Sunday, June 06, 2004

Public Education: Where Markets Dare Not Tread

At Marginal Revolution, Fabio Rojas takes on the tired old claim that paying low salaries for teachers means we don’t consider education important.
The salary one makes is determined by supply and demand. A price doesn't indicate how important the job is, or even if people think it is important. Take a simple example: water - it's cheap because there is plenty of it, not because we don't think it is important!

…So why the low pay? Teacher's low pay is due mainly to the fact that there are tons and tons of teachers! There is a huge supply of teachers. Education schools have huge enrollments - and surveys routinely report that education is one of the most popular majors in the country.
I agree with Rojas’s main point, which is that wages do not and should not reflect some abstract notion of importance. However, in America’s monopolistic government-run public school system, applying a simple model of supply and demand is problematic. The wages paid to teachers result not from the interaction of supply and demand in a competitive market characterized by many buyers and sellers, but by the interaction of monopsonistic buyers (legislatures and boards of education) on the one hand and monopolistic sellers (teachers’ unions) on the other. These two groups negotiate the terms of trade, while the actual customers – students and their parents – are relegated to the sidelines. In such a situation, teachers’ wages could be either too high or too low. (Bilateral monopolies typically yield multiple equilibria.)

As a benchmark, we might be tempted to look at the wages of teachers in private schools, which are generally lower than those of public teachers. But there are a couple of reasons those wages might be distorted by the public system. First of all, the availability of a “free” public education drastically reduces the demand for private education. Only those parents who think the whole price of a private education is justified by the difference in quality will opt for a private school. A voucher system would change the story, of course; under such a system, parents would opt for the private school if the difference in price were justified by the difference in quality. The rise in demand would likely drive up the wages of private teachers. But under the status quo, such competitive pressure is lacking. Second, the lower wages of private school teachers probably reflect the greater desirability of those jobs, as they avoid much of the violence and bureaucracy associated with public schools.

There’s also an important issue of teacher quality. The wages paid to teachers might be high enough to attract enough people to fill all the positions, which is fine if all teachers are equally good. But if they are not, then buyers have to decide what is the right quality level. A higher wage offer might attract more qualified people – potentially drawn away from other important professions, of course, which is why we shouldn’t automatically assume attracting higher quality teachers is a good thing. But there is also no good reason to think the political process chooses the right level of quality. In a private competitive system, parents might well choose higher quality and pay for it with higher wages. The point is not that teachers should get higher (or lower) wages. The point is that a politicized education system is incapable of discovering the answer to that question, which is yet another argument in favor of privatizing education: doing so will allow us to utilize the spontaneous market process to discover the correct wages (or wage schedules) for teachers.

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