The puzzle of teacher pay

And why college costs so much

In 1960, American high school teachers earned an average salary of $5,000. By 2010, this figure had risen to $56,000. Had the average salary merely kept pace with inflation, the teachers would have earned $37,000. In other words, they were 50 percent better off in real terms then they had been fifty years before.

Why was this so? Economic theory asserts that wage increases are linked to improvements in productivity. But teachers in 2010 weren’t conspicuously more productive in 2010 than in 1960. They didn’t teach more pupils, and if test scores were any guide, they weren’t teaching pupils more effectively. Yet the teachers were being paid as though their productivity had risen by 50 percent.

William Baumol, an economist at Princeton who died in 2017, solved the riddle in the 1960s and explained the answer in papers published with William Bowen, one of his graduate students. Baumol noted that certain jobs in an economy stubbornly resist improvements in productivity. These jobs cluster in the service sector. Doctors can’t see many more patients per day than they could a century ago. Housekeepers have vacuum cleaners and other labor-saving devices, but dusting and mopping and picking up are almost as time-consuming as ever. Teaching geometry or history is as labor-intensive as in the days of Euclid and Herodotus.

If such services constituted all or most of the economy, the wages their providers receive would stagnate. But services don’t constitute the whole economy. Even while the teachers and doctors were plodding along in the service sector, workers in farming, mining and manufacturing were growing tremendously more productive. A farmer in 1850 could feed that farmer’s family and perhaps one other; today farmers feed their own families and fifty others. Coal mining was once the province of armies of low-skilled workers; now it’s the realm of giant machines operated by highly skilled and vastly more productive workers. Constructing a computer in 1950 took thousands of hours of labor by hundreds of people; today’s computer is a million times more powerful and requires perhaps one millionth the human labor.

The greater productivity of these workers generates rising wages in their sectors of the economy, just as economic theory suggests. Baumol’s insight was that the wages of teachers and the other service providers piggyback on those of the more productive workers.

Why? Because if they didn’t, no one would be willing to be a teacher. The rising wages in the economy as a whole increase effective demand for food, shelter, clothing and other necessities and luxuries of life. Rising demand triggers higher prices, which have to be paid by teachers as well as by computer designers.

Certain occupations simply get priced out of existence, often in conjunction with advancing technology. Telephone operators have vanished, and the large numbers of secretaries employed by corporations have dwindled to a comparative handful. 

But where occupations have defied automation—teaching, nursing care, cooking, life-guarding at swimming pools, driving taxis—society has to pay up lest work considered necessary go undone.

Sometimes the work goes undone anyway. Barton Springs—a large, natural swimming hole in Zilker Park, the gem of the Austin park system—attracts locals and visitors alike. But so far this season it's open only four days a week, because the city can’t find sufficient lifeguards, despite offering a big boost in pay over previous years. Supply chains are failing around the country in part because trucking firms can't find drivers. Long security lines in airports are a consequence of TSA wages failing to keep pace with jobs elsewhere.

"Baumol's law," as the principle is called, is a boon for teachers. Their 50 percent windfall is a direct consequence. Except that to teachers it doesn't seem like a windfall. As standards of living rise, so do expectations. Teachers, like other service workers, often feel, understandably, that they are having a hard time making ends meet. 

Economists, including Baumol, frequently have viewed the principle from the opposite direction, in terms of the failure of productivity in the service sector to keep up with that in manufacturing. From this view it is called "Baumol's disease," and it refers to the ineluctable tendency of the service economy to claim a larger and larger proportion of wages overall. Critics of higher education complain that college tuition has risen much faster than prices overall. Blame Baumol's disease. Would-be reformers of the health care system lament that it eats up ever more of America's GDP. Blame Baumol's disease.

Of course, teachers have to pay for health care. And most want to send their kids to college. For them, the Baumol principle cuts both ways. They benefit from the law and suffer from the disease.