Directory UMM :Data Elmu:jurnal:E:Economics of Education Review:Vol20.Issue1.2001:

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www.elsevier.com/locate/econedurev

Determinants of intrastate variation in teacher salaries

Michael L. Walden

*

_{, Zulal Sogutlu}

Department of Agricultural and Resource Economics, North Carolina State University, Box 8109, Raleigh, NC 27695-8109, USA

Received 25 August 1998; accepted 7 July 1999

Abstract

Previous work on understanding the determinants of average teacher salaries has focused on interstate variation. This study addresses determinants of intrastate variation in teacher salaries. Using the model developed by Walden and Newmark, average teacher salaries in North Carolina school districts are related to variation in the local cost-of-living, personal characteristics of teachers, job characteristics of the teaching positions, and local demand factors. A key finding is that, like interstate studies, we find local salaries are related to local cost-of-living measures. Also, after accounting for education and experience characteristics, local teacher salaries are higher in districts with a greater proportion of secondary teachers, in districts with larger average school sizes, and in districts with a greater demand for education.

JEL classification: J21; J45

Keywords: Teacher salaries; Local teacher markets

1. Introduction

Teacher pay continues to be an issue under consider-able discussion in the country. State and local govern-ments grapple with claims that teachers are underpaid relative to other professions. Also, the periodic rankings of average teacher pay by state are used by teachers in low-ranking states to argue for higher salaries.

The interstate variation in teacher salaries has received attention in numerous studies (Fournier & Rasmussen, 1986; Kasper, 1970; Levinson, 1988; Nelson, 1991; Walden & Newmark, 1995). For example, Walden and Newmark (1995) found that three-quarters of the inter-state variation in teacher salaries could be explained by a combination of personal characteristics of teachers, job characteristics of teaching positions, factors measuring the demand for education, and the state cost-of-living.

* Corresponding author. Tel.: +1-919-515-4671; fax: + 1-919-515-1824.

E-mail address: [email protected] (M.L. Walden).

Only a few studies have considered the intrastate vari-ation in teacher salaries (Chambers 1985, 1978; DeTray & Greenberg, 1977; Eberts & Stone, 1984). However, these studies have not considered the full complement of factors cited in the interstate studies. In particular, all did not account for differences in the local cost-of-living on the variation in local teacher salaries, and those that did used either wages (Chambers, 1978) or locational dummy variables (Chambers, 1985) as proxies for the cost-of- living (Chambers, 1978).

There are three reasons for being interested in intra-state variation in teacher salaries. First, hard-to-measure factors like teacher union power and methods of financ-ing education, which must be controlled for in interstate studies, are generally constant within a single state. This may make it easier to identify the effects on teacher sal-aries of other important factors like teacher and school district characteristics.

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64 M.L. Walden, Z. Sogutlu / Economics of Education Review 20 (2001) 63–70

Third, there are important policy implications for local public decision-makers from understanding the determi-nants of teacher salaries at a local (district) level. Under-standing the characteristics that affect local teacher salar-ies will help school administrators and school boards deploy resources more efficiently. For example, if it is found that larger schools are considered a disamenity by teachers requiring a salary premium, then school districts may want to account for this finding when constructing new schools.

This paper analyzes intrastate variation in teacher sal-aries in one state, North Carolina. We are interested in the individual and collective influence of local market factors, such as the local cost-of-living, personal and job characteristics, and demand factors, on teacher salary. A particular challenge in the study is the selection and test-ing of alternative cost-of-livtest-ing indicators.

2. Model

We use a model similar to the one by Walden and Newmark (1995) to analyze interstate variation in teacher salaries. Salary determinants are categorized into personal characteristics, job characteristics, factors meas-uring the demand for education, and the cost-of-living.

2.1. Personal characteristics

Among personal characteristics, previous research has clearly established that average teacher salaries are related to teacher education and teacher experience (DeTray & Greenberg, 1977; Eberts & Stone 1984, 1985; Walden & Newmark, 1995; Wentzler, 1981). In fact, in several states, a teacher’s salary is automatically scaled to his/her educational level and years of teaching. Indeed, this is the case in North Carolina. A state-wide schedule sets a teacher’s base salary related to that teacher’s education (academic degree) and years of teaching experience. However, a local school district can augment the base salary if it puts a higher value on teacher education and experience than does the state.

Traditionally, teaching has been a female-dominated profession. Teaching was often the secondary job in the household. The household’s residential location would be determined by the primary jobholder, and if the wife wanted to work, teaching would be a logical choice. In this type of economy, a larger proportion of females in a local market would imply a larger relative supply of teachers and, ceteris paribus, lower salaries. In contrast, as non-teaching employment opportunities have opened for women, any link between the female labor supply and teacher salaries could have dissipated in local mar-kets. To test these effects, we include the female percent-age of the local population in the analysis.

Other studies have found significant average salary

differences between elementary and secondary school teachers. For example, the intrastate studies of Eberts and Stone (1984) and DeTray and Greenberg (1977) found higher salaries for secondary teachers than for elementary teachers after controlling for education and experience. This result could occur for a number of reasons. Secondary school teachers may systematically have more positive skills and attributes unrelated to edu-cation and experience. Or, the job requirements of sec-ondary school teachers may be more demanding, and thus the higher salary is a compensating differential. Also, secondary school teachers may have greater alter-native job opportunities because their skills are closer to those demanded in other jobs than for primary school teachers. Hence, schools must pay more to secondary school teachers to attract and retain them. Last, local school districts may place a higher value on secondary education, and this is reflected in a higher demand and equilibrium salary for secondary school teachers.1

2.2. Job characteristics

Four variables were available to measure job charac-teristics of teachers in local districts. The first is the pupil–teacher ratio. A higher number of pupils per teacher should mean a greater teacher workload. Every-thing else equal, a higher pupil–teacher ratio should shift the teacher supply curve up and result in higher teacher salaries. Conversely, districts with a greater number of teacher assistants per teacher should be associated with a lower teacher workload and lower teacher salaries.

Another job characteristic we include is average school size in the local market. As explained in Walden and Newmark (1995), larger schools could be positively or negatively related to teacher salaries. On the one hand, larger schools may provide a more pleasant work environment for teachers by having the ability to offer teacher amenities like guidance counselors, librarians, and other support staff. In this case, larger school size would be a positive job characteristic and would be asso-ciated with lower teacher salaries. The opposite argu-ment is that larger schools present diseconomies of scale for teachers, such as more administrative work and rules. Here, larger sized schools would be a disamenity for tea-chers, thereby shifting the supply curve up and resulting in higher average salaries.

The last job characteristic considered is the ability and behavior of students. This factor has long presented a challenge for researchers. Clearly, a teacher’s job is eas-ier if students are motivated and well- behaved. Thus, it would be expected that local school markets with

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motivated and better-behaved students would be pre-ferred by teachers and, in compensation, those districts could offer lower average salaries.

The problem is finding an adequate measure for these student characteristics. We use a direct measure of stud-ent performance, the standardized elemstud-entary school reading test score, as a proxy for student ability. Other measures were considered, such as the Scholastic Apti-tude Test (SAT) score and the graduation rate. Fortu-nately, as will be discussed in the Results section, the performance of each of these measure was very similar in the analysis.2

2.3. Demand for teachers

The demand for teachers in a local market should also be related to the locality’s financial ability to pay for education (Eberts & Stone, 1984; Cohn & Geske, 1990). Two variables are included to measure this ability, the local governmental body’s local tax revenue per $1000 of personal income, and the local market’s nominal income per capita.3 _{The tax revenue measure will be}

related to the locality’s wealth. Both variables are expected to shift the demand curve for teachers to the right and increase teacher salaries.

2.4. Local cost-of-living

Researchers studying interstate variation in teacher salaries have found a positive relationship to the state’s cost-of-living (Fournier & Rasmussen, 1986; Nelson, 1991; Walden & Newmark, 1995). The same positive relationship would be expected in a study of intrastate variation in salaries. However, the existing studies of intrastate variation have not explicitly included a cost-of-living variable (Chambers, 1978; DeTray & Greenberg, 1977; Eberts & Stone, 1984). One reason may be the difficulty of constructing such a measure at the local level.

One of the goals of our study was to develop local cost-of-living measures and test their relationships to local teacher salaries. Two alternative measures were used. The first measure is described in detail in Walden (1998). The basis of the measure is quarterly retail price data available from the American Chamber of Com-merce Researcher’s Association, or ACCRA. Each

quar-2 _{The Walden and Newmark study (1995) of interstate salary} variation included a direct survey measure of work hours reported by teachers as a job characteristic. Unfortunately, no similar survey information was available for the school districts in North Carolina.

3 _{The Walden and Newmark study (1995) used nominal} dis-posable income per capita as the income variable, but dispos-able income was not availdispos-able at the county level.

ter ACCRA collects price data for 61 retail products and services in 289 locations across the country, including 20 sites in North Carolina. ACCRA forms a cost-of-liv-ing index by takcost-of-liv-ing a weighted average of the product and service prices.4

In order to form cost-of-living indices for local mar-kets in North Carolina, such as counties, the ACCRA cost-of-living indices for the 20 North Carolina locations were regressed on exogenous variables that should deter-mine the local cost-of-living, including population growth, population density, variables measuring the spending power of consumers, and public sector tax and output variables.5 _{The regression coefficients from this}

procedure were then applied to values for the exogenous variables in all North Carolina local markets to construct cost-of-living indices.

However, there are two potential problems with this ACCRA-based local cost-of-living measure. First, it is an estimate and not a direct measure. Second, ACCRA has been criticized for not always using professional staff trained in data collection, which could lead to biased price measures.

For these reasons, a second local cost-of-living ure was used, the county’s ‘fair market rent’. This meas-ure is available annually from the U.S. Department of Housing and Urban Development. The fair market rent is the average monthly rent, including utilities, for priv-ate rental units of a certain size and with modest and suitable amenities in the county. Hence, the fair market rent is a quality-adjusted rent. Rents for two-bedroom units were used.6_{The justification for using the fair}

mar-ket rent as a measure of the local cost-of-living is two-fold. First, housing is the largest component of most household’s costs. Second, the geographical variation in housing costs is much greater than the geographical vari-ation in other goods and services.7

2.5. Summary

In summary, the model of intrastate variation in teacher salaries is given in the following equation, all variables are measured at the local market level:

4 _{Technically the weighted index is a price index, since a} cost-of-living index requires that consumer utility be held con-stant. However, for conformity to the terminology used in other studies, the index is called a cost-of-living index.

5 _{The regression explained 50% of the variation in the} cost-of-living index, with all but one of the regressors having a stat-istically significant parameter estimate (Walden, 1998).

6 _{Fair market rent data were taken from the U.S. Department} of Housing and Urban Development web site .

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SUPP5f[COL or FMR, EDU, EXP, FEM%,

SECOND%, PUPTCH, ASST%, SCHSIZE,

READING, REV, PERCAPY].

The variable definitions are given in Table 1. The dependent variable, SUPP, the local teacher salary sup-plement, is explained more fully in the next section.

3. Data

The intrastate teacher salary model is implemented with data from North Carolina for the 1993–94 school year. The salary and other educational information are taken for public schools only. Private and home schools educate less than 6% of North Carolina pupils (North Carolina Department of Public Instruction, Division of Non-Public Education, 1998).

Local markets are defined as counties. There are 100 counties in North Carolina. There are 129 public school districts in the state. Two-thirds of these districts are sin-gle-county districts. No district crosses county lines. For multi-district counties, data for one district were formed by taking a pupil-weighted average of the multiple dis-tricts.

Public school teachers in North Carolina are paid from two sources, the state and the local county government. The state pays a ‘base’ salary dependent on the teacher’s education and experience levels. The local county government pays a supplement to this base salary. The dependent variable in our study, SUPP, is the local county salary supplement. This means the impacts of teacher education and experience through the state base salary are removed. Teacher education and experience will influence SUPP only if local governments place additional value on these two characteristics.

Teacher education (EDU) is measured as the percent-age of teachers in the district with a post-baccalaureate degree. Teacher experience is measured by the average years of teaching experience (EXP). The variables

SECOND%, PUPTCH, ASST%, SCHSIZE, and

GRADRT are measured for the school district. The vari-ables FEM%, REV, and PERCAPY are measured for the county.8

Sources and descriptive statistics for the variables are given in Table 1. Note that the ACCRA-based cost-of-living index for North Carolina counties is a relative measure that has no intrinsic meaning.

8 _{Note that PERCAPY is measured in nominal terms, rather} than deflated by the cost-of-living measure to be expressed in real terms. This is done for comparability to previous studies, where dollar amounts are in nominal terms.

4. Results

Following the procedure used by Walden and New-mark (1995), four specifications of the model are presented in order to ascertain the effects of different sets of variables. First, the teacher salary supplement is regressed only on the cost-of-living measure. Then, the supplement is regressed on the cost-of-living measure and the personal characteristics. In the third specifi-cation, job characteristics are added to the right-hand side variables and, in the fourth and full specification, the demand factors are added to the regressors.

The results of the four regressions using the ACCRA-based cost-of-living measure are presented in Table 2.9

In the first specification, the cost-of-living measure (COL) is positive and statistically significant. COL explains 14% of the variability in the salary supplement. This is a lower amount of explained variability than found in the Walden–Newmark study of interstate teacher salaries, where the cost-of-living variable alone accounted for almost two-thirds of the salary variation. Calculated at the mean, the elasticity of the supplement with respect to COL is 10.9, and the elasticity of the total teacher salary with respect to COL is 0.2.10

COL is also positive and statistically significant in the second and third specifications. It is positive, but not stat-istically significant, in the fourth specification, but this is because the nominal per capita income variable likely captures variability in the local cost-of-living. Indeed, when we deflate the nominal per capita income variable by the cost-of-living measure to form real per capita income and include it in the fourth specification, both COL and the real per capita income variable are positive and statistically significant and the results for the other variables are not affected.

The second specification adds the personal character-istics to the analysis. The education and experience vari-ables (EDU, EXP) are not statistically significant in this equation nor in the third and fourth specifications. These results could suggest teacher education and experience are accounted for in the state salary base, and local governments in North Carolina place no additional value on these factors.

Alternatively, the results could mean that rightward shifts in the demand curve for better educated and experienced teachers occur simultaneously with

compa-9 _{Since COL is an estimate and thus measured with error,} maximum likelihood estimates are presented. The variables are measured linearly. The equations were also estimated in log– log form, but the results were unchanged. The Breusch–Pagan– Godfrey test found no problems of heteroskedasticity, and the Kelsley–Kuh–Welsch test found no influential observations.

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Variables and descriptive statistics

Variable Description Source Mean Standard Minimum Maximum deviation

SUPP Local teacher salary supplement, North Carolina Department of Public Instruction, 733.9 754.3 0 3485.0 1993–94 Statistical Research and Data Center, 1996

COL County cost-of-living index, Walden, 1998 106.8 4.1 94.6 118.2 1993

FMR Fair market rent, 1993 U.S. Department of Housing and Urban 402.1 42.2 320.0 520.0 Development

EDU Percentage of teachers with a North Carolina Department of Public Instruction, 34.5 7.3 20.2 54.1 post-baccalaureate Statistical Research and Data Center, 1996

EXP Average years of experience of North Carolina Department of Public Instruction, 12.0 1.2 8.6 15.0 teachers Statistical Research and Data Center, 1996

FEM% Females as a percentage of the North Carolina Office of State Planning, 1996 51.7 1.6 41.0 54.6 population, 1993

SECOND% Secondary school teachers as a North Carolina Department of Public Instruction, 29.3 8.2 14.9 50.2 percentage of all teachers, 1993 Statistical Research and Data Center, 1996

PUPTCH Pupil–teacher ratio North Carolina Department of Public Instruction, 15.8 1.6 7.7 18.3 Statistical Research and Data Center, 1996

ASST% Instructional aides as a North Carolina Department of Public Instruction, 29.7 4.6 7.3 42.4 percentage of teachers, 1993–94 Statistical Research and Data Center, 1996

SCHSIZE Average school size in pupils, North Carolina Department of Public Instruction, 522.5 122.2 206.8 778.6 1993–94 Statistical Research and Data Center, 1996

READING Elementary school reading test North Carolina State Board of Education, 1994 62.8 7.7 42.9 77.7 score, 1993–94

REV Total country revenue per $1000 North Carolina Association of County 43.7 14.8 24.7 114.5 of country personal income, Commissioners, 1997

1993–94

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Table 2

Determinants of the local teacher salary supplement in North Carolina, using COL as the cost-of-living measurea Equation

(1) (2) (3) (4)

County cost-of-living index (COL) 71.6 75.2 51.3 15.7

(4.1) (4.2) (2.5) (0.9)

Teacher education (EDU) 253.4 694.3 2121.2

(0.3) (0.8) (20.2)

Teacher experience (EXP) 2104.0 270.9 269.0

(21.7) (21.3) (21.5)

% Females in population (FEM%) 89.0 73.7 0.9

(2.0) (1.8) (0.1)

% Secondary school teachers (SECOND%) 29.1 28.0 17.9

(3.6) (3.9) (2.9)

Pupil–teacher ratio (PUPTCH) 212.1 26.3

(20.3) (20.2)

Aides as percentage of teachers (ASST%) 26.7 21.6

(20.5) (20.1)

Elementary school reading test score (READING) ₂1.4 ₂3.4

(20.1) (20.4)

Average school size in pupils (SCHSIZE) 2.8 1.9

(5.0) (4.0)

County revenue per $1000 personal income (REV) 2.6

(0.7)

Nominal per capita income (PERCAPY) 0.2

(6.6)

Adjusted R2 _0.14 _0.30 _0.46 _0.63

a _{Notes: (1) dependent variable is local salary supplement, SUPP; (2) t-ratios are in parentheses; (3) the constant term in each} specification is not reported to save space; (4) the number of observations is 100.

rable shifts in the supply curve due to some factor corre-lated with education and experience. The result would leave no local premium for education and experience.11

The percentage of females in the local market (FEM%), a proxy for the potential supply of teachers, is positive in equation (2) as well as in the third and fourth equations. This is contrary to the hypothesis that a greater supply of females will shift the teacher supply curve to the right and lower the equilibrium salary. How-ever, the ratio in equation (3) is not quite 2, and the t-ratio in equation (4) is far below 2. Thus, it can be con-cluded that in the modern economy, the supply of females in a local market has no statistically significant relationship to local teacher salaries.

The percentage of secondary teachers (SECOND%) is positive and statistically significant in all equations in which it is entered, with t-ratios well above 2. This is evidence that secondary teachers in North Carolina school districts receive salary premiums unrelated to their education and experience.

Job characteristics are added in the third specification.

11 _{We are indebted to a reviewer for this interpretation.}

Among them, only average school size (SCHSIZE) has statistically significant coefficients in both equations (3) and (4). Teachers working in North Carolina schools with more pupils receive a pay premium, perhaps to compensate for some disamenities related to school size. Substituting the SAT score or graduation rate for the READING score yielded the same statistically insignifi-cant results for this factor.

The fourth and full specification adds the two demand variables. Both the local public revenue (REV) and local nominal income per capita (PERCAPY) variables are positive, but only PERCAPY is statistically significant. The full specification accounts for almost two-thirds of the variation in the local teacher salary supplement.

The results of the four regressions using the fair mar-ket rent (FMR) measure of the local cost-of-living are given in Table 3.12_{The results are virtually identical to}

those in Table 2 using the COL measure of the cost-of-living. FMR is positive and statistically significant in all

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Table 3

Determinants of the local teacher salary supplement in North Carolina, using FMR as the cost-of-living measurea Equation

(1) (2) (3) (4)

Fair market rent (FMR) 7.3 6.4 3.0 20.3

(4.5) (4.0) (1.9) (20.2)

Teacher education (EDU) 998.8 692.0 262.1

(1.1) (0.7) (20.1)

Teacher experience (EXP) 282.4 266.1 271.3

(21.4) (21.2) (21.6)

% Females in population (FEM%) 33.3 57.2 24.3

(0.8) (1.4) (20.1)

% Secondary school teachers (SECOND%) 29.7 27.2 16.8

(3.6) (3.7) (2.7)

Pupi–teacher ratio (PUPTCH) 23.6 23.6

(20.1) (20.1)

Aides as percentage of teachers (ASST%) 26.8 22.9

(20.5) (20.3)

Elementary school reading test score (READING) 12.1 1.3

(1.3) (0.2)

Average school size in pupils (SCHSIZE) 2.9 2.0

(5.1) (4.3)

County revenue per $1000 personal income (REV) 2.6

(0.7)

Nominal per capita income (PERCAPY) 0.2

(6.8)

Adjusted R2 _0.16 _0.29 _0.44 _0.63

a _{Notes: (1) dependent variable is local salary supplement, SUPP; (2) t-ratios are in parentheses; (3) the constant term in each} specification is not reported to save space; (4) the number of observations is 100.

but equation (4). In equation (1) and calculated at the mean, the elasticity of the supplement with respect to FMR is 5, and the elasticity of the total teacher salary with respect to FMR is 0.1. The teacher education and experience variables are not statistically significant. Average school size and nominal income per capita are positive and statistically significant in all equations in which they appear.

5. Summary and conclusion

The majority of previous work examining determi-nants of teacher salaries has focused on interstate vari-ation. Our work studied the determinants of intrastate variation in teacher salaries. In particular, we were inter-ested in testing a model at the local level similar to the one used by Walden and Newmark at the state level.

Using data for North Carolina’s school districts, our results show first, that part of the variation in the local cost-of-living is reflected in local teacher salary sup-plements. We found this result for both of the alternative cost-of-living measures used. The same result was found in the Walden–Newmark study of interstate salary

vari-ation as well as in other such studies. Thus, as is the case when observing differences in teacher salaries between states, it is very important to take account of differences in the local cost-of-living when observing local differ-ences in teacher salaries.

Second, after accounting for teacher education and experience, we found local salary premiums were most likely paid in school districts where a greater percentage of teachers were in secondary schools and where there were more pupils per school. Interestingly, these vari-ables were not statistically significant in the Walden– Newmark interstate study. However, like the interstate study, we found a ‘demand’ variable was strongly related to local salary supplements. Salaries were higher in dis-tricts with a higher per capita income.

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these factors do not create disamenities can thus better themselves in such positions.

For school administrators and decision-makers, the findings have similar implications. Administrators operating schools in higher cost-of-living localities should recognize they must offer salary premiums to, at least, partially offset these expenses. Likewise, attracting teachers to secondary schools requires a salary premium unrelated to the teacher’s education and experience.

But perhaps the most interesting result is with refer-ence to school size. If larger schools are considered to be a negative characteristic by teachers, then school districts should consider a tradeoff when building new schools. The tradeoff is the savings from potential economies of scale in building larger schools, versus the market requirement of paying teachers a premium to work in such schools.

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