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Journal Issue: Excellence in the Classroom Volume 17 Number 1 Spring 2007

Teacher Labor Markets in Developed Countries
Authors: Helen F. Ladd

Teacher Salaries and Teacher Shortages

Salaries are one of the most obvious, but costly, policy tools available to governments in their quest to ensure a supply of high-quality teachers. Because teacher salaries are such a large share of the education budget—about 64 percent in the OECD countries—any across-the-board increase in teacher salaries can translate into significant increases in education spending. But when a country does not pay salaries high enough to attract high-quality teachers, it must either face vacancies or rely on teachers who, based on the stated standards, are underqualified.

Comparing Teacher Salaries across Countries
In many countries, teacher salaries are determined by a national bargaining process between the government and one or more unions. In the United States, in contrast, salary setting is far more decentralized. Therefore any simple comparison of salaries in other countries with those in the United States does not take into account the large variation in U.S. salaries from one school district to another.2

By almost any measure, Germany, Japan, and Korea pay generous salaries to their teachers relative to other counties, including the United States. But the relative ranking of U.S. salaries varies with the measure used. For example, a comparison of absolute salaries (adjusted for differences in purchasing power across countries) finds the United States in the top third of OECD countries. In 2003 its average salary for mid-career teachers in lower secondary schools was $43,999— exceeded only by Luxembourg at $80,520, Switzerland at $58,520, Germany at $48,804, Korea at $46,516, and Japan at $45,515. Also in the top ten by this absolute measure are Scotland, the Netherlands, Australia, and England.3

But measuring teacher salaries relative to a country’s gross domestic product (GDP) per capita puts the United States in the bottom third (see table 1). By that measure, at 117 percent of GDP per capita, the average salary paid to U.S. teachers is on a par with those in Italy and Austria and far below those of Korea (242 percent), Germany (180 percent), and Japan (160 percent). Countries such as the Netherlands, England, and Finland fall in the middle third.

Though not perfect, this relative measure provides a more accurate picture of whether salaries are generous enough to attract a quality teaching force than does the absolute measure and is thus the measure I use throughout this article. Even better would be a measure of how teacher salaries compare with salaries paid for specific competing occupations, such as computer operators or librarians, but relevant data are not available on a systematic basis across countries.4 Presumably, though, the richer a country is as measured by its GDP, the higher competing salaries are. Thus, the fact that average U.S. teacher salaries are low relative to GDP per capita indicates both that the United States has the capacity to pay higher salaries and that current salaries may not be high enough to attract a quality teaching force.

Of course, working conditions for teachers may also differ across countries. Hence, a third way of comparing salaries is to express them relative to an important measure of working conditions, such as hours of net teaching time. By this metric, U.S. salaries rank in the lowest third of twenty-seven OECD countries for high school and in the middle third for primary school. Once again, Germany, Japan, and Korea are consistently in the top third.5

Maintaining Teacher Supply
Of particular relevance to policymakers is whether salaries are high enough to avoid widespread teacher shortages. Though such shortages are sometimes measured in terms of vacancies, schools typically find some way to fill most positions. A better measure is the share of positions filled by teachers without full qualifications. In high-salary OECD countries such as Germany, Japan, and Korea, the share of such teachers in primary and secondary schools is low: less than 4 percent, as against more than 10 percent in countries such as Sweden and the United States, where salaries (relative to GDP per capita) are low.6 Though Hungary and Italy are exceptions (both have low salaries and less than 4 percent underqualified teachers), higher salaries are generally linked with a lower share of underqualified teachers.

Several studies in England and Switzerland offer more detailed analysis of how teacher salaries affect teacher supply. A careful empirical study, based on a large sample of U.K. university graduates, of the decision to become a teacher found that expected earnings in teaching relative to earnings in other occupations clearly affects the supply of new teachers, and hence that increases in teacher salaries may be a potent tool for increasing the supply of teachers.7 A subsequent analysis of the U.K. market for teachers between 1960 and 2002 confirmed that conclusion but emphasized that the power of relative wages to affect the supply varies with the state of the labor market.8 In particular a policydriven increase in teacher salaries relative to those in competing professions raises the supply of teachers more when teacher salaries are relatively low than when they are high. This insight may explain an empirical finding from Switzerland that the supply of teachers is not very responsive to salaries. The weaker salary effect in Switzerland could simply reflect the fact that teacher salaries are much higher relative to other occupations there than they are in the United Kingdom.9 Regardless of the average relationship between teacher salaries and teacher shortages, there is little doubt that uniform salaries across academic subject areas and across geographic regions can lead to shortages in certain subjects and in certain regions. The subjects most susceptible to teacher shortages are math and science, fields in which salaries are relatively higher in occupations outside teaching. The regions most susceptible to shortages are large cities, where the costs of living are higher, where other job opportunities are plentiful for educated workers, and where teaching conditions associated with concentrations of immigrant children from impoverished families can be difficult, and rural areas, where it can be hard to attract teachers. Both types of shortages emerge in most developed countries.

Various policy strategies have been proposed, both in the United States and in other developed countries, to address these shortages. One strategy commonly proposed by economists is to pay teachers different salaries according to their subject area. Analysis for England, however, implies that although higher pay could reduce the shortage of teachers in certain subjects, the salary differences might need to be substantial, because graduates in engineering, science, and social sciences are likely to respond to an increase in wages at only half the rate of graduates of other programs.10

Some OECD countries use higher salaries to attract teachers to certain geographic areas. Higher salaries, for example, are offered in London both to offset the high cost of living and to compensate for the challenges of educating disadvantaged urban students. Salaries in London now exceed those in the rest of England by £2,000–£2,500, or about 12 percent. Even this difference, though, has not lowered teacher vacancy rates and the share of teacher slots filled by substitute teachers in London enough to match rates elsewhere in England.11

Sweden, a country with a tradition of strong teacher unionism, also uses differential salaries.12 In 1995, as part of its broader effort to decentralize its schooling system, Sweden modified its centrally bargained fixed-pay scheme and gave municipalities greater flexibility to tailor salaries for individual teachers. As a result, salaries are now negotiated according to teacher characteristics (for example, secondary versus primary), the labor market situation (with teachers in shortage areas able to garner higher salaries), the performance of the teacher, and the range of the teacher’s responsibilities. Salaries thus now vary far more than they once did. Although evidence is still limited, the new system appears to have helped some schools overcome some teacher shortages, though the ability of a municipality to make salary adjustments depends on its own economic situation. Notably, poor municipalities can compete effectively for teachers only with the help of grants from the central government.

Teacher Salaries and Teacher Quality
Exactly how teacher salaries affect the quality, in contrast to the quantity, of teachers is not yet clear, though one careful study based on fifteen years of variation in teacher salaries across states in Australia sheds some light on the matter.13 Using sophisticated statistical techniques, the author concludes that increases in teacher salaries relative to salaries in other occupations raise the quality of potential teachers, as measured by the test scores of students pursuing education courses at Australian universities. (Unlike U.S. university students, those in Australia and in most other OECD countries choose their career paths before they enroll in college.) One of the study’s findings is that increasing relative salaries by 10 percent raises the quality of students choosing to pursue an education degree by 8 percentile ranks on their test scores. Much less clear, however, is the potential effect of a differential increase in salaries for new teachers, with higher salaries going to those at the top of the aptitude distribution.