus because he was 'more comfortable' working at your job site unless 'more comfortable' resulted in more cinder blocks being laid in a shift?

Myth Three:

"We worked too hard to get those benefits and pay to let the Administration take it away." (alternate) "We worked too hard to WIN those benefits...."

In the speaker's mind, going on strike is working. As the person paying their wages, the only thing I consider work is effort that directly contributes to the student's learning. For example, I do not consider the time they spend commuting to be 'working'.

Some of it is MEA rhetoric. Sadly, we think in words and the words we habitually use first shape our thoughts and ultimately hijack our thoughts. Slogan, chant and jingo cause thought to atrophy and then serve as substitutes for thought.

In the speaker's mind, Administration is peopled with Ebenezer Scrooge clones who maliciously want to saw their rice bowl in half. The paradigm that the pie is not just finite but is shrinking is so alien to their world view that they cannot credit it. Economics, not Administration threatens their rice bowl.

The word "let" leaves me baffled. Conforming to immutable laws of physics are not something we choose. They are not something we and "let" or "not let" happen. Similarly, conforming with immutable laws of mathematics (and economics are ultimately mathematics) are not optional: It is not a matter of "let".

"Let" originates from the rhetoric of collective bargaining. Slogan, chant and jingo killed thought once again.

I gave additional thought to possible origins of the extremely steep pay increases associated with teacher longevity. The lens of 'who benefits' helped snap it into focus.

Low starting teacher salaries function as a gatekeeper. Supply and demand. Fewer entering into the profession makes it much easier to keep the average or total career wages high. Large annual increases can also be trumpeted as collective bargaining victories.

In the long term, one can expect that the percentage of teachers who came from families of teachers to rise. Children of teachers do not look at starting salary. They look at their parents life styles and see top-of-scale wages. The vacations become foundational expectations for employment. Like royalty, teaching becomes a family thing.

Like royalty, the connections to the larger economy and the plight of the forgotten man becomes ever more tenuous. NEA propaganda is accepted as a factual representation of the workplace. Institutional blindness, "over-reach" and hubris result from substituting negative feedback loops with inward-looking positive feedback loops.

Thank you, Joe, for a thorough and insightful analysis of the rationales presented for public teacher pay.

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