When Unified Teacher Pay Scales Meet Differential Alternative Returns

Abstract

This paper quantifies the extent to which unified teacher pay scales and differential alternatives produce opportunity costs that are asymmetric in math and verbal skills. Data from the Baccalaureate and Beyond 1997 and 2003 follow-ups are used to estimate a fully parametric, selection-corrected wage equation for nonteachers, which is then used to predict the wages that teachers would have received in a nonteaching career. The difference between actual teacher salaries and this prediction can be considered the opportunity cost of teaching. Moving up one standard deviation in math SAT score increases the opportunity cost of teaching by $1,500 to $2,000 four years after college, rising to $3,000 to $3,800 ten years after college. Moving up one standard deviation in verbal SAT score increases the opportunity cost by $300 four years after college, and by $1,300 ten years after college. The teacher salary gap is also decomposed into policy versus teacher-characteristic components.