Personnel Economics Term Paper

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Teacher Quality: The Effect of Compensation

The objective of this study is to report the importance of teacher quality in achieving good educational outcomes for children and to discuss the potential for a well-designed compensation contract to improve the performance of teachers.

All too often, those in charge of teaching children and essentially in forming the world's future leaders and business executives are compensated very poorly when compared to other working roles in society. Compensation for teachers whose work is so essential in securing the future of the economy and society-at-large is incredibly poor as compared to the compensation of business executives and even blue-collar workers. This is a significant problem in attracting and retaining top talent in the field of teaching.

Teacher Compensation

The work of Hightower, et al. (2011) states that the relationship between teacher quality and student achievement is little understood however what is known is "compensation and incentive systems are a policy lever that schools may use in an attempt to improve recruitment efforts." (p.11) Reform efforts are reported to be such that have emphasized "the recruitment, retention and distribution of teachers and the salaries and incentives that teachers receive." (Hightower, et al., 2011, p.11) It is stated that findings in research evidence indicates, "higher overall salaries can influence teacher quality." (Hightower, et al., 2011, p.12) This is reiterated in the work of Leigh (2011) who states that teacher quality can be improved through "altering the pay structure within the teaching profession." (p.41) Evidence from studies conducted in the United States are reported to state, "the performance gap between the best and worst teachers is substantial." (Leigh, 2011, p. 42) Leigh (2011) reports that studies have shown that districts that have higher salaries for teachers "tend to attract more teachers from selective colleges and with subject matter qualifications." (p.42)

II. Compensation Theory

The work of Lazear (2003) reports that thinking on compensation theory are derived from "a comparison of payment on input vs. payment output" and states that a criticism that is common concerning the problem with incentive for teachers is "that compensation is not sufficiently 'results oriented'. (p.182) In the teaching profession what is meant by payment on input is the skills and time worked with payment on output referring to some measure of the performance of students who are being taught. Lazear reports that the incentive argument is of the nature that is generally straightforward. The importance of incentive alignment is based on various reasons with part of this being "informational; if wages are contingent on student performance, then payment on the basis of student performance provides forceful signals to teachers about what is valued and what is not." (2003, p.182) Therefore, while a teacher may be extremely hardworking but the students being taught do not display results desired in term of performance, then the teacher would not, from the view of compensation theory be due a superior rate of pay. Therefore, as stated by Lazear (2003) "Tying compensation to the appropriate metric provides incentives to move in the direction that has been agreed on." (p.183) When teacher incentive is based on output pay the problem is that the "relevant earnings do not show up until many years after the individual has received the education" rendering it impossible to link teacher compensation to the student's earnings. From this view of compensation, proxies are reported to be utilized in the form of scores on achievement testing. Lazear states that the most obvious are those of literacy, mathematical ability, attainment of education and the subsequent outcome in terms of the economics of the learner. Research has indicated that scoring on tests is related to future earnings. Even should test scoring be determined to be the basis for teacher compensation there is still a lack of determination "whether continuous or discrete standards should be used and where the target should bet set." (Lazear, 2003, p. 184) Various factors must be considered and some of these are reported to have consequences that are "both efficiency and equity" in nature.

It is reported that the latest reforms on teacher pay have various names including: (1) differentiated pay; (2) pay-for-performance; (3) professional compensation; (4) merit pay; and (5) performance-based pay. (Johnson and Papay, 2009, p.1) It is reported that due to the wide variation in the pay-for-performance systems that "design elements…play a vital role in its success" including such as the local context and the implementation process. (Johnson and Papay, 2009, p.1) The pay-for-performance method of determining teacher compensation is not focused on just one measure of student performance but instead, it is reported, "each district incorporates several complementary programs in their overall compensation strategy. Each district also includes components from broader state incentive programs, but their implementation is very much tailored to local needs." (Johnson and Papay, 2009, p.1) Johnson and Papay (2009) report that it is obvious that the "single-salary schedule must be re-designed for a new generation of teachers." (p.1)

III. The Problem in the Methods for Assessing Compensation of Teachers

The work of Biggs (2012) states that much of the problem in analysis of teacher compensation levels is in the calculation of such salaries since the method for doing so "uses linear regression to adjust for skills differences" and therefore fails to provide support to significant conclusions about the salaries of this single occupation. This is however affected by such as "systematic errors in the observed variables, and varying work conditions." (Biggs, 2012, p.1) According to Biggs, if regression as an indicator were to be added for architects, stated as an example, the findings would show that "architects receive a salary premium over seemingly comparable workers. Yet few people would immediately conclude that architects are "overpaid," since architects could easily have skill characteristics not captured by the existing variables. Those who use the standard regression to argue that teachers are underpaid must also conclude that architects are overpaid, food-service workers are underpaid, computer programmers are overpaid, and so on." (2012, p.1) Stated as the first argument for the standard regression being misleading it its use of the educational years or the highest degree obtained in measuring teacher skill, which makes the assumption "education's effect on future earnings is consistent across fields of study. Does a person who majored in education possess the same skills as the average college graduate, much less one who majored in engineering? Probably not. Students majoring in education score lower than other college students on tests like the SAT and GRE." (Biggs, 2012, p.1) Additionally necessary for consideration is that teaching is a field that involves the use of various skills that standardized testing fails to capture including such as interpersonal and organizational skills. Biggs reports a study in which the control group changed from nonteaching to other nonteaching jobs experiencing a 0.5 salary increase however, those who switched from nonteaching to teaching jobs have a resulting 8.8% salary increase as shown in the following table labeled Figure 1.

Figure 1

Source: Adapted from Biggs (2012)

However, it is evidence in research as indicated in the table above that when teachers change from teaching to nonteaching jobs that the result in a 3.1% decrease in salary.


From the literature reviewed in this study and from the theoretical literature and empirical research reviewed, it is clear that the role of teachers are highly undervalued and furthermore that the methods used to calculate the worth of a teacher in terms of compensation to be awarded result in skewing of the teacher's worth. Just as standardized testing fails to capture the knowledge of students in various areas of educational acquisition, the methods used to assess teacher capability also fail in their accurate assessment of the teacher's skills and knowledge and other skills necessary to result in effective teaching in the classroom.

Summary and Conclusion…[continue]

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