In this EdChoice Chat, we interview Dr. Mike Podgursky, a labor economist who has studied teacher labor markets and pensions for decades.
Marty Lueken: Hello. I’m Marty Lueken, EdChoice’s director of fiscal policy and analysis. Today, I’m in the studio with Mike Podgursky, professor of economics at the University of Missouri, and a Friedman fellow for us here at EdChoice.
Thanks for joining me today, Mike.
Mike Podgursky: Well, thanks for having me. I’m pleased to be here at EdChoice, the former Friedman Foundation.
Marty Lueken: Right. Yeah, yeah. So, Mike, your work has had a considerable influence on K–12 policy, especially on teacher pensions. But you didn’t always work on pensions. You’ve written on all sorts of topics, many related to other aspects of the teachers’ labor market.
Correct me if I’m wrong, but you were one of just a few economists who started a few decades ago researching educational policy when the field was really dominated by researchers from colleges of education usually. Can you please tell our audience a bit about yourself and what brought you into the space?
Mike Podgursky: Well, I came out of graduate school with a stamp as labor economist on my forehead, and the field of economics of education was sort of new then basically, so I did labor economics. And, oh, I suppose in the early 90s, I got interested in public school teacher labor markets.
As I looked more at those markets, they were just sort of a bundle of pathologies. There was licensing. Complicated, dysfunctional licensing; single salary schedules; collective bargaining; and then pensions, as I would learn later. It was a lot of fun as an economist to sort of analyze this market that had so many rigidities and inefficiencies.
And then later on, I got in sort of a public debate with some of the people from colleges of education and teacher unions and accrediting organizations about reforming the teacher labor market and teacher training and licensing. So there were advocacy groups trying to push sort of a medical professional self-regulation model onto the market.
So, yes, it’s been interesting as an economist to do work in this area.
Marty Lueken: Oh, that’s great. And can you tell us about some of your current research, as well as what you’ve done, and perhaps what you’re working on now, or hoping to work on in the future?
Mike Podgursky: Well, again, as an economist, I was interested in lots of aspects of teacher labor markets, and so we wrote about licensing, and collective bargaining. A little bit on that. Training.
But I got interested a lot in teacher compensation and how teachers are paid and the level and the structure. And really starting in the early 2000s, I got interested in this teacher pension issue. It was clear even then that these teacher pensions were very peculiar things. They had a lot of odd features in them that you often didn’t see elsewhere. You certainly didn’t see in other professional labor markets.
The costs were rising even at that point, and they were going to start rising much faster, and they had just a bundle of odd incentives. And it was clear that they were pushing teachers, nudging teachers, incentivizing teachers to retire at relatively early ages, and they included very severe penalties for teacher mobility, if a teacher moved from one state to another.
So I’ve continued working mostly on the teacher pension issue because it’s really a big mess, so it deserves a lot of attention. They deserve a lot of attention.
Marty Lueken: Definitely. It’s interesting, we’re talking right now at the end of the week, the same week that the Supreme Court of the U.S. ruled on the landmark case Janus, about teacher union agency fees. Can you talk about what that ruling might mean for teacher pensions and for the teacher labor market just a little bit?
Mike Podgursky: As an economist who has studied teacher labor markets for about 40 … Well, as a labor economist, and then someone who’s looked at teacher labor markets for a long time, I can tell you that this is one of the most consequential policy changes or court decisions in my career, in my professional life. I think it’s going to have a huge effect on public K–12 education, although, again, these unions also operate in higher ed as well. But I think the biggest impact will be in public K–12 education.
Clearly, it’s going to change particularly in bargaining states. You’re going to see a big difference in labor management relations. I think it’s going to open a door to a great deal more flexibility. I also think in the area of policy in those states, there’s no question that the biggest player in the room, the one with the most clout in much of K–12 policy, including pensions, including school spending, has been the teacher unions. And this is going to reduce their influence in the political process.
And, yes, the strongest defenders of these traditional pension plans have been the teacher unions, and public employee unions generally. But in terms of teacher pensions, it’s teacher unions.
Marty Lueken: Right. So most of the focus of your work has been on pensions, and it’ll be really interesting to see how the effects from this decision play out. Can you tell us, what lessons should policymakers take away from your work, and is it linked in any way to school choice?
Mike Podgursky: Well, I guess in a nutshell, I’d say the lesson or the situation, if you will, with teacher pensions is their costs have exploded in almost every state. Fifteen years ago, public school pensions accounted for about five cents of the education dollar. It’s now about 11 to 12 cents, so their share of the education dollar has grown dramatically. The reason for that increase is that the pension plans are underwater. That is to say, they don’t have enough assets to pay for the liabilities they’ve incurred, and so that’s forced higher contribution rates for teachers and K–12 employees, as well as higher payments by school districts, and legislatures. So they’ve become very costly, and I think there’s good reason to believe these costs will continue to rise.
But putting that aside, I think that these traditional plans are not well designed for recruiting and retaining high-quality teachers. They’re designed to punish mobility, and young people are mobile. So if they’re designed to sort of hold you in place for a certain period of time, and then actually incentivize you to retire at relatively early ages … Teachers retire … It varies a bit from state to state, but in Missouri, for example, around age 57 or 58 is a typical retirement age. I mean, you would be very hard pressed to find a math teacher who is 60 or older in a public school in the U.S. There’s some, but the pension systems are encouraging what we call churn, producing more turnover than you would in a system that didn’t have these kinds of incentives, and most individuals would work to a traditional Social Security retirement ages from 62 to 66.
And the pensions aren’t mobile, so if teachers move, even if they work a full career in teaching, if they spend half their 15 years in Missouri and then 15 years in Kansas, they’re going to have severe penalties. As we call it, or as we measure it, they would lose about half their pension wealth by moving around, and moving from one place to another, which is what professionals do. Professionals tend to move, and mobility is good. If there’s schools that need teachers in Austin, Texas, and there’s declining enrollments in southeast Missouri, then an efficient labor market would encourage teachers to move from areas where there’s less need for teachers to areas where there’s more need for teachers. But the pension plans are designed to punish that.
We could do better with the money we’re spending than what we have here.
Marty Lueken: Interesting.
Now, proponents of these plans, specifically these defined benefit plans, they often argue that these plans are effective and needed for retaining teachers to incentivize them to stay in a district for a full career. And that’s what they’re designed to do, and they’re doing that well. So what does the research say, if anything, on this question?
Mike Podgursky: Well, we see no evidence that these kinds of plans improve the quality of the workforce as compared to, say, a traditional 401(k) or a 403(b) type defined contribution plan. But, again, it’s an experiment that we haven’t run on a large scale because almost all states are in these kinds of plans, but we know that lots of charter schools, for example, have opted out of these state plans. In 20 states, charter schools can opt out, and in those states, they’re doing just fine recruiting teachers with the kinds of plans that are typical for young professionals in virtually any other endeavor, including, I’m sure, here at EdChoice. Some kind of 401(k) or 403(b) type plan.
So, again, there’s no evidence that these plans are improving the quality of the incoming teachers. In fact, most young teachers have no idea about how their plans work. They know very little about these. On the other hand, they do know that a lot of money is coming out of their paychecks to pay for these, so that’s very salient for them. And if you put them in a less expensive and more mobile plan, you could pay them higher starting salaries.
So the question is one of trade-offs, and I think there’s good reason to believe that if you put more money up front in salaries rather than these very expensive backloaded benefits, you could actually do a better job of recruiting young teachers.
Marty Lueken: So what needs and priorities do you see for the future of school choice research?
Mike Podgursky: Well, I think that, in my own little, narrow terrain, what school choice shows is that you can deliver high quality teaching from a charter school or private school without these kinds of very costly kind of benefit structures. Private schools recruit teachers, and they don’t do these things. Many charter schools recruit very good teachers, and they don’t have these kinds of pension plans.
So I think that introducing more choice and sort of diversity in the sort of output space, that is in terms of the market for K–12 education, will introduce more choice and diversity in the teacher labor market. You’re not going to see this sort of one-size-fits-all compensation structure where, again, we haven’t talked about teacher salary schedules.
So in Dallas, tens of thousands of teachers all march according to the same salary schedule. If you have a bachelor’s degree and five years of experience, you make the same salary whatever you’re teaching and whatever school you’re in. So these kinds of rigidities sort of go with the monopoly in the product market, as economists would say. If you break up the monopoly in the product market, you’re going to see more diversity in choice for teachers and education professionals.
Marty Lueken: Great. And you’ve done quite a bit of work studying retirements in charter schools. Are you continuing that line of research, or do you have anything new or forthcoming that you’d like to plug? Or was there anything that our listeners should keep an eye out for?
Mike Podgursky: Well, my own work sort of as a professional economist for academic journals has been sort of modeling how teachers respond to pension plan incentives, so I think the force of circumstances is going to produce changes in these pension plans for teachers in most states. Some are going to stick with the sort of defined benefit structure, but others are going to introduce what are called hybrids plans—a mix of defined contribution, defined benefits. Some have moved away from the defined benefit plans altogether. And if you want to determine what that’s going to do for the workforce, and how much it’s going to cost, and so on, you need some good economic models, so I’ve been working on that issue.
As I indicated in earlier remarks, we have this interesting laboratory in the charter schools where in 20 states charters can opt out of the state teacher plans. Usually they have to do it when the school first opens. It’s a little hard to get out sometimes after you’ve already been in; it’s a bit like the Hotel California. But it’s been very understudied what they actually do, and what kinds of plans they put in place, and what their teachers think about those plans, and what their effects have been. So it’s a fascinating area to study that really hasn’t been looked at.
So I’m working on that, and trying to get some case studies of some interesting plans. And charter school chains … There’s a fancy word for that, charter maintenance organizations.
Marty Lueken: CMOs, right.
Mike Podgursky: CMOs, yes, that operate many charter schools. So, like, KIPP Academy, or Success Academy. So to what extent are they carrying these models from place to place?
So it’s a fascinating sector with lots of innovation going on, and it’s the market at work. And, by the way, it’s a good example of what I said earlier, that you have school choice in those markets, and the school choice in the output market … That is to say the choice for the parents produces diversity, and innovation, and variety in the way that teachers are paid and the benefit structures and so on, and so it gives an economist like me something to study.
Marty Lueken: I think another area that educational choice can improve, which we’ve brought up in past conversations, is transparency. With all these hidden costs in public schools, whereas, say, with an educational savings account, an ESA, or $7,000 or whatever, and boom, that’s it.
This is interesting. We’ll have to keep an eye out for some more of your work on this issue.
Well, Mike, it’s always been a pleasure talking with you. Thanks for being with us today.
Mike Podgursky: Well, thanks for being such strong proponents of choice for parents and kids.
Marty Lueken: Thank you.
Be sure to subscribe to our podcast for more of our coverage of new school choice research, education reform policy chats and more. Thank you for listening, and we’ll see you soon for more EdChoice Chats.