Today’s outbreak of McArdle-Yglesias harmony regards reforming teacher pay, so that it’s more strongly linked with being a good teacher, and less strongly linked with, um, being older. And having pointless degrees which don’t improve teaching.

Here’s Matt:

[T]he implication that the idea that pay should be differentiated based on effectiveness constitutes “teacher-bashing” is bizarre.

… once we’ve hit upon a given pot of money to spend on teacher compensation, a question arises of how it should be divided up. One way to divide it up would be evenly—each teacher could make the same salary. That would, however, be a bit weird and we don’t do it that way. Instead, we pay teachers more the more experience they have, and we also pay them more when the acquire master’s degrees.

The point of paying higher salaries to people with advanced degrees has to be the belief that teachers with advanced degrees are more effective than teachers without advanced degree. It turns out to be the case, however, that research says this is wrong. I don’t think it’s “pro-teacher” to be giving teachers financial incentives to essentially waste their time acquiring advanced degrees that don’t help them. This is simply an irrational way of divvying up the compensation pot.

Paying more for more experienced teachers makes sense, but currently we seem to be giving more weight to seniority than it deserves. Paying more for extra degrees makes no sense. Paying more for people with in-demand technical skills makes sense. Paying more for people who take on more challenging assignments in high-poverty classrooms makes sense. And trying harder to directly measure and reward effectiveness also makes sense. But if I’m “bashing” anyone it’s purveyors of useless M. Ed. degrees.

Now here’s Megan:

This is one of those odd areas where Matt and I are in total agreement.  We should pay teachers much more than we do.  Right now, they take a substantial portion of their “pay” in the form of near-total job security.  People like this benefit.  But in most cases, they shouldn’t have it, because it has predictible effects on performance–particularly when it is coupled with a pay scale that relies on measurable but not very useful traits like advanced degrees (totally useless) and seniority (the benefits of experience eventually level off).  The only thing teachers have a financial incentive to do under this system is keep their butts in the teacher’s chair, and acquire useless degrees from programs that mostly teach students how to sit through long and pointless classes.

The obvious thing to do is to strip the protections and up the pay, while using merit metrics to determine how that pay is allocated.

England had a crack at introducing ‘Performance Related Pay’ for teachers in the late 1990’s. Experienced teachers could apply to cross a ‘performance threshold’, graduating to a new (higher) pay scale if they succeeded, plus a £2,000 annual bonus. Teachers wishing to ‘cross the threshold’ had to fill in a form, and have their application assessed by their head teacher and an external auditor.

Here’s the catch: Nearly 90% of eligible teachers applied for the performance bonus. 97% were awarded it. Head teachers weren’t picky when it came to dishing out the bonuses. The scheme turned into a pay rise for virtually all teachers.

So what should be done? How can teacher pay be reformed in a way that attracts and retains high fliers, without simply hurling money at all teachers?

One interesting suggestion I heard at a recent conference (it may have been from Simon Burgess of Bristol’s CMPO) was to make teachers’ pay more like lawyers’ pay. That is, offer big rewards to those who ‘make the grade’ after the first few years, but without the expectation that everyone who joins the profession will succeed. The first three years (say) of a teachers’ career would be a sort of whittling process, with low-ish pay (as now) but the promise of a significant pay jump for those who prove themselves in the classroom.

Teachers’ unions have long expressed the wish for teaching to be considered a ‘profession’, like law or medicine. But those are high risk professions compared with teaching – your first few years in the job are ‘make or break’. If teachers are to be treated like professionals, perhaps they should be paid like professionals – for better (more money) and for worse (accepting higher risk)…

Britain’s economy grew for the first time over a three-month period since May last year, the National Institute of Economic and Social Research (NIESR) said today but warned that the end of recession could turn to a period of stagnation.

NIESR’s monthly estimate of economic growth suggests that gross domestic product (GDP) grew 0.2 per cent between June and August, after a 0.3 per cent fall in the three months to the end of July.

However, NIESR added: “There may well be a period of stagnation now, with output rising in some months and falling in others; the end of the recession should not be confused with a return to normal economic conditions.”

Other positive news comes from a survey of recruitment agencies:

The research, produced by Markit Economics, finds “marginal increases” in both permanent and temporary appointments in August.

For permanent staff, this is the first increase since early 2007.

“This is first time we have seen really positive news for the UK jobs market in 17 months,” said Bernard Brown from KPMG, co-sponsor of the survey.

Still, plenty of cause for pessimism, however. Our banking system remains, to a first approximation, a shambles. Households remain heavily in debt. Unemployment (a lagging indicator, admittedly) is as high as it’s been in over a decade. We’re not out of this yet…

The government is to make it easier for private sponsors to take over and run English state schools, in a bid to speed up its academies programme.

Instead of providing up-front funds of £2m, potential backers will now simply have to prove “the necessary skills and leadership” to run an academy.

The Academies model works something like this:

• Take a school which has been failing for years
• Close it
• Fire the head
• Demolish the buildings
• Remove the school from the control of the local authority
• Build shiny new classrooms
• Find a new head
• Find someone Great and Good to act as a ’sponsor’ for the new school
• Reopen the school as an ‘Academy’

Interesting to note a missing step here: while the head teacher is fired when a failing school is turned into an Academy, the other teachers are not. They must all be rehired, under the same terms and conditions as their previous contracts, when the school reopens as an Academy. If you believe (as many economists do) that teachers are one of the most important determinants of a school’s effectiveness, it’s pretty stunning that all teachers from the old (failed) school must be rehired. But I digress…

Academies have been kicked around by Blairites and Brownites like the proverbial political football. Blair was extremely gung-ho on Academies, despite teachers’ unions largely hating them:

NUT general secretary Christine Blower said: “We don’t believe that taking schools out of their local authorities and having them run by people who have no experience of running schools… is a way of doing school improvement.”

Gordon Brown’s administration has been far more in tune with the teachers’ unions, spending much of its first 18 months in office ‘reigning in’ the Academies. Ed Balls, the Children’s Secretary (and long considered Brown’s right hand man) won the praise of teachers unions by announcing greater local authority oversight of Academies, much to the dismay of Academies themselves. The leaders of the Academies programme within government were also ousted.

But suddenly Mr. Balls has discovered his inner Academy-lover:

The Academy programme is going from strength to strength. It has proved to be a genuine revolution in how secondary state education is delivered for those areas and pupils that need it most. GCSE results are rising faster than the national average giving outstanding opportunities for areas let down educationally for generations.

So what’s going on? Why is the government risking a fight with the teachers’ unions just before a general election?

My suspicion is: fear. Some of the Conservatives boldest policies (critics might say their only policies) relate to the supply side of the education system. The Tories have recruited some of the brightest right-of-centre education thinkers – notably James O’Shaughnessy and Sam Freedman, both previously at Policy Exchange. They’ve announced radical plans to open up the supply side of the education system, with parents, charities and co-operatives encouraged to open new schools in their area, regardless of how many school places already exist.

Labour’s response has been somewhat muted. On the one hand, they point to their own Academies as evidence that they, too, are shaking up the supply side. On the other hand, they accuse the Conservatives of going too far:

Schools minister Jim Knight… [said that Tory plans] would put at risk hundreds of school building projects. “As people study the detail they will want to know which areas and which schools the axe will fall on,” he said.

“Stripping local authorities of their role in coordinating education means that the Tories are attacking their own local councils, who would find it very difficult under these proposals to plan the improvement of their schools in a coherent way.”

This looks likely to be a key battle ground in the general election. Balls’ sudden embrace of Academies suggests Labour are shifting their position – actually conceding some ground – in anticipation of the coming battle…

@ Pockets
The argument you make for student loans (you start with more debt, but you’ll come out ahead because you’re going to earn more) is perfectly true on an individual level with everything else staying the same. In aggregate though, it doesn’t work. If half the people go to university an get a degree there is no chance that they will earn collectively substantially more than they would have if only few people got a degree. It’s a law of supply & demand. If more people with a degree are available, the difference the degree makes in the salary they can command is going to be much less significant than if only 10% of the people graduate.

Marc is of course entirely right that increasing the supply of something (like graduates) should reduce its price. But in the 1980s and 1990s, something kind of amazing happened in both the US and the UK…

First, the supply of graduates definitely did increase massively during the 80s and 90s. Here’s a chart showing British higher education participation since 1970:

The proportion of kids attending university more than doubled. So we know what should have happened to graduate wages, compared to non-graduates, right? Increased supply means a lower price, so the graduate wage premium should fall. But here’s what actually happened:

Yup, the wages of graduates went up compared with those of non-graduates. So we had both higher supply and a higher price. Which breaks all laws of supply and demand, surely…?

Actually, no. It just means that the demand for graduates wasn’t constant. Instead, demand must have gone up even faster than the increasing supply. That is, even though universities were churning out graduates, companies wanted to snap them up faster than they could earn their degrees.

Why? Probably something to do with the I.T. revolution. Computers have massively increased the productivity of highly educated workers, but have done basically nothing for the productivity of shelf-stackers and street sweepers. So even as the supply of graduates ramped up hugely in the 80s and 90s, their wages were being bid ever higher by employers. Increased supply and increased price, all at once.

The story I just told may sound simple – economists call it ’skills-biased technological change’ – but it’s one of the major achievements of modern labour economics. It’s the basis of Claudia Goldin and Lawrence Katz’s book  The Race Between Education and Technology. Their story is that for the first 80 years of the 20th Century, the supply of educated workers outstripped demand (education was ‘winning’ the race). But since 1980, technology has ‘overtaken’ education – meaning the growth in student numbers hasn’t been anything like fast enough to bid down graduate wages, which are being pushed ever higher by technological innovations which favour skilled/educated workers.

In fact, despite the explosion in higher education in recent years, the graduate wage premium has never gone back down to its pre-1980 level. It’s stopped racing upwards so fast, but it isn’t falling.

Of course, this really sucks for non-graduates – their wages were lower than graduates’ to start with, and have fallen ever further behind. It’s one of the leading explanations for growing income inequality in the US and UK over the past few decades.

But that’s all the more reason to help as many young people as possible into university/college. For now at least, our economies can’t get enough of them…

The analysis [which cutting 10% of the workforce], undertaken by McKinsey for the Department [of Health] in March, has been leaked to the Health Service Journal, bringing a panicked reaction on Wednesday from health ministers.

So that’s number (3) on my list of possible explanations. Good to know I was right to be baffled…

Nonetheless, our school results are mediocre and on several social measures we’re among the worst in the OECD:

[T]he proportion of youth not in school, training or in jobs in the UK remains high, at more than one in ten 15 to 19 year-olds. This is the fourth highest rate in the OECD, ahead of Italy, Turkey and Mexico.

Education results are also low relative to spending levels. The UK comes out in the middle of OECD comparisons of how well 15 year olds do at school and in terms of the gaps between well and poorly performing pupils.

Underage drinking and teenage pregnancy rates are high. Drunkenness is the highest in the OECD, with one in three 13 and 15 year olds having been drunk at least twice. The UK also reports the fourth highest teen pregnancy rate after Mexico, Turkey and the United States.

On the plus side, at least we’re not bullies:

In other areas, the UK performs well. Children in the United Kingdom are materially fairly well-off. Average family income is higher and child poverty is lower than OECD averages.

Children in the United Kingdom also enjoy a high quality of school life. The United Kingdom ranks 4th out of 25 countries for children’s school satisfaction. Rates of bullying are also relatively low.

It’s worth noting, of course, that those drunk/pregnant problem teenagers were born before the big push towards high early years spending. So the jury is still out on whether the early years money is being well spent. I’m also not convinced that ‘having been drunk twice’ by the age of 15 (the OECD’s drunkeness measure) is necessarily a mark of anarchy and social decline. But perhaps that’s because I am myself a decadent young(ish) Briton, inured to such things…

Letters leaked to a newspaper show Mr Straw agreed not to exclude him from a prisoner transfer deal in 2007 because of “overwhelming national interests”.

Now I can see two different sorts of argument for releasing al-Megrahi. One is an argument about British national interests (philosophy buffs might call it the Parochial Utilitarian Argument), while the other is about Absolute Moral Rights and Wrongs (philosophers might call it the Kantian Arugment). The two arguments are:

1. [Parochial Utilitarian] Releasing al-Megrahi will allow British companies to secure lucrative contracts with Libya, enhancing the welfare of British citizens. I am a British politician, elected to serve British national interests. Therefore I will release him.
2. [Kantian] Showing mercy to a dying man is, quite simply, the Right Thing To Do, regardless of what that person may have done in their life. All humans should show mercy to dying people. Therefore I will release him.

Argument (1) is ‘parochial’ because it ignores the upset caused to the families of those who died in the Lockerbie catastrophe, many of whom are not British. Argument (2) is Kantian because it deals in moral absolutes (which Kant pushed hard, but utilitarian philosophy isn’t so hot on).
Now I can also see two arguments for not releasing al-Megrahi. And (wouldn’t you know it?), they fall into the same two categories:

1. [Utilitarian] The fury of the families of Lockerbie victims far outweighs any conceivable ‘welfare gains’ of BP employees thanks to new business contracts with Libya. Therefore I will not release al-Megrahi.
2. [Kantian] Murder is wrong. Mass murder of innocent civilians is simply unforgivable. Anyone who commits such a crime forfeits any right to mercy. All people convicted of mass murderer should be imprisoned until they die. Therefore, I will not release al-Megrahi.

So the fury over Jack Straw’s leaked memos boils down (I think) to an argument between a utilitarian and a Kantian, where the utilitarian is arguing for Megrahi’s release (it is in Britain’s “overwhelming national interests”) and the Kantian is arguing for his death in prison (”it is simply wrong to release a convicted mass murderer. Ever.”)

I fear that this isn’t an argument with a ‘right’ answer. I know that Megan McArdle eschews the utilitarian argument, her economic training notwithstanding. (Economics has profoundly utilitarian roots…) But I don’t even think this a straightforward argument between a Kantian and a utilitarian. I think both the Kantian and utilitarian arguments could cut either way.

What I do believe is that politics tends to function better when politicians are of a broadly utilitarian bent. (The purpose of a political class is to compromise, not to bicker about moral absolutes.)

But then the greatest politicians of all time were those who believed that some things were absolutely, unambiguously wrong. Which only baffles me further. Do we want politicians who are utilitarian about the small stuff, but Kantian about the big stuff? Or just politicians who are utilitarian when we agree with the majority, but Kantian when we agree with the minority?

I simply don’t know…

Various arguments are advanced in favour of tax-exempting schools, among them:

1. All taxes are bad, because the state wastes our money. So we should not drag new institutions into the tax system.
2. This is class warfare. If you want to tax rich people more, just say that you want to tax rich people more. Don’t pick on schools.
3. Private school parents already pay taxes which fund public schools, so why tax private schools – isn’t that taxing them twice?

I’ve been making a nuisance of myself by wading in, naturally. But one comment really interested me. Tiny Tim writes:

Pockets – I think [the economic] theory is wrong…

There is only a finite amount of cash available to subsidise the poorer applicants. Someone has to pay fees. And clearly there is an equilibrium point at which the fee payers subsidise as many less well-off as possible. That is the point the school aims for, given that they also need to remain competitively priced relative to other “very top” schools.

Why do I find this interesting? Because after stating that he thinks the economic theory of private school behaviour is wrong, Tiny Tim then goes on to describe the economic model really, really well. The only difference between Tim’s model and, say, Epple and Romano’s, is that in Tim’s model private schools are ‘optimising’ their mix of pupils in order to take in as many poor pupils as possible. So the school is a latter-day Noah’s Ark, saving all the poor children it can from oblivion.

In Epple and Romano’s model, schools also take in as many (smart) poor kids as possible – but they do so because this allows them to charge higher fees to other (richer) kids. They’re more like a present day dance club (Ministry Of Sound), paying super-hot models to come to their club nights. Why? Not because they care desperately about super-hot models – but because their presence allows the Ministry to charge more money to schlubs who want to dance Where The Pretty People Are.

I will now shamelessly quote from my own comment on Felix’s blog, below the fold:

If you wanted to convince me of a private school which is acting charitably, not profit-maximising, then you’d have to describe a system where pupils take the entrance exam – and then the *low*-scoring poor children are offered bursaries. That’s a school which is gambling on its ability to raise standards among disadvantaged kids. But no private school does that, and with excellent reason: the cost could be lower league table results for the school – and as Tiny Tim says, private schools are in competition. GCSE and A-level league table results are critical for being able to set a high price.

I should emphasise that I’m not at all anti-private-school. UK private schools are among the best schools on the planet… Saying that they maximise profits isn’t saying that they’re manipulative or evil or bad (I wonder if this is what’s annoying people?). They’re staffed with many lovely, caring individuals (like lots of other profit-maximising companies), and through scholarships/bursaries they offer a great trade to smart poor kids – we’ll give you an amazing education, if you allow us to charge other kids to sit next to you.

There’s nothing wrong with that at all! Economists love trade. It just isn’t charity, that’s all. And Felix’s post is about whether private schools deserve charitable status. All I’m saying is: giving scholarships to poor kids is not charity for private schools. It’s a key part of their business model. So it probably does not warrant tax-exempt status.

Private schools often claim that they act charitably because they offer scholarships to (smart) children from poor backgrounds.

Private schools were already providing a public benefit [says the head of the Independent Schools Council], by educating children who would otherwise be in state schools paid for by taxpayer

Felix has little sympathy for this argument:

The whines from the head of the Independent Schools Council are not very moving… No one’s asking to abolish private schools, or even proposing that most of them lose their charitable status. They’re just asking that they do a bit more to earn it, which seems right to me.

I’m no class warrior, but Felix is certainly right to be sceptical. Solid economic theory tells us that private schools are emphatically not acting ‘charitably’ when they offer scholarships to poor children. They’re maximising profits.

But surely (you ask) it can’t be profitable to give away expensive school places, free of charge?  Ah, but it can. Dennis Epple and Richard Romano have a classic paper on this in the American Economic Review. Those with a yen for hardcore economic theory can read it in full, but the crux of their reasoning is simply stated:

Schools can charge higher fees to the parents of rich, dumb kids, if they offer free places to smart, poor kids.

Why? Because peer groups matter, and parents know it. So let’s take the rich parents of a spoilt, none-too-smart child (call them, say, Mr. and Mrs. George Bush Senior). Do they want their child to go to a school filled entirely with other rich-but-none-too-bright kids? Absolutely not. They want their child in a class of well-behaved bright sparks (even if a few of them are, regrettably, poor), because a positive classroom environment will (they pray) ’spill over’ into their own child’s grades.

Private schools know what parents want, and so they ‘optimise’ their mix of pupils. It makes perfect sense for them to offer poor-but-smart kids cheap places (even free places), because those children provide positive spillovers which the school can charge rich parents for.

Scholarship exams for top private schools are really a price discovery system: ‘Are you so smart that rich parents will pay to have their kids sit next to you?’ If the answer is yes, then they’ll ‘charitably’ offer you a scholarship. But not because they’re altruistic – rather because they’re  maximising profits.

And don’t let anyone tell you that private schools are  ‘non-profit’ institutions. Non-profits may not distribute dividends to shareholders – but there are always ways to make life more wonderful for their ’stakeholders’ (in particular the staff). Accommodation for teachers, holiday trips, sports centres, even golf courses at some of the UK’s top schools – these are all economic ‘rents’ being shared among the producers. Because they have the money. Because they’re making what would, in any other industry, be called ‘profits’.

So I say ‘more power to Felix’. (Most of Felix’s commenters are not so, um, charitable…) If private schools really wish to be considered charities, then they’ll have to do more than offer places to poor smart kids.

They could start by offering some places to poor failing kids from difficult backgrounds. Now that really would be altruism…

The game works roughly as follows.  At the beginning of the game tiles are turned over in sequence and the players bid on them in a fixed order.  The high bidder gets the tile and subtracts his bid from his total score.  (We started with a score of 100 and ruled out going negative, but this was never binding.  An alternative is to start at zero and allow negative scores.)  After all players have 7 tiles the game begins.  In each round, each player takes a turn but does not draw any tiles at the end of his turn.  At the end of the round, tiles are again turned over in sequence and bidding works just as at the beginning until all players have 7 tiles again, and the next round begins.  Apart from this, the rules are essentially the standard scrabble rules.

This awesome proposal allowed them to work out which Scrabble letters are over/under-priced in the standard game:

The way to measure this is to compare the “market” price to the nominal value.  If the market price is higher that means that players are willing to give up more points to get the tile than that tile will give them back when played (ignoring tile-multipliers on the board.)  That means that the nominal score is too high.  For example, blanks have a nominal score of zero.  But the market price of a blank in our play was about 20 points.  This is because blanks are “team players:” very valuable in terms of helping you build words.  So, playing by standard scrabble rules with no bidding, if the value of a blank was to be on equal terms with the value of other tiles, blanks should score negative:  you should have to pay to use them.  Other tiles whose value is out of line:  s (too high, should be negative), u(too low), v(too low.)  On the other hand, the rare letters, like X, J, Z, seem to be reasonably scored.

As fun as this sounds to an econo-geek, it makes me wonder… Is nothing sacred to economists?

(I think you know the answer.)