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Statistical Analysis Report:

The Patterns of Teacher Compensation

January 1996

(NCES 95-829) Ordering information

Executive Summary

This report presents information regarding the patterns of variation in the salaries paid to public and private school teachers in relation to various personal and job characteristics. Specifically, this analysis examines salary differences between public and private school teachers, male and female teachers, teachers of differing racial and ethnic backgrounds, elementary and secondary teachers, teachers with different qualifications, and teachers operating in differing work environments. The term "teacher characteristics in this analysis encompasses personal attributes as well as professional qualifications.

The empirical analyses presented in this report are based upon a conceptual framework that has been used by economists for years to examine the relationship between prices and characteristics of goods and services: namely, hedonic price theory or, in this instance, hedonic wage theory. This conceptual framework builds on the notion that employees care about both the monetary rewards as well as the quality of their work environment, while employers care both about the wages they pay as well as the sets of productive attributes of the individuals they employ. The labor market processes that match employees to employers and ultimately individual workers to job assignments reveals information about these sets of preferences of employers and employees. The result is a set trade-offs between monetary rewards and the various sets of characteristics of employees and jobs. The analysis explores what schools and school systems value in teachers and, hence, are willing to pay more to acquire. At the same time, it reveals the extent to which teachers are willing to trade-off wages to work in more pleasant environments. In essence, this analysis helps illuminate what is important and what matters about teachers, from the viewpoint of school employers, and what matters to teachers.

Hedonic analysis also illuminates the trade-offs, both implicit and explicit, that confront employees. This analysis goes beyond the characteristics that are formally rewarded in salary schedules, such as degree level and longevity, and hence, one of the strengths of hedonic analysis is that it includes both pecuniary and nonpecuniary rewards. That is, such an analysis shows the comparative value in the market for teachers of obtaining a graduate degree, of teaching smaller class sizes, of choosing a career in private as opposed to public education, of working in disruptive schools, or of putting in more after-school hours.

Patterns of teacher compensation reflect, at least in part, the forces of supply and demand. Value is shaped by the balance or imbalance between supply (i.e., the degree of availability of some quantity or characteristic) and demand (i.e., the extent or need for some quantity or characteristic). From this viewpoint, shortages are a temporary imbalance between supply and demand that will self correct in the absence of barriers to market forces.

Increases in compensation are one of the market forces that establish balance. That is, shortages of particular types of teachers or in particular types of schools will be reflected in higher salaries. By isolating what factors are related to higher salaries, hedonic analysis illuminates potential areas and qualities experiencing shortages.

Finally, hedonic wage analysis is a reflection of "what is" as opposed to "what ought to be." That is, it reveals the current market value of teacher characteristics: what schools are willing to pay for in the market for teachers. It does not, however, reveal which characteristics should be valued. It does not necessarily provide a guideline to schools of which teacher characteristics are the most productive.

The interpretation of these effects suggests that both supply- and demand-side factors are working and that in some instances, they are not easily distinguished from one another. Both objective and subjective measures of the school and work environment have exhibited effects on salaries. In some instances, it is shown that more difficult work environments are associated with higher wages, all else equal. This suggests that providing similar teacher services to all types of students will require different salary levels for teachers.

It is important to recognize that although each variable or collection of variables is examined in isolation, the results reported in this study are derived from a multivariate analysis that allows the analyst to isolate the impact of each variable while controlling for all of the other factors that affect teacher salaries.1

Highlights of the findings of this study are presented below.

Public and Private Sector Salary Differences

Differences in Teacher Sex and Racial-Ethnic Background

Despite the fact that sex and race-ethnicity are not accounted for in formal salary scales in the public or private sector, some differences in the salaries of teachers are associated with sex and racial-ethnic background once other teacher and school characteristics are taken into account. Specifically,

Differences in School Level

On average, secondary teachers earn more than elementary school teachers. In the public sector, this amounts to about 3.4 percent for females and 6.3 percent for males, while in the private sector, these differences amount to 13.1 percent for females and 14.8 percent for males.

More than half of the difference in the salaries of elementary versus secondary teachers in both sectors can be accounted for by differences in the characteristics of elementary and secondary teachers.

Differences in Teacher Qualifications and Effort

The Impact of Working Conditions on Teacher Salaries

Teacher salaries are systematically related to certain characteristics of the work environment. Hedonic wage theory would predict that, all else equal, teacher salaries would be higher in schools with more challenging, more difficult, and less desirable work environments.

Each of these characteristics of the work environment are associated with greater burdens and hence higher salary levels to compensate for these additional burdens, although in some cases the salary differences are relatively small.

Some of the results are opposite of what was hypothesized.

One could argue that the "better" teachers are assigned the jobs characterized by these attributes, and the inability to capture all of the appropriate teacher quality attributes in the present analysis prevent one from identifying the hypothesized relationships. Indeed, more comprehensive data on teacher attributes believed to be associated with "better" teaching will be needed in the future to determine the potential bias that may be reflected in the present results.

Limitations of the Present Study

As with most studies of this type, this study has certain limitations that will require future research to resolve.

Concluding Remarks

The forces of supply and demand in the market for teachers underlie the determination of teacher salaries. Some of the forces represent general market forces common to all labor markets (e.g., male-female wage differences, the age earnings profiles, and the value of additional education), while some of the factors are clearly unique to the teacher market (e.g., class size effects and the perceptions of student behaviors). The results of the present study are consistent with the hypothesis that a complex array of factors underlie the processes of supply and demand for teachers and hence the determination of salaries. Teachers are not all the same, but are differentiated by their attributes. At the same time, districts and schools are not identical, but rather are differentiated by virtue of the work environment (e.g., types of students) they offer. Although not exhaustive, the present study illustrates some of the systematic patterns of variation in wages in relation to teacher and school characteristics. More than 60 percent of the variance in teacher salaries is accounted for by the collection of independent variables included in the statistical analyses presented in this report.

For more information about the content of this report, contact Kerry Gruber at