Teacher wage penalty and decrease in teacher quality: Evidence from career changes

Some assert that public school teachers are being “overpaid” considering the decrease in teacher quality and stagnant academic achievement of students. Biggs and Richwine (2011) claim that there is no teacher wage penalty if they compare teachers and non-teachers with similar Armed Forces Qualification Test (AFQT) scores. On the other hand, the National Education Association (NEA) contends that teachers have been “underpaid” compared to other college graduates in non-teaching industries. The recent teachers’ strike and walkouts for pay increase in several states were based on the claim that teachers are paid so little that they have to work multiple jobs to make ends meet. These seemingly opposite views towards teacher pay motivated this study.

This study investigates the relationship between teachers’ pay and their quality through the career dynamics across the teaching and non-teaching sector. The main goals of this paper are two-fold. First, this study aims to assess and establish the extent to which teachers’ earnings are lower or higher than other comparable non-teachers. Second, this study examines the career paths of teachers and non-teachers by using changes in earnings for job switchers to infer differences in worker quality across the two occupational sectors.

The primary data source for this study is the Current Population Survey (CPS) Merged Outgoing Rotation Group between 2001 and 2010. This paper also utilizes CPS Supplements for Occupation Mobility and Job Tenure which have detailed information on holders of multiple jobs and occupation mobility. As a complement CPS, I use the 2007-2008 School and Staffing Survey (SASS) and 2008-2009 Teacher Follow-up Survey (TFS) administered by the National Center for Education Statistics (NCES).

Using the state and time fixed effects models, I estimate the wage gap between teachers and non-teachers. I find that public school teachers earn significantly less compared to their comparable college graduates in the non-teaching sector, and a greater proportion of teachers work multiple jobs than non-teachers.

By applying the Roy Model and using the individual fixed effects (first difference model with two periods) to study the changes in earnings associated with career changes, I find evidence of positive selection, in which high quality teachers are more likely to move to non-teaching occupations, and of negative selection, in which low ability non-teachers tend to move to the teaching sector. This pattern of career changes results in a decrease in the average quality of teachers.