How Much Does A Teacher Really Make?
- Posted by Jeff Carter
- on October 5th, 2010
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
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.
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Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)