Sep 23 2007

Is the market for public education in the US allocatively inefficient?

Published by at 5:57 pm under Labor Market,Price controls,Supply/Demand

Thanks to Jeewon Oh, Shanghai American School AP Econ student, for posting the link to this excellent article about supply and demand for teachers in Mississippi. Jeewon posted this article and her below summary of it to our class’s “AP Econ in the News” page on the wiki. CLICK HERE to see the other articles and summaries posted by students relating to our current unit on Supply and Demand. Here’s Jeewon’s article:

Teachers: Shortages require pay hikes -The Clarion-Ledger- Real Mississippi

And here’s Jeewon’s summary from the wiki:

In Mississippi, there are not enough teachers in the classrooms. This teacher shortage is becoming a greater problem, as 50 percent of the teachers nationwide are estimated to leave the profession within five years. In August there were 1,270  requests for one-year education licenses, which would result in temporary and unqualified teachers in schools. Despite the fact that 1,400 education majors graduate from Mississippi colleges, only 900 become teachers. The State Superintendent of Education Hank Bounds realized that if wages increased, there would be more teachers willing to work. Bounds currently wants a 3 percent pay raise andaddition of 5 years to the pay schedule for teachers. This is asupply-and-demand issue, as the Legislative Budget Committee is planning to supply, or offer, higher wages, predicting that more teachers will be demanding and willing to take the job, due to the change in their income.

The reason this article jumped out at me is because it relates to so many of the topics we’ve studied in unit 2 of Microeconomics, particularly our last class where we learned about how free, competitive markets lead to an allocatively efficient outcome. In public schools in America, wages paid to teachers are essentially set by the state and local governments; in essence there is a price ceiling in the market for teachers. According to the article:

Mississippi has been on a plan to get pay competitive, but it still lags. Base pay for a starting teacher is about $30,000. The average salary is $40,594, short of the Southeastern average of $42,333. The national average is $47,674.

Given the severe shortage of teachers in Mississippi and the nation as a whole, what does this say about the average salaries being paid to teachers? What can we conclude about the allocation of resources towards education? Is the market for public education in the United States allocatively efficient? How does Jeewon’s article present a solid argument for the privatization of education in the US? How might taking some of the responsibility of providing education out of government hands result in a more efficient allocation of resources towards schools?

Great article, Jeewon, thanks for the link and the nice summary. From now on, when I see an excellent article like Jeewon’s accompanied by a fine summary such as the one above, I will plan to post it to this blog so others can benefit from the research and reading that our AP students are sharing through our class wiki. The AP Econ in the News page is a great place economics teachers and students to come find useful articles for their classes, as well, so I encourage you to bookmark it. A new page is added for each unit, and it can be found under each unit’s main page.

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

11 responses so far

11 Responses to “Is the market for public education in the US allocatively inefficient?”

  1. Mike Fladlienon 24 Sep 2007 at 2:25 am

    The same comments have been made about teaching in Iowa…At Muscatine, there are many teachers teaching subjects that they are not certified in…Iowa pay is ranked 42nd in the nation…I have a simple postulate…Is education a monopoly? If education is a monopoly, then the monopoly market structure would show that resources are used inefficiently and less than the optimal resources are employed….When I wrote this on my blog, many of my bosses were mad at me….I think I'm right…flad

  2. James Tsaoon 24 Sep 2007 at 9:35 pm

    Mississippi's failure in raising teacher wages when the source of teachers is tight results in a teacher shortage. This reflects an inefficient allocation of resources as an area is in dire need of teachers cannot acquire them because they do not have enough financial power to attract the teachers. The government can give support to this problem by funding the public schools in Mississippi so the average salary of teachers in Mississippi can be closer to the national average

  3. Margaret Liuon 24 Sep 2007 at 10:01 pm

    I think part of the reason teacher pay hasn't increased substantially is because people expect teachers to teach out of a passion for teaching and not for the pay. And maybe the government wants to encourage this. But most times, this is like saying, Everyone on earth is absolutely, hands down scrupulous.

    A result of this price ceiling has pushed a lot of private schools to come out, and this has increased the number of teachers. So while this may seem like there are ways around price ceilings, think about where that extra money is coming from and how many people can afford private school education. its keeping the rich rich.

  4. Margaret Liuon 24 Sep 2007 at 10:09 pm

    I forgot to mention that no, I don't think the market for public education is allocated efficiently; there are many potential teachers out there who may love teaching but can't due to the salary they would get and the more enticing pays they would get from different jobs.

  5. Richard T.on 24 Sep 2007 at 11:06 pm

    Since there is a shortage of teachers in Mississippi, the average wages of teachers must be too low. Apparently the resources for education are not allocated very efficiently. The government isn’t doing a very good job of allocating resources to public education in this case. If education was to be privatized, then there would be higher wages for teachers and the resources would be allocated efficiently. However, the price of education might be higher, and it would not beneficial to the general public.

  6. Howard Jingon 25 Sep 2007 at 2:21 pm

    I think that this article brings up some very scary prospects about education in the future. But it is also part of a larger problem of various public servants being paid too little. For examples, new nurses, policemen, and firemen are all increasingly becoming rarer and rarer. Perhaps the government should put more of their budget in paying public workers, or else we may find that these jobs are all held by private companies in the future.

  7. Chris Seahon 25 Sep 2007 at 10:25 pm

    I must totally agree that the allocative efficiency of the American government at present is poor at best. While burning billions of tax dollars monthly to fight an uphill war in Iraq, it is putting less and less resources where it is most needed: back to the public. As public workers decline in number, so too will the overall literacy and graduation rates of children nationwide. If this declining trend continues into the distant future, it is foreseeable that the vast majority of the American population will be uneducated due to the shutting down of public schools. These people will eventually become the peons of large corporations whose heads come from families that can afford private education. Then the disenfranchised workers will unite and the result will be… commmunism… and we know where that will lead us.

  8. kevinchiuon 26 Sep 2007 at 10:15 am

    The US allocation efficiency towards public education is poor; teachers are not being paid at the equilibrium price, thus there is less quantity supplied, teachers' services, than the quantity demanded, schools that need the teachers. It is interesting to see that State Superintendent of Education would try to employ a price ceiling on the service for education; we learned in class that, price ceilings will eventually cause a surplus in a good or service (i.e. teaching in this case). Education, in class, was defined as a necessity, or inelastic good; thus, does that mean that having a surplus of it and a shortage in something else would be efficient? In my opinion, cutting down in allocation of luxury goods productions and creating a surplus in teaching would be an efficient allocation.

  9. Charlie.Gaoon 26 Sep 2007 at 9:08 pm

    The situation here with the teachers and not getting paid enough if similar with all the other examples of price ceilings and how it affects supply. In this case, the teachers are the products and once the price ceiling is set under equilibrium, the supply of these teachers will decline because there is no way of reaching equilibrium where MC=MB. The price ceiling should be removed to achieve equilibrium once again, which will increase the supply of teachers once again and solve this problem

  10. Kai Lin Fuon 26 Sep 2007 at 10:44 pm

    But the question is are they willing to remove the price ceiling? Would the government be willing to increase their wages? That is the real problem, its easier said than done. It's similar to the problem China faces today with the price of pork. The chinese gov has put a price ceiling on the price of pork but what it should be doing is taxing the rich.

  11. Drew Venkatramanon 26 Sep 2007 at 11:21 pm

    I think my past school, Fort Madison Middle School in Fort Madison, Iowa was a perfect example of a underfunded school. Teachers got around 41,000 dollars, and I had the same teacher for Home Ec and P.E. Needless to say, there is a shortage of teachers, but instead of combatting this with higher wages, the government feeds the shortage by offering low and unsatisfactory salaries. Judging by the numbers, those who graduate from Mississippi colleges do not go to teach in Mississippi colleges due to the low wages and go to different states. If the state can't even support the teachers trained in its state, its obvious that the prices must be raised, or else the shortage on teachers will never be fixed.