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Economic Incentives in Education

How might new economic incentives impact educator performance? There are plenty of plans afoot to restructure teacher and principal compensation (many of which are some version of merit pay), but what economic role might these plans actually play?

First, whether we like it or not, economic incentives are already impacting the teaching and school leadership ranks. Educators are employees, and employees have a choice of both their industry and their employer. Some very good educators feel they have little choice but to leave the profession for reasons unrelated to their love of or success in teaching.

The perennial shortage of qualified science and math teachers is a prime example. As Richard Ingersoll notes, the shortage is caused overwhelmingly by turnover, not retirement and demographic shifts. If people are underpaid, unmotivated, or otherwise unhappy with their jobs, they can quit and do something else for a living. Many of the people who do just that are excellent teachers who find tremendous joy in working with students, but for whom other factors override the motivation to stay in teaching.

Second, it is intuitive to people in most industries that one's pay should be commensurate with one's contribution to the organization. If you don't produce results as an insurance salesperson, a manager, or an attorney, you'll find yourself out of money or out of a job. Career educators understand that they work within fixed salary schedules, and rely on intrinsic motivation to do a good job.

Working as an educator is a form of public service, and most public servants aren't paid on a performance basis. There are many technical and sociological reasons for this, such as our limited ability to measure productivity and individual contributions in many parts of the public sector. Historically, public service has offered greater job security, but less lucrative compensation opportunities, than the private sector. In Max Weber's conception of bureaucracy, lifetime employment is a given, and pay-for-performance is out of the question. This is the heritage of public education.

However, lifetime employment is far from the norm today, even among public employees such as educators. Accordingly, we can no longer structure the profession on the assumption that all educators are "lifers" with uniformly noble, intrinsic motivation. Career-changers represent a rapidly growing segment of the teaching workforce, and if we pay no attention to the range of factors that motivate people, we risk creating perverse incentives.

I don't think anyone consciously thinks "Hey, I'm somewhat lazy, so I'll pick a job that pays me a guaranteed salary regardless of whether I'm mediocre - how about teaching?" But the lack of a direct link between performance and compensation inevitably creates an economic incentive toward mediocrity.

Let me be clear on what I do and don't mean by this. I don't mean that good teachers will decide to become mediocre once they realize there's no extra pay for doing a good job. I don't mean that unsuccessful used car salesmen will file into our nation's classrooms, seeking an easy paycheck. I don't mean that teachers will work harder and do a better job if we dangle the carrot of bonus pay in front of them, but remain mediocre in the absence of a merit pay scheme (indeed, there is so far no evidence that this works).

I do, however, mean that there's a reason most private industries don't structure their compensation the way we do in public education. For many, many people, the link between their work (input) and their compensation (output) is extremely important. Being focused on a few, specific goals, and having a tangible mandate (such as a compensation link) can be very powerful.

But, you might say, very few people who feel this way are in education at the moment. Exactly. As Eric Hanushek has said, changing compensation is largely about changing the workforce, not motivating current educators to try harder.

You might also say "I don't want people to be educators if they're motivated by money. I want teachers who are in education for 'the right reasons.'" It seems, though, that results matter more than intentions in today's climate - as indeed they should when students' futures are on the line.

Briefly, then, I would argue that economic incentives can change both the composition of the education workforce—who enters and chooses to remain in teaching—and the performance of educators.

None of this suggests, though, that any particular new pay scheme for educators is better than the current system. Even if such a plan "works," we must be very careful about the kind of incentives we're creating, or we might not like the results (e.g. when teachers focus on reading and math to the exclusion of art and science). The details of new compensation plans matter a great deal, as do the conditions under which they are developed.

What economic incentives do you see at work in today's education reform climate, and what do you think of them?

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