Sunday, April 20, 2014

Teaching Value

Public education in America is a tricky subject.  Nearly everyone with children would agree that education should be a high priority for tax expenditures.  However, a large portion of the population will never utilize the public education system while they are a tax paying citizen (either due to private options or lack of children).  Additionally, due to widespread unionization teacher's hold a large amount of political power in the United States.  These factors have combined to create a situation where the general feeling is teachers should be better, cost no more and be safe from lay-offs.

Unfortunately, as most reasonable people will recognize, increasing teacher quality without removing the worst teachers or increasing wages is challenging.  What is needed is evidence of the benefits better teachers provide.  Policies could then be enacted based on that evidence to either increase wages or remove the worst teachers. (Please note that removing the worst teachers does not equate to firing them.  Teachers could be incentivized to retire early, or change positions for example.)

Luckily a recent study has provided exactly this evidence.  This study by Chetty et al. tracked how teacher quality (as measured by improvement in test scores) translated into a variety of outcomes later in life.  Better teachers resulted almost universally into better outcomes for students.  Quantitatively, the difference between the bottom 5% of teachers and an average teacher was $250,000 in lifetime wages spread over the classroom annually.  In other words, replacing a poor teacher of 25 students with an average teacher of the same 25 students will result in each student earning an additional $10,000 over the course of their lifetime (Mean present value).

Additional quantitative measures for a one standard deviation in teacher value added include:

  • .82% increased chance to attend college. This is relative to a 37% chance overall. 
  • 1.3% increased annual earnings at age 28.
  • Estimated increase of $39,000 in lifetime earnings per student.(7,000 NPV at age 12).
  • Reduced likelihood of teen pregnancy.
  • Increased retirement plan savings.
All of these factors are indisputable sources of tax revenue or savings which support policies geared towards improving teacher's value added.  Let's set aside any cost savings associated with welfare program utilization rates and examine only the increased tax revenue.  If a students increased earnings have a net present value of $7000, the federal government will get (being extremely conservative) at least $700 of that.  There are approximately fifty million public school students in the United States (source) and a teacher generally instructs twenty-four students at a time. Given these numbers, if teacher value added can be increased by one standard deviation for a cost below eight hundred and fourty billion dollars it would be foolish not to make the expenditure. This would be approximately a 72% increase over existing total state education expenditures.  

If there is one flaw in this study it might be this.  Education may be somewhat of a zero-sum game.  In other words, Jack may get the better job because he had the better teacher.  But that may simply steal the job from Becky.  Thus Jack will certainly benefit, but overall tax revenue may not grow. What is needed is a further study that links this data to productivity gains and economic growth.  This perspective makes it difficult to enact policies from a federal standpoint.  However, at the more local (and state) level it makes the data all the more compelling.  Local schools simply need to out compete their neighbors for the best teachers to reap significant advantages.  Some benefits will be lost to movement out of the locality.  However, the cost to attract better teachers will be significantly less than the cost to improve teachers nationally.  Localities only have to offer slightly higher wages than neighbors. At the national level wages would have to rise significantly to attract more of the working population to the teaching profession. 

While overall national benefits are still a bit unclear, there are some certainties.  Improving teachers significantly improves the future outcomes for students.  Test results are an important metric (although change in test results is better) to judge teachers.  And there are significant gains to be had by pushing for better teachers.  The only question that remains is who is going to start reaping the rewards first.

That's it for this week. Until next time stay safe and rationale. 

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