Bastiat's Bastions

Take a look at this CNN article on trouble that New Orleans public schools are having in attracting teachers.

The idea of a compensating wage differential as at least as old as The Wealth of Nations, which Adam Smith (the father of modern economics) wrote in 1776.

Workers who work in jobs with more desirable conditions will accept lower wages than people who work in jobs with less desirable conditions. The gap between the wages of workers at different locations is though of a as a “compensating wage differential”. The additional wages are required to compensate the worker for working in less desirable conditions.

Why? The dynamics are simple. Suppose there are a number of identical workers, and two otherwise identical jobs. One job (think school) has a desirable characteristic, while another does not. If the wage started out the same in both schools, obviously people would be flocking to work at the school with the desirable characteristic rather than the school with the less desirable conditions. Principals would have many candidates to choose from at good condition schools, while principals at bad condition schools would have a difficult time attracting workers. In fact, there would be a shortage at bad condition schools and a surplus at good condition schools.

Now, some folks hoping to get a job at the good condition schools might offer to work at a slightly lower wage, or accept a lower wage, to avoid the bad condition school. So would others. We’d expect wages to fall at good schools. By the same token, some people would accept a job at the bad condition school if they were offered a higher wage. So would others. We’d expect wages to rise at bad schools.

Eventually, the size of the wage gap would change until there was no incentive to try to move from one type of school to the other. The “last” teacher would be indifferent between working at the good school or the bad school. The extra wages at the bad condition school would be just enough to compensate for the disutility associated with working under these bad conditions.

Now, back to the article…it points to a number of conditions in the public schools – all of which could be a source of a compensating wage differential: expensive housing prices, large class sizes, and violence in the area (and perhaps the school). The article points out public school district faces a shortage of workers, and further points out that “charter schools” don’t seem to be having a problem.

Some school officials even attempt appeal to potential teachers’ feelings of good will – hoping to get them to work in the public schools. Do you think their appeal to people’s good nature (“to their sense of adventure and desire to make a difference”) will be effective? I don’t think that will work. If you do, may I appeal to your sense of adventure to mow my grass? There must be a better way…

What does this information in the article tell you about the wage structure in the teaching market in New Orleans? How can the public schools solve the teaching “shortage? In fact, what is the only way they can solve the problem?

–CT

My brother just sent me this news story from Reuters:

http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyid=2006-11-16T185745Z_01_WBT006219_RTRUKOC_0_US-FRIEDMAN.xml&src=rss&rpc=23

The story is about the death of Milton Friedman at the age of 94. Professor Friedman was probably one of the 20th century’s most important social thinkers. His theories, and those of his followers, helped convince policy makers about the importance of bringing down inflation, and why inflation is such a poor tool to fight unemployment. In the 70s when I was in college, inflation spiralled from about 4% per year to about 13% and really got out of hand. Since then, the Fed has been more careful about the growth of the money supply and our inflation rate has gone to about 2-3% per year, as measured by the CPI, which usually overstates the inflation rate by at least 1 percentage point.

In addition, Milton Friedman has been a tireless freedom fighter, fighting for everyday freedoms. He also was the person who invented education vouchers and started the whole education choice discussion.

Professor Friedman will be missed, but he certainly will not be forgotten.

Morris Coats

One of New Orleans‘ original “Catholic League” schools, Holy Cross, recently announced its intention to move its campus out of the lower 9^th Ward. The area had been in decline for years and hurricane Katrina heavily damaged the century (plus) old campus. There was somewhat of a battle over the new site – some wanted the school to relocate to Jefferson Parish, others wanted Holy Cross to stay in New Orleans. New Orleans won, so to speak, as the school announced it will move into a recently vacated Archdiocese of New Orleans school district.

What I found interesting was the logic that some opponents used to fight against Holy Cross moving into Jefferson. A recent article in the Times Picayune stated:

Ray Ferrand, principal of Bonnabel High School in Kenner, said Holy Cross would increase its enrollment at the expense of Jefferson Parish’s public elementary, middle and high schools.

Joe Potts, head of the Jefferson Federation of Teachers, urged the board to reject the sale, saying it does nothing to help public school children.

Holy Cross charges a tuition of about $6,000 per year. If parents would opt to take their children out of Bonnabel, where they do not directly pay any tuition, to spend $6,000 per year, could this possibly be indicative of a problem with Jefferson‘s public schools? And is it is even plausible that increased competition for Jefferson‘s public schools could lead to improvements? If Holy Cross had paid Jefferson Parish more than $2 million for land, couldn’t that money have been put to use to aid the public schools?

NM

Credit where it's due – I snagged the article from thesportseconomist.

The topic is whether or not college athletes should be paid. The article, written by John Wilner at the Mercury News, reports a reasonable estimate of the amount of revenue that is "generated" by Cal's running back Marshawn Lynch.

Lynch is no average player – he is on a lot of pundits' short lists for the Heisman Trophy, an award given to the best college football player each year. The article points out that the scholarship Lynch receives as compensation for his services is worth in the neighborhood of $20,000, while Lynch brings in roughly $800,000 of revenue to the University. By the metric, Lynch is vastly underpaid.

Of course the source of this underpayment is the fact that the NCAA prohitibits colleges to pay college athletes – effectively capping their compensation at the value of the scholarship they receive. If Lynch were able to sell his services in a unrestricted market, there is no doubt he would earn much more money.

Do you expect athletes to be "paid" anytime soon? Three things to consider first.

1. The rhetoric on idealism, traditionalism, and amateurism. Is this just rhetoric? Or do people really like amateurism. Is college football even "amateur"?

2. Universities compete to field winning football programs. Univerities can improve their chances of winning by recruiting more talented players, more talented coaches, and by enhancing facilities, just to name a few. Since direct monetary compensation for athletes is prohibited, this will increase the intensity of competition on other margins. Fortunately for the folks who are coaches and athletic diretors, there is no cap on the compensation of coaches and athletic directors. In a world with pay for athletes, might coaches and administrators get a smaller fraction of the pie? Would these folks be in favor of paying players if it reduces their compensation? Who is on the front line of making the decisions about pay for athletes?

3. At big-time Division I programs, the football program turns a surplus (profit). Some of this surplus (which of course is larger because they do not have to pay players) is spread around to other athletic programs within the university that do not generate a surplus. For instance, women's soccer or men's golf – these programs are subsidized by the football program. If football players were paid, would this limit the funds available for these so called "non-revenue sports" (title IX considerations aside)? Will the women's soccer coach be in favor of paying footall players if it ultimately cuts in to the soccer budget?

–CT

I received a textbook in the mail today. It was from N. Gregory Mankiw. Dr. Mankiw wanted me to have a copy of his principles of microeconomics textbook, compliments of Dr. Mankiw.

I am not sure it will be a surprise, but college professors don’t pay for textbooks. There are (at least) two ways we can get the freebies (called “desk copies”).

1. We can request a desk copy. Essentially, I would be expressing some interest in adopting a text for a class, and the salesperson assigned to NSU will send me a copy. It would be very unusual for a professor who requested a copy to sell this book, but I had a few friends in grad school who drank many a beer on the book reps.

2. They simply arrive, unsolicited, at our offices. This is the case with Dr. Mankiw’s book. It turns out there is a new edition out, I once previously adopted this book, and it probably makes good marketing sense to send me a copy. Sometimes I get books unsolicited that I have never heard of that I am unlikely to adopt. Importantly, it is my sense is it is *not* that unusual for a professor who had *not* requested a copy of the book to sell the book.

Since the publishing company is not in the business of giving away free stuff for giggles, they must think that giving away desk copies leads to increased adoptions and thus greater demand. I bet they’re right.

However, interfering with their efforts are a legion of entrepenuers called “book buyers”. These folks knock on our doors, often. They offer us cash to part with our desk copies. Surely the value to me of possessing my 14th principles of microeconomics book is quite low, and these book buyers know this. They’d like to buy the books from professors and sell them to students or bookstores, who presumably are willing to pay more. In doing so, they earn a return for their services.

I respect these book buyers, they are making the world a better place – they move a book from a low valued use (sitting on my shelf collecting dust) to a high valued use (hopefully not *just* sitting on a shelf in some dorm room collecting dust).

Surely you could think of a reason why the publishers don’t like these book buyers. Used books and new books are substitutes. The existence of these used books surely reduces the demand for the new books.

Publishers have been dealing with this for some time. It used to be the case that a copy sent to a professor would be labeled Instructor’s Edition. The thought, no doubt was, that bookstores and bookbuyers or students would refuse to buy these books because they were originally complimentary. I’m not sure if you refuse to buy instructor’s copies, but they are out there. It wasn’t a slam dunk.

Finally, back to Dr. Mankiw. On the front cover of the book I received today, it says “Personalized Instructor’s Edition” and more importantly(?) it says “Specifically prepared for Professor Chad Turner, Nicholls State University, Compliments of N. Gregory Mankiw.”

Why would his publisher incur additional costs to print my name and university on the cover?

Do you think it will work?

Anybody want to buy my book?

–CT

Is there to much hub-bub about the error made by the SAT in scoring exams?

I am not sure I agree with the attitude of this article. It’s a little to flaky, a touch unbalanced, and entirely unsurprising to me.

The basic deal is that there were some high school kids who took the SAT and an error was made scoring their exams. 1% of test takers were affected, the vast majority of who received scores that were within 100 points of their true score.

Here are my least favorite excerpts:

For the last five years, Hamilton College in upstate New York has been one of a growing number of colleges not to require the SAT exam. The test causes too much anxiety, Hamilton concluded, and there’s a risk of missing bright students who don’t test well.

Hmmmn. Is the fact that there is a risk of missing bright students who don’t test well the reason that the admission process involves more than asking students what their SAT score is? That last time I applied to college, I was asked more than one question. Don’t get me wrong – Hamilton College is welcome to choose their own admission standards, but I hardly think that because Hamilton College doesn’t like SAT scores, the SAT should be scrapped. Nor will it be scrapped.

The error affected fewer than 1 percent of test-takers, and shouldn’t affect admissions decisions — though Inzer noted it’s too late for students to apply to schools they might have considered with a higher score.

Now hold on just a minute! First I listen to the folks at Hamilton College – I am supposed to be worried about students who don’t get into college because they don’t test well. Then I have to listen to the folks at Hamilton College – I have to feel bad about students who did not get into a better college because they tested slightly better than they thought they did?

I am I hearing this right? SAT scores don’t matter. Unless their good. Then they matter.

That mistake prompted a previous incarnation of Pearson Educational Management, which also scores the SAT, to pay a $7 million settlement. On college admissions bulletin boards this week, there was talk of lawsuits in response to the SAT gaffe, along with angry comments from students and parents.

We do live in a litigious society. I should have been a lawyer. I am going to go out on a limb and suggest that if these lawsuits are succsessful, the price of taking the SAT will increase. I can’t wait to read the article when people start complaining about the high price of the SAT next year.

Fair Test, Schaeffer’s group, wants more transparency and expansion of the rights of students to challenge their scores on standardized tests. The SAT error was uncovered because at least one student asked for a hand score. But that request costs $50 (refunded if an error is found), and there’s a risk of getting a lower score. The College Board says it gets about 500 such requests per year, most of which reveal no error. (emphasis added).

I know I am hearing this correctly. I am in favor of accurate SAT scores. Unless my SAT score goes down. Then I am in favor of inaccurate SAT scores.

Here, for giggles, I have noted the geographic area of everyone quoted in the article. I think you’ll find it is very representative. We’ve got upstate New York, New Hampshire, Maine, and D.C. Check out the map in the article too. I wonder how closely that map correlates with the 2004 Presidential election.

One more thing I find super interesting. Say you were going to sue – your kid got into say Hamilton College instead of Syracuse. Suppose you win. How do you prove damages? I haven’t met the economist that can precisely tell me the difference between the value of a Syracuse education and a Hamilton College education yet, but I am looking forward to it.

–CT

The College Board (CB) released a report and a press release celebrating the 50th anniversary of the Advanced Placement (AP) program.   For those of you not familiar with the program, students take rigorous high school classes in any of a number of topics.   Upon completion of their coursework, they take an AP exam.   If they pass (a score of 3 or better depending on the college), they earn college credit.

It seems clear from the release that the CB is interested in increasing AP participation.   I think that is a desirable goal.   I can think of at least two ways to improve participation.    

One way would be to take a group of highly motivated high-aptitude students who are already in a classroom with a great teacher.   They are not taking an AP course per se, but perhaps the curriculum could be adjusted and their course could become an AP class.       Students will not learn any less (hopefully even more) and many students will pass the AP test and earn cheap college credits.   The CB will smile as participation rates rise (progress!) while pass rate will remain constant (standards!).   This is a winner.

A second way would be to take a group of students who are whittling at the third grade level and change the name of their course to AP English.   Here, the participation rate would surely increase, but the pass rate would fall dramatically.   Keep in mind it is not free to make this change.  

Here is an excerpt from the press release.

“…new programs must be initiated to build schools’ capacities to offer AP courses to all student populations, especially underserved minority students and young people from rural America.”   Such initiatives…have been successful in many states.
 
In Arkansas last year, policy legislation resulted in record-breaking improvements in AP participation…Beginning with the 2008-09 school year, Arkansas legislation mandates that all school districts provide AP courses in each of the four core areas of mathematics, English, science, and social studies…Arkansas is covering the cost of the AP Exams for all students and is providing schools with professional development funds.

The results of Arkansas’s initiatives are unparalleled; in just one year’s time, Arkansas doubled the number of students participating in AP…”

I am always a bit skeptical when Arkansas breaks any record.   In 2000, 1166 out of 2208 Arkansas test takers (53%) passed their exams.   Not bad for Arkansas, but below the national average of 62% and even the 59% pass rate of Louisiana students.   In 2005, there were many more test takers indeed, 6393.   However, only 2058 of them (32%) passed.   If we look at the “extra” 4185 people that showed up in 2005, only 892 (21%) passed the test.  

You may be pleased.   An extra 892 people have passed tests under their belt.   At what cost were these gains achieved?   Perhaps these “professional development funds” are better spent elsewhere?   Do non-AP classes in Arkansas get larger?   Are other resources diverted from non-AP classes?   Or from lower grade levels?   Are these smart choices?  

Indeed, the increase in access in Arkansas is best in the nation.   Where in the press release does it mention that the reduction in the pass rate in Arkansas is the worst in the nation?

Chad Turner