Does the Argument for Merit-Based Teacher Pay Have Merit?

Earlier this week, the teacher's union of Chicago began their strike. The teachers were offered a 16% salary increase over the next four years, but the unions countered with 30%. Let's take a look at the situation. The average Chicago teacher makes about $71K per year plus benefits. According to the 2011 Annual Financial Report from the Chicago Teachers' Pension Fund, the average Chicago teacher who works for the schools for thirty-plus years make $105,888 and receives an annual guaranteed pension of $78,756 (p. 110). The high school graduation rate in Chicago public schools is about 60% (which is well below the national average of 75.5%), the state of Illinois is $203B in debt and has a poorly managed public-sector pension fund (see Illinois' credit rating), the Chicago teachers work fewer hours than their counterparts in other urban areas, and these teachers are asking for more? 

Since most parents cannot afford a private K-12 education for their children, the government has a de facto monopoly on K-12 education. We know that the administrators (aka the bureaucracy) do not have the resources to do new hiring en masse to counter the fiscal insanity, so this strike will persist because the teachers know that they are immune from the normal forces of employment. Meanwhile, thousands of children in Chicago, especially poor children, are being deprived of an education. [Note: 52,000 students in charter schools are still receiving an education because their education is not affected by this nonsense.] While the unions continue to claim that they are doing this for the children (Hint: this is not about the children), I began to think about whether there is an alternative to having the primary factor of teacher's pay be based on years of service. What I would like to do now is examine the commonly prescribed alternative to the status quo: merit-based pay.

Merit pay is the idea that pay should be performance-based. Those who perform their job well based on performance criteria get bonuses and pay increases, whereas those who cannot perform to standards either get very low wages or the sack. Merit-based pay sounds like a great example of rational choice theory: the teachers are given incentive to perform better. The desire for a better pay check and bonuses motivates the teacher to teach better, which in turn, has a spillover effect to the quality of education the student is receiving.

This sounds wonderful, at least in theory. I hesitate to accept the idea in practice because I have a few apprehensions, and a lot of them are surrounded around the fact that not all school districts are created equal. Different school districts have different resources available, and on the aggregate, each school district has students from certain socio-economic classes. Suburban school districts tend to be more affluent, whereas too many urban school districts regrettably have severe funding issues. There is a lot of interaction between the quality of education and the overall socio-economic status of a given school district.

If there is anything we have learned from such creations as the U.S. Department of Education or No Child Left Behind, it's that a solution to solve education woes that is based on a centralized government doesn't work. School districts are just too diverse. Those who are involved in the local politics and the local school district are much more attuned to its own specific needs than some bureaucratic agency located out in Washington DC attempting to apply some one-size-fits-all solution. As such, the incentive structures should be tailored for each school district, or even each school itself, in order to better fit their needs.

One can argue that even if you have localized incentive structures, you're still not going to incentivize everyone. Some are going to need a much larger dollar amount to do the trick. Others won't be moved to do better than they're already trying because they're truly in it for the love of teaching. And having a positive impact on society and wanting a larger paycheck aren't mutually exclusive. However, those aforementioned preferences become irrelevant in the sense that as long as there is a net increase in motivated teachers, which I'd argue there would be, then the argument for merit-based pay is justifiable.

There is also the issue of the limitations of teachers. Teachers can only do so much. If the students don't want to learn or are dealing with problems outside of class, maybe only a tiny handful of teachers with the patience of a saint can pull it off. Even so, the teacher is still by far one of the most important factors to a child's education.

There is the argument that defining merit becomes next to impossible. Having localized incentive structures certainly diminishes this argument. The argument still has some weight because there are certain things (e.g., motivating a student to take the SAT and go on to college, student achievement gains) that are difficult to quantify. However, if you want to take this line of thought to its logical conclusion, then teachers can be hired randomly because who is to say that applicant X is any better than applicant Y?

There can be certain measurements such as standardized test scores, attendance, portfolio assessments, consumer satisfaction reports by the parents of the children, or have an administrator directly monitor the teacher's progress and rate it. In a way, it is actually easier for teachers to come up with an incentive structure. Why? Because unlike many other businesses, the education sector is one of the few industries in which there is consistent and direct client-to-customer interaction, which gives educators and administrators the opportunity to come up with something even more concise. While there is no perfect way of going about a merit-based system, other industries, as well as private K-12 schools and institutions of higher education, create and use performance-based incentive structures with much success. I would take an imperfect merit-based system over the status quo in public K-12 schools any day.

There is not a public policy out there that can be considered "a silver bullet." However, I would consider the idea of performance-based pay to have more pros than cons. Even so, there is one major issue out there that makes it all the more untenable: the status quo. I mean this in specific regard to the public-sector teacher unions. If merit-based pay is implemented, then the unions lose much of their relevancy. That's just bad for business. Once in existence, a [bureaucratic] organization typically has the goal of self-perpetuation, hence what we are currently observing in Chicago. Even if one could get past the unions, there is still the matter of profound changes in the education bureaucracy, such as dealing with union contracts or the labor rigidity that comes with state licensing requirements. However, I would actually like to remain cautiously optimistic about the chance for real education reform. Although there would be initial costs to revamping the salary and pension structures, can this country really afford to continue with the status quo?