Why Do Teacher Salaries Differ So Much across the Country?

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Recent strikes by teachers in several states have thrown a spotlight on teachers’ wages. Pay for teachers varies widely across the country, with the highest-paying state (New York) offering nearly twice as much as the lowest-paying (Oklahoma).

A recent Economic Synopses essay examined how these differences hold up once teachers’ wages are adjusted for cost of living (COL). Regional Economist Charles Gascon and Research Associate Qiuhan Sun used 2016 regional price parities to adjust 2017 average wages for teachers by state.

“Adjusting for differences in COL narrows the differences in teachers’ wages across the country, but substantial differences remain,” the authors wrote.

As an example, Gascon and Sun noted that teachers in New York averaged $80,625 per year, while teachers in Oklahoma averaged $41,145 per year. Yet, New York’s COL is 15 percent higher than the national average, while Oklahoma’s is 10 percent lower than the national average. Adjusting for COL explains part of the gap, but not all of it.

“The gap between New York and Oklahoma still exists but significantly shrinks from $40,000 to $28,000 in real (COL-adjusted) dollars,” the authors explained.

Gascon and Sun noted that, according to economic theory, real wages tend to equalize over time when goods/services are freely traded or workers are mobile. For example:

• Firms in labor-intensive industries could move to areas with cheaper labor.
• Workers could move to areas that pay higher wages.

Schools, obviously, don’t have the ability to move to lower-cost areas to equalize wages, but teachers have the ability to move to higher-paying areas. Still, Gascon and Sun noted additional difficulties with teachers moving to different areas:

• Vesting periods for retirement contributions may keep teachers in a specific area for a certain number of years.
• Transferring teacher certifications can sometimes be difficult.

The authors pointed out that the amenities offered by the area can also impact wages that employers have to offer. Namely, employers in high-amenity areas don’t need to offer as much in terms of real wages because the amenities are part of the workers’ compensation.

“This helps to explain why places such as Hawaii, Florida, Arizona, North Carolina and Colorado, which are all high-sunshine states, tend to have lower real wages for most occupations, including teachers,” Gascon and Sun wrote.

The authors noted a strong positive correlation between public funding for education and teachers’ wages. “A $1,000 difference in a state’s education spending per pupil is associated with a $1,162 wage difference,” they wrote.

Gascon and Sun noted that higher pay attracts more able graduates into the profession. In turn, this increases the supply of teachers, making entry more competitive and raising the quality of teachers in the area. They also noted that student-teacher ratios may play a role.

“In general, the higher the student-teacher ratio, the higher the pay,” they wrote. “In fact, the ratio is lower in states such as West Virginia and North Dakota and higher in states such as California and Michigan.”

Finally, Gascon and Sun noted that wages are only part of the compensation story. Total compensation may provide a clearer look at differences, as some states may provide benefits instead of additional wages.

• Economic Synopses: What Are Teachers Really Paid? Adjusting Wages for Regional Differences in Cost of Living
• On the Economy: Comparing Living Standards across U.S. Metro Areas: Which Ones Fared Well?
• On the Economy: Measuring Income Inequality within the Eighth District