Abstract

Teachers, as public sector workers with strong unions, are in a position to earn rents. However, with concerns of teacher shortages and deteriorating teaching conditions, it is unclear whether teachers are earning rents or simply being compensated for the undesirable amenities teaching entails. This paper investigates which narrative dominates today. Using quasi-experimental designs, novel administrative data, and a survey containing stated-preference experiments over working conditions, I estimate the pay gap and the gap in the value of working conditions between teaching and teachers' next-best jobs, and combine the estimates to obtain the difference in overall compensation between jobs. Using a fuzzy regression kink design that leverages quasi-experimental variation in who becomes certified to teach in Kentucky, I find that teaching pays a premium of $18-21,000/yr (33-40% of the teaching salary) above teachers' next-best options. Event studies around teacher exits yield similar results. Fielding the Maestas et al. 2023 working conditions survey and stated-preference experiments to Kentucky teachers, I find that teaching offers relatively poor working conditions, and estimate that Kentucky teachers are willing to pay 29-36% of their salary to switch to a job with better working conditions. Taken together, my findings suggest that there is a large pay gap between teaching and teachers' next-best options that is mostly a compensating differential rather than a rent.