How Much Does A Teacher Really Make?

Updated

There are so many arguments about teacher pay. Everywhere in the country, Democrats are shilling for more teacher pay which is really a sell-out to the Teacher’s Union. Democrats fight school choice at every single turn. They hurt underprivileged and poor kids when they do. Yet, many of those same people active in killing school choice send their kids to private schools.

No one is saying teachers do not provide a service. The reason they are paid what they are paid is that they are unionized, and it’s simply not that difficult to become a teacher compared to say a lawyer, accountant, or doctor. Other professions that make a lot of money have significantly higher degrees of risk. There is no risk of losing your entire year’s worth of salary if you are a teacher. There is one on Wall Street. Salespeople can work years on one sale that will bring them a big commission and it can fall through.

The other thing to remember about salaries is that the higher you go in a public company, the more influence you have over the bottom line. Doesn’t it make sense that someone who is a C-Suite executive that has responsibility for billions in assets makes more than a teacher?

Doesn’t it make sense that someone in a startup who makes little to no salary with a lot of risk but builds a business cashes in on their equity for taking the risk compared to a teacher who takes zero risk and has a job that a lot of people can qualify for?

I did a blog post years ago. I originally published this on my old blog (which is dark but I have access to the archives) on October 5th, 2010. Here it is in its entirety for context.

Here is some math on teachers’ salaries. It's a good way to look at the problems that face us regarding how much a government worker receives, along with their pension. Teachers are valuable government employees. We entrust them to build the human capital of the nation. Looking at their salaries should make you think about ALL government employee salaries and pensions.

It is very difficult to compare a teaching salary to a private sector employee for a number of reasons. Teachers have virtually no risk of getting laid off. If they perform poorly or spectacularly, they receive the same pay. They don't work nearly as many hours as private sector employees, nor as many days. They are guaranteed a defined benefit pension when they retire.

In Illinois, the average teacher makes $61,402.  By the way, the average administrator makes $106,217.00! Illinois teachers work around 176 days, 300 minutes, or 5 hours, per day.  On average, they make $348.88 per day, $1.16 per minute, or $69.60 per hour guaranteed.

Is that what they really make? Because they have a defined benefit pension package, they actually make significantly more.  The average pension per year for an Illinois teacher is $43,164.  Most Illinois teachers work for 12 years. That 43k is a 2010 figure. Every year after, there is a 3% cost of living raise, compounded annually, included in the defined benefit.   If you take the net present value the cash flows of that over the average lifespan, and then amortize and add it into the average salary, you will get a better picture of how much teachers are really working for per year.

In order to do this fairly and accurately, there are some assumptions.  Assume an average lifespan to age 78, and also assume that they don't collect the pension until they are age 55.  That's 23 years of a defined benefit pension that increases at 3% compounded annually.  Assume also that they have to wait from the age of 34 to get the payments, or 21 years.  We discount back to find out the value of the stream of cash.  Using a conservative discount factor of 5%, the total stream of payments is worth $290,756.  Amortizing them over the 12 years an average teacher works, you get an extra $24,229.67 per year.  So, in actuality their salary really is $85,631.67.  This number ignores health benefits, which are also paid for.  If you wanted to figure in health benefits, a low deductible gold plated plan costs around $20,000 per year for a family of four.  That brings their salary up to $105,631.67, or $120 bucks an hour.

You can see, you won't get fabulously wealthy being an educator, but you certainly can be comfortable. I don't want to be seen as beating up on teachers. Society needs good teachers. However, our society needs to rethink how we pay them. Unionization hasn't been good to good teachers, and it hasn't been beneficial for society. Unions only help the poor teachers.

To compare, the average private sector employee makes $59,909, but that includes all private employees, even ones making hourly wages at fast food establishments.  It's pretty tough to nail down what a person with comparable responsibilities and education to a teacher makes.  A very rough range of estimates is somewhere between $60,000 to $100,000 per year.  Of course, the hours worked are a lot more than 5 per day!  There is also the risk of job loss.

I don't think teachers are overpaid-however they are over pensioned.  It would be better for society to toss out the teachers unions, figure out a better job design for them.  It would also be better for everyone to front load the money teachers receive, and give them a defined contribution pension package.  They will be incentivized to turn out a better product, educated kids.

Tip of the hat to my friend who knows Excel better than I!

Here is the math.

Future Value     Years    Present Value

$ 43,164                 21             $ 15,493

$ 44,459                 22            $ 15,198

$ 45,793                 23            $ 14,909

$ 47,166                 24             $ 14,625

$ 48,581                 25             $ 14,346

$ 50,039                 26             $ 14,073

$ 51,540                  27             $ 13,805

$ 53,086                 28             $ 13,542

$ 54,679                  29             $ 13,284

$ 56,319                  30             $ 13,031

$ 58,009                 31             $ 12,783

$ 59,749                 32             $ 12,539

$ 61,542                  33            $ 12,300

$ 63,388                 34             $ 12,066

$ 65,289                 35             $ 11,836

$ 67,248                 36             $ 11,611

$ 69,266                  37             $ 11,390

$ 71,344                  38             $ 11,173

$ 73,484                 39              $ 10,960

$ 75,688                 40             $ 10,751

$ 77,959                  41             $ 10,546

$ 80,298                 42             $ 10,346

$ 82,707                  43            $ 10,148

Present Value (Total): $ 290,756

UPDATE

No surprise that I am getting pushback on this post. My assumptions are clearly laid out, and the numbers are above. Generally, the complaints are that teachers work longer than 300 minutes a day. But, by Illinois law, they only have to work 300 minutes a day. No doubt, teachers arrive at work earlier than their first class. No doubt, many stay later. No doubt, teachers grade papers at night, working at home. But, how do you account for that randomness?

There is no statewide average of how much work Illinois teachers do out of the classroom. If I assumed a number, lets say 2 hours; there would be pushback on that number. Since there is a lot of randomness, it is pretty hard to get an exact average unless we went and surveyed a random sample of teachers. My guess is if they knew they were being surveyed, they would say they worked longer hours than they actually did-it's human nature.

There are also differences in hours district to district. I chose the state law. It is the least common denominator. If teachers in your school district work more hours, the hourly wage goes down. But the pension figures remain the same.

Let’s update this, and try to scale it nationwide. I will show all the math and sources for stats.

For the math:

Average Teacher’s Salary/number of days in school year+Average pension per year, discounted back using net present value/number of days in a school year=Average pay per day

Average pay per day/hours in a school day=Average pay per hour

Teachers’ pay and pensions vary state by state and even county by county. In my old home state of Illinois, teacher’s pensions used to be super generous and now they are less generous. However, there is ZERO risk with public pensions that are defined benefits. They are guaranteed to get benefits with a cost of living (COLA) raise. That’s why you have to discount the pension back into the salary to get the real rate of pay.

Understand?

You can argue about how many hours a teacher works in a day. Some work more than others and there is no way to clock how many hours they work on average. There is way too much variability, so you can only count the hours they are in the building to arrive at some meaningful arithmetic average.

Here is the average salary of a teacher in the United States:

$63,645. Here is my source. According to the NEA, the average starting salary for a teacher is $41,770. The reason the teachers are so upset about salary is inflation. However, that’s true for every occupation, so the logic carries no water.

Teachers make on average $63,645/180 days/8 hours=$44.20

Then there is the pension. It’s guaranteed with a cost of living increase every year come hell or high water. That means when we had low inflation and 0% interest rate which was killing private pension retirees, public sector employees like teachers were still getting guaranteed no-risk raises every year.

This article is a great primer on teacher’s pensions, and why it pays to stay in the game from the ages of 55 to 65, but no longer.

Pensions are calculated using an algorithm. Years of service x a multiple + other factors (these vary by state).

Using 30 years of service as a benchmark means someone can retire at age 51/52. It’s a good representation of a typical teacher’s pension. Of course, get a Master’s or a Doctorate, and the pay gets better for both your current and pension pay.

From the above-linked article:

Let’s do an example. Let’s say you are interested in teaching in Iowa and you looked up a salary schedule for a district in Iowa where you would like to teach. In Iowa you find the FAS by using the 5 highest salary years (see Column P). For the example let’s say you determine the FAS from years 26 through 30 on the salary schedule and come up with about $80,000 for the FAS. In Iowa Column M shows that you must either be age 62 or your YOS plus age must equal 88 to receive full benefits. Assuming you start teaching at age 23 then you could retire at age 56 with 33 YOS. (Column R shows the penalty if you retired before meeting the 88 rule.) The multiplier is 2% for the first 30 years and 1% for each additional year so the estimated pension would be calculated like this:   YOS x FAS x multiplier (for each multiplier)

(30 x 80,000 x 0.02) + (3 x 80,000 x 0.01) = $48,000 + $2,400 = $50,400

To calculate a total salary of today, I will use the $69k and assume it’s the midpoint of a career in teaching (15 years) and the Iowa number for the pension of $50K with a COLA of 3% per year and an average life span of 74 years. That means a teacher will collect a pension for about 21 years.

COLA 3%

Discount Rate5.50%

End of Year 0 $50,000

End of Year 1 $51,500. Total$1,383,824

End of Year 2 $53,045 NPV$784,846

End of Year 3 $54,636

End of Year 4 $56,275

End of Year 5 $57,964

End of Year 6 $59,703

End of Year 7 $61,494

End of Year 8 $63,339

End of Year 9 $65,239

End of Year 10 $67,196

End of Year 11 $69,212

End of Year 12 $71,288

End of Year 13 $73,427

End of Year 14 $75,629

End of Year 15 $77,898

End of Year 16 $80,235

End of Year 17 $82,642

End of Year 18 $85,122

End of Year 19 $87,675

End of Year 20 $90,306

Let’s take the $784,846 and load it into the salary. $784,846/180 days/8 hours per day=$545

$44.20+$545=$589.20 per day or $106,056.00, risk free. That is one of the highest incomes earned by workers in the United States. Upper 80% of all income earners. For certain, you aren’t getting filthy rich but you aren’t going to be poor either.

That’s how much teachers really make. You can work the same formulas with your local figures to see how much local teachers are making. They deserve to be paid but I think there is a lot of virtue signaling over their pay.

I also agree with my point in the original blog. If teachers went to a defined contribution pension plan instead of a defined benefit, I would pay them more in their current salary. That also should attract higher quality teachers, since pay goes up. Demand for those jobs would go up.

School choice is also critical, and decertifying the teachers union. Teachers would make more money in a merit-based system and education would be better for it.