The U.S. economy is booming, and labor markets are as tight as they have ever been in the last four decades.
This was manifest in a recent Newsweek magazine cover story. “Who will teach our kids?” was blazoned across the photo of a wistful elementary student. A subhead noted that “Half of all teachers will retire by 2010,” and offered “what schools and parents can do.”
My local public radio station devoted an hour of its morning call-in program to a similar situation, a looming shortfall in the number of nurses. One caller after another described the difficulty clinics and hospitals are experiencing getting the nurses they need.
I am not an expert on education or health care. But after running a series of the most sophisticated econometric models at my disposal, I have come up with a solution for the critical shortage of teachers and nurses: Pay them more!
Markets cannot solve every problem. But thousands of years of experience tell us that if you want more of something, raising the price you are willing to pay for it is a good first step. It is especially applicable in this case; because teaching and nursing stand out as two professions where the number of working-age people in the population with necessary training is much higher than the number actually engaged in the professions’ jobs.
Many people study to become a teacher, an RN or an LPN, work in those specialties for some time and then leave for other work or to raise children and take up a different career afterwards. Some undoubtedly leave because they discovered that they were not cut out for teaching or nursing, both stressful occupations.
But many others left because, while they found these professions enjoyable, the combination of monetary compensation and personal satisfaction from teaching or nursing simply did not equal that available in other careers.
You may protest that teachers’ salaries have risen more than inflation since the publication of “A Nation at Risk,” the seminal warning report on inadequacies in U.S. education nearly 20 years ago.
True enough, but over the same period working conditions and public respect have fallen. The average public school teacher has a substantially heavier paperwork load, much of it a result of well-meaning initiatives such as Minnesota’s Profile of Learning. Discipline is no easier, and both students and parents are more confrontational than before. Teaching was once an occupation that involved community respect; now teachers are frequent recipients of scornful criticism from society as a whole.
Nursing wages have similarly gone up in real terms, but cost containment efforts in the health care industry have produced heavier workloads and greater stress for many nurses.
Perhaps more importantly, the monetary opportunity cost of teaching and nursing has risen substantially in recent years. Higher wages in other occupations mean that leaving teaching or nursing is monetarily more attractive than before. As a result, schools and hospitals will have to pay more or they will continue to lose some of their best people.
This phenomenon, true across all occupations, has become known as the “Baumol effect” after Princeton and NYU economist William Baumol. He noted that wages rose in sectors with growing labor productivity, such as information technology or just-in-time manufacturing. But rising wages in those sectors drives up wages even in sectors with stagnant productivity as employers in the latter industries fight to keep from losing employees to higher-productivity, higher-paying companies.
Another facet of this phenomenon is the gap between charges for the same service in poor and rich countries. I can get a good haircut in many smaller Peruvian cities for about $1. Here I pay 10 to 15 times as much for a cut that is seldom as good as ones I got in Peru.
Why such a big difference? Because if the compensation were only a dollar, there would be few barbers in the U.S. People willing to do haircuts for $10 would quickly become plumbers or programmers if the rate were slashed by 90 percent.
Raising salaries for nurses and teachers is the simplest, most straightforward measure that can be taken to alleviate any “shortage” of these necessary workers. It is not easy because most teachers and some nurses are public employees, and higher salaries probably mean higher taxes.
The majority of nurses who are in the private sector unfortunately make up part of an industry characterized by rapidly rising costs. Expensive new technology and drugs, together with an aging population, are a much bigger component in rising health care costs than nursing salaries, but nurses will have to negotiate in an atmosphere of brutal pressures for cost containment.
Exactly how this will all play out over the next few years is not clear. But in the medium and long run, if society wants skilled teachers and nurses it will have to pay enough to make careers in these professions attractive relative to alternatives. No sector is exempt from that most fundamental principal in economics: opportunity cost.
© 2000 Edward Lotterman
Chanarambie Consulting, Inc.