Monday, March 24, 2014

Why wont laid-off NY teachers take new jobs?

Its the incentives stupid:

New York is the only city in the U.S. where teachers are guaranteed pay for life even if their school closes and they no longer have a permanent job. The policy costs the DOE more than $100 million per year in salary and benefits. Those teachers go into the Absent Teacher Reserve pool, where they can be used as substitutes. The average salary for an ATR pool teacher? $82,000, with some making $100,000. Some teachers have been in the pool since 2006. 


  1. One of the key themes of the book is to use economics to solve problems; figure out what is causing the problem and then how to fix it using sound principles. In the case of NYC teachers; it is important to begin with the problem. The problem is clear: poor public policy has allowed teachers to earn high salaries without performing a job. Who is making the bad decision? In this case, the bad business decision is being made by the Department of Education, especially former Chancellor Joel Klein. DOE and Klein knowingly allowed teachers to remain stagnant in the ATR pools based on public policy that they should not force teachers into positions that they are not willing to take. Next, does the decision maker have enough information to make a good decision? The answer seems undoubtedly, yes. The DOE and Klein have average yearly costs of paying ATR teachers ($100 Million), number of current openings (1200) and the number of current ATR teachers (1800). In addition, the United Federation of Teachers have offered possible solutions to the problems including forcing teachers into roles and closing down the ATR pool. Finally, does the decision maker have incentive to make a good decision? As school chancellor, he oversaw the welfare of 1.1 million students and more than 1600 schools. He has a fiduciary duty to make economic decisions in the best interest of the students and schools. In addition to his obvious role, he also was extremely influential in public education and public policy. He clearly had the resources and political pull (as well as the union backing) to make significant changes. The problem from the schools prospective is they have too many vacant positions and too many laid off teachers on the ATR pool as well as a $100 Million per year expense. Finding ways to take assets and bring them to higher valued use is clear, use government regulation and its influence on public policy to ensure that NYC teachers are being compensated for performing a service and not to remain stagnant in the ATR pool.

  2. With the average salary for an ATR pool teach being $82,000, there leaves little incentive for many teachers to apply for other work. The ATR pool teachers are put to work as substitutes, as necessary and if needed. While we don’t know the statistic for an average total number of substitute days these teachers work, assuming that they work 30% of school days will demonstrate the problem. The average school year in New York City consists of 180 days. At an annual salary of $82,000 working 60 days a year (⅓ of 180), the teachers are essentially being paid $1,367 for each day of work. A regular, full-time teacher earning the same salary is paid $455 for a day of work. There is a $912 difference. Treating the teachers as the sellers (selling their teaching service to the districts in return for money), the only way to create an economic incentive would be to create a seller surplus that exceeds what they get paid in the ATR pool. This surplus wouldn’t happen until the salary for the full-time position exceeds $246,060. This is because the economic cost of what they get paid in the ATR pool must be factored into the equation.