February 28, 2021
Teacher Pay Is the Symptom of Deeper Problems
The Next Level Teacher Compensation Commission released their report in mid-December. All Hoosiers should be interested in what it did and did not say about teacher pay, along with recommendations they offered. I begin with some stark observations about education finance.
After adjusting for inflation, Indiana spending per student is down more than 7.0 percent since 2010, and Indiana dropped from 22nd nationally in school spending per student in 2004 to 36th by 2018. It wasn’t in the report, but school spending, as a share of Indiana’s Gross Domestic Product, dropped from 2.6 to 2.2 percent since 2010. That means by last year we spent roughly $1.3 billion less per year on education than we would have if we grew educational spending at the same rate as the overall economy in that same time period.
The Commission figured that the actual cuts to K-12 spending works out to about $580 million per year. That is almost identical to the $600 million they claim it would take to bring teacher pay back to 2010 levels. In other words, almost 97 percent of the reduction in educational funding came out of teacher’s salaries. This should make clear two important facts. First, it is unlikely that there are excess savings hidden somewhere in school budgets. Second, the difficulty Hoosier schools have in recruiting teachers is not a supply-side problem. It is about pay.
The Commission also listed 37 policy or tax issues. Not all of these address teachers’ pay. The most numerous recommendations were those that privatize local school services, reallocate money from one use to another or make lump-sum payments to pension plans. There were 13 of these recommendations, but the cost savings from these aren’t clear. The Commission also recommended three administrative changes that had no dollars attached to them.
The Commission suggested five policies that would allow schools to achieve some economies of scale in purchasing goods or services. They offered three recommendations that would save schools money by consolidation or outsourcing of staff. Six recommendations called for shifting spending from existing state or local taxes to school salaries. Two proposed cutting teacher benefits and using the savings for teacher salaries. Three recommendations involved increasing state and local spending on schools.
As best as I can tell, 35 recommendations in this study might free up $50 million to $100 million per year for teacher pay, though most of this comes from cutting teacher benefits. Commission members might dispute my estimates, but, with all due respect, I’ve written several technical studies and a book on cost savings from government and school consolidation. A potential $100 million savings from implementing all these 35 steps is optimistic.
The bottom line is that, to get school spending per student back to 2010 levels, Hoosier taxpayers would need to spend an additional $500 million or so on K-12 education each year. Even then, this would only get us back to where we were a decade ago and would leave teachers with fewer benefits.
The report was less forthright than it should have been about Indiana’s decade of funding cuts to education. Even their gingerly treatment of that fact didn’t prevent the report from being delayed until after the election. Also, the study claimed that Indiana’s spending across 12 categories was not an outlier relative to other states. That is simply not true. In fact, Indiana spending is a full standard deviation below the national average in total spending, instructional spending, and student support spending. Indiana school spending is the very definition of an outlier.
Nonetheless, if you take time to read the full report and the footnotes, the problem is clear—we spend far too little on education. What the report hinted at is that this has deeper and longer-term impacts on Indiana. These were mostly buried deep in the footnotes. They should’ve been the first bullet point in the executive summary. I will be blunter. From 2010 to 2019, Indiana’s worker productivity actually declined. That is the first time that has ever happened. As a consequence, our per capita personal income saw its largest relative decline in history. It is an unpleasant thing to say, but the cause of this is the declining relative quality of our workforce.
Economists have understood for decades that human capital (really, the educational attainment of our workforce) is the strongest causal force in economic growth. Today, the share of adults who attend and complete college is the primary difference between regional wages and productivity. In that key metric, Indiana ranks 40th across states and territories. To put that in context, Tennessee ranks 39th and Puerto Rico ranks 41st, and both are actively improving. In contrast, Indiana’s share of adults with a bachelor’s degree declined in 2019. We are closer to Mississippi than the U.S. average, and we are heading downward.
The teacher salary problem is real, but it is only a symptom of a much wider and more pernicious problem. Indiana’s policies towards education and training are failing. That failure is slowing our economy, and the poor decisions of the past decade will continue to bear bitter fruit for another decade. Our problem isn’t just funding, which is too bad. That would be an easy remedy. Hoosiers are among the least taxed people in the developed world. We have plenty of room to better fund education. The problem is in how we approach workforce training, how we crowd K-12 instruction with dubious workforce preparation, how we incentivize public universities to attract out-of-state students, and most shamefully, how we ended the aspirational approach to education.
Indiana is failing at the single most important thing the state does to ensure a growing economy—educate our children and young adults. Our ‘Mississippi Strategy’ of low taxes, declining educational attainment and huge tax incentives to businesses is finally having an effect. It is precisely what an economic model would predict; declining relative wages, declining productivity and the need to offer even larger incentives to lure employers into our state. That isn’t a strategy any Hoosier should be proud of supporting. But, it is certainly having an effect.
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