We'll not understand public sector pay until we understand pensions Credit - Time Cover

The trick, so often at least, is to work out what the trick is. This applies to magic shows as much as it does to partisan think tank reports. What is it that we’re not being told? What’s the trick being played upon us to make the assertions being put forward stick?

With the Economic Policy Institute the general direction of travel is obvious enough, anything that benefits unions is going to get a thumbs up, anything which shows that working America isn’t in dire straits won’t. But it’s still necessary to pick up the specific trick being used.

Sadly, this isn’t what Time has done as they’ve picked up on an EPI report:

Hope Brown can make $60 donating plasma from her blood cells twice in one week, and a little more if she sells some of her clothes at a consignment store. It’s usually just enough to cover an electric bill or a car payment. This financial juggling is now a part of her everyday life—something she never expected almost two decades ago when she earned a master’s degree in secondary education and became a high school history teacher. Brown often works from 5 a.m. to 4 p.m. at her school in Versailles, Ky., then goes to a second job manning the metal detectors and wrangling rowdy guests at Lexington’s Rupp Arena to supplement her $55,000 annual salary. With her husband, she also runs a historical tour company for extra money.

“I truly love teaching,” says the 52-year-old. “But we are not paid for the work that we do.”

Hmm, well, there aren’t that many jobs in America that pay $55,000 a year and also offer the time to moonlight at two other jobs. But that’s just to employ snark rather than analysis.

The specific complaint is that:

Meanwhile, the pay gap between teachers and other comparably educated professionals is now the largest on record. In 1994, public-school teachers in the U.S. earned 1.8% less per week than comparable workers, according to the Economic Policy Institute (EPI), a left-leaning think tank. By last year, they made 18.7% less. The situation is particularly grim in states such as Oklahoma, where teachers’ inflation-adjusted salaries actually decreased by about $8,000 in the last decade, to an average of $45,245 in 2016, according to DOE data. In Arizona, teachers’ average inflation-adjusted annual wages are down $5,000.

There is one part of the EPI report itself which is entirely true:

We followed this up with The Teaching Penalty, published in 2008, and updated our findings in other papers (Allegretto, Corcoran, and Mishel 2011; Allegretto and Tojerow 2014; and Allegretto and Mishel 2016). As noted, this body of work has documented the relative erosion of teacher pay. For instance, female teachers enjoyed a wage premium in 1960, meaning they were paid more than comparably educated and experienced workers. By the early 1980s, the wage premium for female teachers became a penalty. The total compensation penalty (how much less teachers make in wages and benefits relative to comparable workers) has also increased.

Quite so, that’s an effect of the economic emancipation of women. There was a time when there were only two jobs, careers if you like, open to respectable women. Respectable here meaning not a reference to being not respectable in the stripping off in Vegas sense, but the sort of job that a middle class woman might do. Nursing and teaching and that was about it. Sure, there were all sorts of women who worked, but in that milieu those two were what you could admit to at a cocktail party and not get a sneer in return.

As more career paths opened up then more women did indeed become accountants, bankers and doctors. Thus reducing and in time turning into a penalty that former pay premium. The EPI notes that the pay discount is now something much closer to that of men who also teach. Which is good, right? For it is evidence of that economic emancipation of women, how they’re no longer constrained as to career choice and thus we’re seeing either no or at least less difference among teachers dependent upon gender.

We do think this is good, right? Different rewards for different jobs being OK, but not different rewards for the same one based upon sex?

Nick Gillespie is properly scathing about the rates of pay being talked about:

It may well be true that Brown’s personal situation is as dire as Time makes out (I’ve reached out to her but haven’t heard back), but things are surely more complicated than they are presented. After reading the article, I spoke with Scott Hawkins, the superintendent of the Woodford County public school district, where Brown works. He underscored that he could not talk about her particular situation but noted that a high-school teacher with a master’s degree and 20 years experience would make $56,616 in salary. In a graphic and cover image for the story, Time says Brown has “16 years experience.”

According to the salary schedule at the Woodford County schools website, that means Brown would make $55,645 in base pay (Hawkins explained that a teacher with a master’s would be considered Rank II in the “certified salary schedule”). That doesn’t include compensation in the form of health insurance and retirement contributions. Hawkins said he could not guesstimate how much the benefits were worth as percentage of salary, but Lisa Snell, director of education research at Reason Foundation, the nonprofit that publishes this website, tells me that “on average in the United States you could add 23.2 percent to any average salary for all benefits for total compensation.”

Well, dunno there really, to most journalists $50k a year plus bennies looks pretty good.

But there’s a trick being missed here, and this is the trick the EPI is playing upon us. It’s the value of those benefits. Here’s what the EPI says about that:

Improvements in benefits relative to professionals have not been enough to offset the growing teacher wage penalty
While relative teacher wage gaps have widened, some of the difference may be attributed to a tradeoff between pay and benefits. In other words, school districts may not be giving teachers raises but are instead offering stable or slightly better benefits, making benefits a larger share of the overall compensation package for teachers than for other professionals. In 2017, nonwage benefits made up a greater share of total compensation for teachers (28.6 percent) than for professionals (21.9 percent).
As a result of their growing benefit share of compensation, teachers are enjoying a “benefit advantage” that has grown since 1994, from 2.1 percent to 7.6 percent. But this has not been enough to offset the growing wage penalty. The total teacher compensation penalty was a record-high 11.1 percent in 2017 (composed of an 18.7 percent wage penalty plus a 7.6 percent benefit advantage). The bottom line is that the teacher compensation penalty grew by 11.4 percentage points from 1994 to 2017.
This growing compensation penalty is a key part of the story of changing teacher pay but shouldn’t obscure the importance of the wage penalty alone—only wages can be saved or spent on housing and food and other critical expenses.

Well, that might be true. We’d like to see evidence of it of course. About which the source of the EPI’s calculations:

Our analysis examines the relative wages of teachers but also examines relative compensation—specifically accounting for how differences in benefits affect total compensation. We use the ECEC survey from the BLS to analyze the benefits received by K–12 teachers compared with the benefits received by professionals. The ECEC is a quarterly survey that reports employers’ average hourly costs for total compensation and for its components—wages and benefits—in dollar amounts and as percentages of compensation.

And there’s our problem. Our data source is what the school districts – or perhaps the States – say they are paying for those compensation packages. The two biggies here being pensions and health care – that health care in retirement being a particular bugbear.

For note – and this isn’t restricted to Kentucky, by any means – what’s also happening out there:

The controversial pension plan rushed through the Kentucky legislature Thursday night would do at least one thing Republican lawmakers vowed to stop this year: It would kick the can down the road.

“We are finally going to stop kicking the can down the road and get to full funding in these systems,” state Sen. Joe Bowen, R-Owensboro, said in February as he argued for his pension overhaul efforts.

However, under Senate Bill 151, lawmakers give the state and local governments six additional years to pay off their estimated $27 billion pension shortfall at Kentucky Retirement Systems.

And that breathing room — making payments on the unfunded pension liabilities through the year 2049 instead of 2043, which is the current plan — would come at a cost, according to an actuarial analysis of Senate Bill 1, which had identical language on changes to state employee pensions. (As of Friday, there was no actuarial analysis publicly available for SB 151’s proposed changes to teacher pensions.)

The amount that is being paid into those teacher pensions isn’t enough to cover the pensions that are promised to those teachers.

The average pension benefit for a retired state government employee in Kentucky is $16,161, according to 2017 state data. For school teachers, who do not collect Social Security retirement benefits, it’s $36,244.

Kentucky faces more than $40 billion in unfunded public pension liabilities, due largely to decades of inadequate contributions by the state, disappointing investment returns and unrealistic assumptions about payroll and investment growth.

So, the EPI is telling us that the pensions are worth some amount as part of that compensation. The measure they’re using being what the employers of teachers put aside to pay those future costs. Examination of reality tells us that one of our largest fiscal problems is that the employers of teachers are not putting aside enough to cover those future costs. Thus the EPI’s calculation of the value of the compensation package is wrong, isn’t it? Exactly and precisely wrong by whatever the underfunding of future teacher retirement and health care (and most especially, health care in retirement) costs are.

But then, you know, the EPI is 29% funded by labour unions. One of their largest funders is the American Federation of Teachers.

One of the nice things about a market economy is that you do get what you pay for and we really do all expect the EPI to be reporting that teachers are overpaid, don’t we?

The EPI underestimates the costs of teacher pensions and thus their value as part of the compensation package. That’s the trick being played to perpetrate the trick that teachers are underpaid.

By the way, did you know that teachers don’t get Social Security? Meaning that they don’t pay into the Social Security system either. Which is a nice little boost to those post-tax wages, isn’t it? Something also not being accounted for….