Splinter Episode 4: The Economics of Salary #TGDN #tcot


Hi everyone, I’m Brian McQuaig.  Why do pro athletes and movie stars make the big bucks while teachers still make far less?  Does it have anything to do with WHAT they do? Or could something else be at play?

[INTRO MONTAGE]

LeBron James makes about $500,000 a week.  Ouch.  But the average public school teacher makes about $960 a week (50k a year) while the average private school teacher makes about $769 a week (40k a year)  Don’t worry about the private school teachers…they have better benefits than public teachers in most cases so it evens out.

More on why pro athletes make so much more money later.  Right now, let’s discuss teachers.

Teachers operate in the same job market as the rest of us – RIGHT?  Well, for the most part, that is true.  However, let’s consider some special factors about teachers in general and public school teachers specifically.

Public schools (from this point forward referred to as ‘Government Schools’) are a monopoly.  The government runs them and unless you fight like hell for home schooling or the semi-free alternative like Charter Schools you have no alternatives. But the main thing that happens when a market has a monopoly player is:

  • There is no competition, therefore no incentive for putting out a good product.
  • Monopolies tend to grow in management and not the actual skilled workers…that is, they become top-heavy.  Actual workers & the service they provide become secondary.
  • Workers who have a specific skill for that monopolized market have only one place to go to sell their skills.  They have no power during the negotiation of a salary.  Take it or leave it.

So…Government Schools being a monopoly explains – at least partially – why teachers don’t make much and that their product quality is poor.  In this case, “product quality” would be the education of the children in their charge.  Most free market incentives have been short-circuited by this monopoly and the teachers unions that exist (IMHO) to counteract the monopolistic nature of Government Schools.  Teachers unions either knowingly or unknowingly make a bad situation worse because unions NEVER focus on product quality but on their constituency…in this case teachers.  But that is a future subject for the more politically-centered series, Pushing Back, not Splinter.

Getting back to why teacher’s salaries are low and pro athlete’s salaries are high…we get to the Splinter of knowledge I want you to walk away from this video with:

Strip away the government & unions and teacher’s salaries would still be low in comparison to a pro athlete’s.  Why?

Salaries are nothing more than prices for a service and that price is subject to simple economic theories of supply & demand.

Linda Gorman in The Concise Encyclopedia of Economics has an excellent article you should read.  In it, you will learn the many factors that go into setting teacher salary.  And what you will learn…as is typical…is that the government screws up everything it touches.  But even if it didn’t, market theory would still apply:

Basic Supply & Demand

  • LeBron James has a special talent that only a handful of people can do.
  • Anyone with a degree can get a teaching certificate.

Return on Investment

  • Pro athletes start their craft from childhood.
  • It takes a short time to become proficient as a teacher in a specific field.

Wealth Generation

Pro athletes bring in the bucks in attendance and sports broadcasting deals.

While teachers do something much more important than bring in bucks, Government Schools are “free”.  And as we’ve seen many times before, the lack of a profit incentive is what makes socialism fail to outperform capitalism consistently.  BTW, schools only seem free because your local, state & federal governments steal that money before you can use it to pay for a private school.

Length of Service In Career

  • A pro athlete’s average career spans less than 5 years.
  • Teaching is a lifetime career.

Opportunity For Income Enhancement

  • Pro athletes – in many cases – have ‘celebrity’.  This gives them opportunity to make money when the season is over.
  • Teachers work 180 days per year on average.  Their only opportunities for extra pay is to further their education (which normally increases their base salary) or teach summer school.

The disparity between pro athletic salaries VS. teacher’s salaries becomes crystal clear when:

  • You think of salary as the cost an employer pays to get a given skill.
  • You think of salary as a PRICE like purchasing food.
    • Like the price you’d pay for a pineapple (which are scarce & expensive to grow/ship, therefore expensive) VS. an orange (which are plentiful & inexpensive to grow/ship, therefore inexpensive)
  • You think of teachers like you think of any other job.
    • Especially when you strip away the government & union interference with normal economic forces.

Is what teachers do in their lifetimes more important than what a pro athlete does in their lifetime? In terms of contributions to their community: most certainly.  Teachers do not get into teaching to make bank, they do so to make a difference to humanity.  I don’t make anything doing these videos but I do so because I want to make a difference.  And lacking any other incentive, teachers do it because they want their lives to mean something more than selling rental cars, underwear or  horse liniment.

Thanks for watching…seeya next time!

Information used in creating this episode of Splinter!:

BLS: Teacher

The Economist: Teacher’s Salaries

ERI Distance Learning Center: The Economics of Compensation

The Concise Encyclopedia of Economics, 2nd Edition: Education

Private School Review: What Do Teachers Make?

About.com: What Do Private School Teachers Earn?

National Council on Economics Education: Competition and Market Structures

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