Hot for teacher? Not exactly.

Ontario's elementary school teachers have rejected the province's contract offer (which includes a 12.55% raise over the next four years), obstensibly over unequal per-student funding and the gap in preparation times relative to their secondary school counterparts. The elementary school teachers want funding and prep time equalized. The current offer stipulates that elementary teachers receive 240 minutes of prep per week while secondary teachers receive 375 hours. All other teacher unions have approved the contract; the failure of the elementary teacher's union to the same by Sunday's deadline rescinds the offer and replaces it with a new one that involves a raise of just 2% for each of the next two years. This observer wonders whether there is any practical reason other than self-interest to equalize funding and preparation time across levels of education (surely high school sports and band programs are more expensive than elementary music and field day programs!). But my interest is not really in these negotiations. Rather, the story has motivated me to comment on a broader issue in the labour market for teachers.

There seems to be a wide consensus that workers should be paid according to the perceived value that society places on their (combined) output. Teachers, who are responsible for the education of our children, are highly considered workers and therefore viewed as "underpaid". Skilled athletes, whose performances entertain rather than sustain, are frequently viewed as "overpaid". But in a market economy, wages are not determined solely by the willingness of employers to pay. The relevant economic concept is "SUPPLY and demand", not "demand". If the market functions properly, wages adjust so that the supply of labour is equal to the demand for labour.

Why am I bringing this up? To point out that current compensation of teachers, driven by the unionized bargaining process, has generated a surplus of qualified teachers. The Ontario College of Teachers most recent Transition to Teaching report states that "by 2006 the excess of new teachers beyond retirement needs had reached 7,000 annually". The story is similar in other provinces. It is now common for newly licensed teachers to wait several years before finding regular, full-time work. Most people in their mid-20s know several education grads who have struggled to find a permanent position.

This surplus of teachers is not spread evenly across various subgroups. French-language and math/science/technology teachers tend to fare better in their search for work relative to English-language primary/humanities teachers. For example, only 1/3 of the English-language Primary-Junior teachers in Ontario's class of 2005 had found regular work two years after graduation whereas 3/4 of French-language teachers from the same class had been hired into permanent positions. [The fact that the market for elementary teachers is more over-supplied than that for secondary teachers makes their union's demands all the more untenable]

There are two ways to fix this chronic over-supply of teachers.

(a) Restrict the number of teaching licenses that are awarded. This could be done in several ways. For example, a simple cut to the number available spots. That is, limit the number of openings in teachers' colleges. Not only would this decrease the surplus but it may also act as a signal to prospective education students, causing less enthusiastic applicants to look elsewhere. But this may not be ideal as it would involve additional evaluation costs and/or unfair rationing. There could instead be new measures to emphasize the needs that exist, i.e. science and technology, in the application process. Another possibility would be to increase tuition in teacher's college (especially for the most over-supplied groups). A sufficient increase in fees will divert students away from education.

(b) Allow wages and benefits to adjust downward. The fact is that the high levels of compensation given to teachers have drawn an excessive amount of labour into the market. Were the free market allowed to operate, wages would decline leading some potential teachers to exit the market. As wages fall schools will also be more inclined to hire more teachers. The process ends when equilibrium is restored.

Option (b) is the preferred market-based solution to our problem. The end result would be higher employment, smaller salaries, and fewer struggling entrants. Is that better than the current situation? Presently-employed teachers and their union would say no because they would be net losers. But those on the outside looking in would definitely gain. And everybody (public included) would benefit from lower student-teacher ratios. But, as mentioned, the labour market for teachers is unionized, and so option (b) is unlikely to occur. The provincial government, then, needs to find a way to ensure that fewer students enter education programs. The incentive structure is flawed and the surplus will only grow as the fertility rate declines. If nothing is done, this flagrant misallocation of resources will continue unabated.

Of course, the Ontario government may not agree that the surplus of qualified teachers is a problem.

UPDATE: The Province of Ontario has extended the deadline for the Elementary Teachers' Federation to sign the contract offer until Friday.