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The Economics of Education

A visit with Michael Podgursky, Professor of Economics

By Noelle Buhidar
Published: - Topics: Salary Schedule Teacher Labor Market economics education Labor Economist
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Nothing will get a labor economist’s mental gears turning like the word “shortage.” At the very utterance of this term, Michael Podgursky’s ears perk up, his eyebrow rises, and he leans over his desk: “What do you mean by shortages?” It’s not that Podgursky isn’t accustomed to hearing the word—quite the contrary, actually. As a professor of Economics at MU, his query results from extensive research on education, a field that has fallen victim on numerous occasions to accusations of “shortages.”

For over a decade, the K-12 education system has supplied Podgursky with a bounty of issues to examine through a labor economist’s lens. His nationally recognized work focuses on teacher labor markets, teacher compensation, and, most recently, teacher retirement benefit systems. “There are a lot of things broken in the teacher labor market,” says Podgursky. “It’s an interesting area of application. Because so many things are screwed up, it gives me a lot to study.”

The cracks in the K-12 system are not easy to mend, but Podgursky has indentified the faults and is poised to fix them with an economist’s toolbox. Individual teacher salaries differ according to specific profiles of individual teachers. Teachers with more years of experience have larger salaries, as do those with more educational achievement. Some teachers also are paid more for additional jobs; for example, coaches earn a salary increase, as do advisors of clubs and other co-curricular activities. Proponents of the single-salary schedule claim that its pay methods are fair, because the basis for rewarding teachers with different pay—that is, to recognize years of experience, education units, and different jobs—are objective, measurable, and not subject to administrative discretion.

But Podgursky offers a different perspective: as he puts it, “all teachers get paid the same, regardless of performance and student achievement, and that’s the problem to be fixed." He finds the single-salary pay schedule to be inefficient because the attributes it rewards aren’t adequate predictors of teacher productivity. Podgursky cites principals as an example of this imperfect salary structure: “Lots of teachers who think they want to be a principal get a master’s degree in education administration,” he observes. “But there’s no evidence that having a master’s degree in education administration makes you a better second grade teacher. We’re rewarding graduate credits, but that may have nothing to do with what the school needs or what makes you a better teacher.”

Podgursky points toward the need to shift away from a rigid salary schedule, based on years of experience and education units, to one based on direct measures of what teachers know and do. He finds that the current market is not targeted toward the best teachers or teachers in shortage areas, and suggests that using pay as a lever to improve teacher performance, thus creating a more performance-oriented and market-oriented pay structure, would help schools recruit, motivate, and retain more highly qualified teachers. “The problem is that if you’re a really good teacher, under the current system you earn the same as if you weren’t a really good teacher,” he emphasizes. “In addition, a first grade teacher will get the same pay as a high school chemistry teacher or math teacher who has very different training and non-teaching opportunities. This rigidity across fields virtually guarantees that you will have difficulties recruiting high quality math and science teachers.”

While Podgursky does not claim that performance pay will fix all school problems, he believes that differentiated pay schedules will lessen teacher turnover and lead to higher student achievement. In his book, Teacher Pay and Teacher Quality (1997), he discovered that the highest paid teachers weren’t necessarily the highest quality ones. His conclusion is based on longitudinal data sets on student performance and the teacher labor market. “These sets are crying out to be analyzed,” says Podgursky. “It’s like a candy shop for economists and people trained to do quantitative research. You can see how incentives matter, how relative wages matter, what improves student growth and what doesn’t.”

A recent focus of Podgursky’s research is on teacher pension systems, which are becoming increasingly expensive for school districts. “Teachers are retiring at a very young age compared to the rest of the economy,” he notes. “Here in Missouri, the median retirement age is 56.” In addition to being costly, this means that retirement is draining talented and experienced people out of the classroom at relatively young ages. “The general point here is that the whole compensation package for teachers, educators, and principals needs to be thought about in a strategic way,” he explains. “Economics can help in thinking about the incentives, the structures, and efficient compensation design.”

Podgursky analyzes pension data and develops market models to reflect the system’s effects. He also looks at the pension rules and how people respond to them in order to estimate teacher behavior models. “Once you estimate those models and have a reliable one, you are in the position to say ‘Well, what if we change the rules?’” he says. “You can simulate the effects of different policies and look at how they affect younger teachers.” This research on the pension system has earned Podgursky much attention. Recently, he presented his findings at a national conference at Vanderbilt University, where he is a co-investigator with the National Center on Performance Incentives. He also conducted a follow-up conference and plans to hold more meetings and presentations on pension-related topics.

Leaning back in his chair and folding his arms across his chest, Podgursky concludes: “Right now, teaching doesn’t look so bad because for the most part teachers aren’t getting laid off.” With the help of his research, he hopes the teacher labor market will improve and make itself more attractive to “career changers,” people who have extensive training in fields like math and science. He cautions that the education field cannot ignore the importance of the market; if it pretends the market isn’t there, then education will be stuck in a position from which it can’t recruit well-trained teachers in high-demand subjects. “That’s the situation K-12 has put itself in,” he observes. But the field of economic applications in education is making small changes, and “that’s why this research is exciting—to watch economic principles take root in the public K-12 spheres.”