The (Enormous) Economic Returns to a Good Teacher

By 04/05/2011

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It has now become conventional wisdom that teachers are the most important ingredient in an effective school.  It is probably also the case that teachers are the most important ingredient in an ineffective school.  The point is that that there are large differences in teacher quality, and these differences are felt in very tangible ways by students and by U.S. society.

Even as parents and policy makers repeat the line that good teachers are very important, they seldom understand just how important.  Discussions of standard deviations of test scores simply have little meaning to most people (including assessment people themselves).

I have tried to describe the value of teachers in a narrow but important and understandable way.  In an article published today in Education Next, I calculate the value of a good (and a bad) teacher by tracing the economic ramifications of differences in student achievement.  It turns out that this involves a fairly straightforward set of calculations.  A good teacher gets above average achievement out of her students.  We have clear and consistent measures of the achievement impact of a good teacher.  We also have very consistent measures of the impact on an individual’s future earnings of having higher achievement.  Put these two things together and one gets a direct estimate of how much the average student can expect to gain from having a top teacher.

The numbers are astounding.  A teacher at the 85th percentile can, in comparison to an average teacher, raise the present value of each student’s lifetime earnings by over $20,000–implying that such a teacher with a class of 20 students generates over $400,000 in economic benefits, compared to an average teacher, for each year that she gets such achievement gains.

Gains go up and down with how good the teacher is and with how many students she has.  And the gains are symmetrical in comparison to the average teacher – a teacher at the 15th percentile subtracts $400,000 in value from her class of 20 students.

An alternative way to value of teachers simply focuses on the aggregate costs to the U.S. economy of tolerating poor teachers in the classroom.  Again, by using information about quality differences among teachers, if we could replace the bottom 5-8 percent of our teachers with average teachers, we could move our students’  achievement up to that of Canada.  Because the quality of the labor force is directly related to what students know (as measured by math and science tests), the economy would by historical patterns tend to growth more rapidly with improvements in achievement (see the discussion in “Education and Economic Growth” ).   We can then use historical patterns of growth to estimate the aggregate economic value of greater achievement.  Moving to the level of Canada has a present value of over $75 trillion.

These calculations are described in detail in the Education Next article, “Valuing Teachers.”

The simple argument is that these gains – to individuals and to society – seem large enough that we might consider more fundamental changes to the way we run our schools.  We need to pay much more attention to ensuring that there is an effective teacher in every classroom.

-Eric Hanushek

Comment on this article
  • Hannes Minkema says:

    Mr. Hanushek forgets to mention that there will always be another ‘lowest 5 to 8 percent’. When the first cohort of ‘5 to 8 percent’ of teachers has been ‘removed’ and substituted by more capable teachers (that is: if we find them) there will be a new cohort of ‘5 to 8 percent’ teachers whose asses are on the line. After a number of years, a third or more of the existing teachers will have fallen victim to this ideology that a profession should not accept that the ‘lowest 5 to 8 percent’ exist and will always exist.

    Erroneously, Mr. Hanushek believes that the standardized tests available today are a proper means to discern ‘ineffective teachers’ from the ‘effective’ ones. It is a both naive and harmful view on these tests. At best – and no, these tests are not necessarily ‘best’ – they sample a small part of all the important teacher competencies exerted in (and outside) the classroom. ‘Effective’ teachers who teach to the test at the expense of a broader curriculum, teachers who are so lucky as to have many privileged children in their classes, or teaches who neglect the time-consuming special care and attention that only some children need, will not end up in the bottom 5 to 8 percent. It is what the tests do *not* tell us. I guess Mr. Hanushek would not buy a car using only ‘maximum speed’ as a criterion.

    Yet the most important problem I have with Mr. Hanushek’s ideology-based proposal is that it is short-sightened. By changing a teacher’s profession into a perilous affair and a rat race, with many pink slips being handed out each year, by sewing distrust among colleagues, by exposing teachers to unfair high-stakes evaluations, Mr. Hanushek turns the teaching profession into a highly unattractive prospect for the intelligent, ambitious students that American education so desperately needs. Mr. Hanushek can bet that the influx of new teachers will lose quality from the very moment that his proposal is implemented.

    And that is bad news for *all* US students, not just for the ‘5 to 8 percent’ about whom the magical ‘tests’ revelates that they are ‘ineffectively taught’.

    What makes it so hard to learn from Finland, that prime example of teacher and teaching quality, where learning outcomes surpass the US by a stretch? In Finland, it is hard to become a teacher because the demands are high. Finland does not send bad teachers away; they simply select only the good ones. Once a student has become a teacher, he has the trust of his country and this school, and uses his intellect and ability to give the best lessons possible. Students get 20% fewer lessons than in the US, teachers teach 25% hours less than US teachers, yet the results are spectacularly better. There is a big satisfaction among students, teachers and parents concerning the quality of education.

    Why is it so hard for a Stanford fellow to learn that simple lesson? Forget ideology. Use common sense. Really, it helps.

  • Anne Geiger says:

    From your article–

    “We do not pretend here to know how to calculate the life-transforming effects that such teachers can have with particular students. But we can calculate more prosaic economic values related to effective teaching, by drawing on a research literature that provides surprisingly precise estimates of the impact of student achievement levels on their lifetime earnings and by combining this with estimated impacts of more-effective teachers on student achievement.

    Let’s start with the researcher’s point of view. With a normal distribution of performance (the classic bell curve), a standard deviation is simply a more precise measure of how spread out the distribution is. Somebody who is one standard deviation above average would be at the 84th percentile of the distribution. If we then turn to the labor market, a student with achievement (as measured by test performance in high school) that is one standard deviation above average can later in life expect to take in 10 to 15 percent higher earnings per year.”

    As a layman who is not a teacher, but a parent, I am befuddled by your explanation of how to measure what effective teaching is, other than the standardized test scores of students. This while you say, “We do not pretend here to know how to calculate the life-transforming effects that such teachers can have with particular students…”

    Two examples from my life. As a teenager, my biology teacher “transformed” my life in multiple ways, by having us read non-fiction books about science, leading us in rich, exciting, hands-on experiments, having confidence in me that few other teachers had previously displayed, etc. etc….I was an average bubble-test taker, but have been successful in multiple ways, many of which don’t involve my lifetime earnings.

    Second. My oldest child was taught by a fresh-out-of-school teacher in kindergarten. I was nervous that she was not prepared, but she turned out to be good. She was not perfect and had a lot of growing to do, but since then she has become one of the “best” teachers in the same elementary school today. I cannot begin to measure how she was and is now effective, but can give you a list of tangibles and intangibles that helped give my daughter a strong start in her schooling. She has chosen a creative field that is probably going to be a hard path, but I know she will be successful in many ways beyond her lifetime earnings. I certainly would not have wanted this young teacher’s effectiveness measured by my daughter’s test scores over her years in public schools, her grades in college or her projected lifetime earnings. Teaching and learning over 13 years involve too many people, too many circumstances, too many conditions to do that fairly or accurately with an algorithm of test scores and earnings potential.

    These “prosaic” measurements seem narrow to me and far removed from real classroom learning, where relationships between teachers and students, between teachers and teachers, between families and schools…form a path of learning for our children. You mention Finland and Canada. I certainly hope our nearby neighbor is not contemplating what you are suggesting. I do know a bit about Finland. They have a culture of learning, a culture of respect, a culture of community in which their teachers have great autonomy and flexibility. The government pays for their entire education. Interestingly, they have strong teachers’ unions. They have no charter schools of which I am aware. They use standardized testing in very limited ways. They focus very effectively on reducing poverty. Nearly a quarter of our nation’s children live in poverty. A teacher, no matter how “effective” he or she is in raising test scores, can overcome the complex, chronic challenges of students living in poverty.

    Maybe you should send this article to a group of “effective” teachers (at the “top” of your test-score bell curve and those who are considered the “best” in ways that go beyond student test scores and are employed in a full range of schools). Get their opinions about how to identify the best, how to hold onto them, how to make them better, and how to identify those few among them who are not “effective.” And make it a large-enough statistical group. Strong teachers don’t want colleagues who aren’t helpful to the whole path of teaching and learning any more than the rest of us do in any other profession. I would predict that they would suggest proposals quite different than these very simplistic ones.

  • Sal P. says:

    It’s certainly true that a good teacher can make a huge impact on students. Although economic achievement is not wholly the effect of the teacher but also the background and philosophy of the child and family. For instance I grew up in a neighborhood where the majority of students were either immigrants or the children of recent immigrants. Looking back 20+ years it’s clear that these students did far better than those whose families were from this country. The effect of the philosophy of people who came here to succeed is a very important piece in the puzzle.

  • MHJ says:

    Hannes Minkema, the first comment (a clear scholar) argues:

    “Yet the most important problem I have with Mr. Hanushek’s ideology-based proposal is that it is short-sightened. By changing a teacher’s profession into a perilous affair and a rat race, with many pink slips being handed out each year, by sewing distrust among colleagues, by exposing teachers to unfair high-stakes evaluations, Mr. Hanushek turns the teaching profession into a highly unattractive prospect for the intelligent, ambitious students that American education so desperately needs.”

    Does Mr. Minkema really think intelligent ambitious top flight college graduates are those who enter the teaching profession today? Ummm, how about the worst performers and least impressive graduates – because that’s what the data say. Maybe it is time to stop trying to recruit the best and the brightest graduates by offering them a risk averse job where every teacher is a widget and every salary is pre-ordained based on how many years and credits they can rack up. How’s that for an idea. McKinsey and other intense corporate jobs seem to attract the best and brightest and last time I checked they tend to fire people for poor performance with rapid pace as well as base pay on a very incentive based system.

  • followingthefacts says:

    I’m not sure why the education sector continually falls into the same argument of testing v. no testing. Evaluation and assessment need to happen. The government wants to know if they are spending money wisely and achieving successful results. Principals want to know how their teachers are doing and how the school is doing. Even teachers want to be evaluated and if they resemble any decent teacher they are probably already testing their students internally on a weekly/monthly/etc basis to make sure their students are learning the curriculum.

    What needs to be argued is what combination of evaluation and assessment methods will best mirror the truth in how effective or ineffective a teacher can be. Standardized testing may be a component of the overall assessment of the teacher, observation may play a role, parent feedback may be yet another component. However, time and energy is being wasted on writing reports and doing research to support an argument for or against testing. We need thorough and thoughtful researchers to start working on the actual problem: how do we accurately assess teachers and their impact in the classroom?

    On a separate note, the US unions CANNOT be compared to unions elsewhere, especially Finland. Just because the word union is applied to both international groups does not mean they are the same. The unions overseas historically came into existence because they provided schools systems with reliable workers who were only allowed into the union if they could live up to the expectations of what a good teach should be – if they underperformed they were either provided professional development by the union or kick out because they didn’t want a lazy teacher tainting the name of the union. Currently the Finnish teachers unions continue to regulate their own group of members and come to the table with strong teachers with positive track records. Unions here were created out of strife between workers and employers – this led US unions to pursue the path of quantity not quality. So now our unions are not self regulated for quality and try to push things through with muscle.

    I’d bet that when the US unions start coming to the tables with quality teachers and not just a large quantity of teachers the administrators all the way up to the top will be climbing over themselves to strike partnerships with the unions…

  • James says:

    @Hans Minkema:
    It seems from your comments near the end of your post that you believe our system should be more like Finland’s. Finland never gets bad teachers into its system because it never accepts them, you say. But how does it make that determination? I’m asking because I truly don’t know, but I suspect applicants must be getting evaluated in some fashion in order for the profession to be so selective. Do you see that as unfair?
    Setting that aside, though, the comparison doesn’t do much to tell us what to do in our situation where, by contrast, we have not been as selective. While someday we could move to a system like Finland’s, in the interim, what are we to do with that portion of existing teachers that–even with support and professional development–are not effective, no matter what metric you use? The answer cannot be that we accord them the same trust teachers receive in Finland, and hope for the best. Assuming that Mr. Hanushek does not suggest a perpetual pruning of the bottom 5-8% beyond the period of transition, and assuming we could come to agreement about an accurate enough measure of teacher quality (e.g. isn’t remedied after x years of coaching, compared only with teachers of similarly situated students, etc.), do you believe we should leave the bottom 5% of existing teachers in place in their classrooms?

  • David says:

    I find it interesting how often people make comparisons between the education industry and the corporate world. MHJ’s reference to “McKinsey and other intense corporate jobs seem to attract the best and brightest,” raised a lot of questions in my mind. Points like these seem to be quite common in the current American education debate, but I wonder if it’s one that presumes all people are motivated solely by monetary rewards. As a foreigner this may simply be something I’m not able to fully grasp due to my limited understanding of the context (economic and social) of this debate. Some of my conclusions/questions might be misled.

    In the case of the “best and brightest” being more attracted to jobs that give some type of performance pay and offer other (great mobility, paid training/development, etc), the assumption is that ALL of the “best and brightest” college graduates are motivated by primarily monetary incentives. In the case of the “worst performers and least impressive graduates,” the assumption is that they are motivated by job security and guaranteed pay increases (again, mainly monetary incentives). I don’t see as much discussion about the notion that some people, whether “best and brightest” or “worst performers,” may be motivated by other factors. Is it possible that one of the “best and brightest” may be attracted to a job for other, more personal reasons (ethos, interests, etc)? Or do we assume that what makes some people the “best and brightest” is the fact that they’re savvy enough to stay away from a low-recognition job in an ideologically volatile industry that will inflict burnout on its most dedicated and talented workers? Are they smarter because they choose to spend their energy working 60 hours a week at a job where there are greater material rewards and greater opportunities for economic mobility? Does refusing to put that same amount of time and energy into a job like teaching make them wiser? I’m honestly not sure of the answer.

  • […] second half of the one-two combination is a piece by Dr. Eric Hanushek, in which he quantifies the economic benefit of providing students with more effective […]

  • MHJ says:


    I’m making a simple empirical observation: higher aptitude people avoid careers in public education. You can frame the discussion anyway you like (and McKinsey was only an example), but the reality is that our worst performing students self-select into teaching. The data are clear on this front. Hoxby has an excellent study published in either QJE or AER (can’t recall which but both are top flight Economics journals) showing a causal relationship between wage frictions in the form of collective bargaining and a decline in the aptitude of the teaching workforce. The fact is smarter people just aren’t flocking to K-12 education as a career.


    Here’s a compelling example: According to U.S. News and World Report, Penn State University’s business school (ranked 43rd in the nation) accepted less than a quarter of candidates—a majority of whom seek leadership careers at private sector companies. Meanwhile, Penn State’s School of Education—a consensus top 10 program in education and administration—accepted for admission every other candidate that applied to earn the credential needed for a career in school leadership. As Rick Hess points out in one of his books, one in three school principals today began their career in education as a gym teacher! We aren’t getting Rhodes Scholars using the steps and lanes approach to compensation.

  • David says:

    That is a compelling example. I’m wondering what compensation models look like in countries with top-performing teachers. Also, there seems to be a real issue with admission requirements in American faculties of education. It seems like a teaching degree (whether bachelors or masters) should be much more difficult to obtain if there are such high public stakes involved with the job. I’ve just recently learned how easy it can be to get into an American faculty of education and I’m shocked that, given all of the recent debates, there isn’t much of a public uproar about this. Can the public or government even have much of an influence on admissions criteria and/or caps in the States? Again, this is something I know very little about, but I’m starting to find it quite fascinating.

  • Hannes Minkema says:

    David, it appears that there’s a downward spiral in teachers’ quality in the US. Because the job has become less attractive – financially, socially (status!) and regarding workload, autonomy and satisfaction – the profession attracts less of the intelligent, ambitious students and more of the so-so students. Faculties of education have to deal with this changing influx and refuse to send the majority of their students away.

    Remember that educating a teacher differs from educating a rocket scientist and is more focused on overcoming personal weaknesses and stimulating self-confidence. Always has been, by the way. Then there is the responsibility towards society to educate enough teachers, so that all children can be taught.

    Understand that I don’t justify the lowering of requirements for becoming a teacher, but attempt to explain why they have lowered. I totally agree with you that the standards should be raised, not lowered, with a view to the responsiblity that teachers have for hundreds if not thousands of young people’s school careers and lives.

    But if the US wants better teachers and better teaching, the way to go is not to make the job even less attractive for all teachers by imposing a system of carrots and sticks. That would also introduce a focus on material gain, risk avoidance, and concurrency with – and distrust of – the colleagues on whose cooperation the quality of teaching hinges. It would also introduce threats to the quality of education in a broader sense, namely a focus on ‘what pays’ for teacher and student. Education narrowed down to economic gain is just as stupid as forcing parents to limit a child’s upbringing to ‘what pays’ later in life. Schools do not only prepare for jobs, but also for life.

    The way to go is to make the job attractive for better students than now enter the Faculties of Education. That is part teacher pay, part entrance requirements, part induction criteria, part work conditions and autonomy for teachers who have shown to be above a certain standard.

    There is a lot of work to do, but the direction is clear. They salary is not the main problem; Finnish teachers make the same as American teachers. The real problem is: do people really want to have better teachers? Are we prepared to trust intelligent people who devote their lives helping young people to make the best of their intelligence? And do we put our money – and policy – where our mouth is?

  • C.S. Stone says:

    all this focus on the economics of education is becoming a weight that’s pulling the profession and the outcomes of getting an education down.

    correlating the quality of a teacher and thus the quality of the education of a child to that child’s eventual economic acheivement is at the very least …. irrelevant and at the very most… dangerous.

    the idea behind getting an education is to GAIN KNOWLEDGE so that one can use that knowledge anyway they choose. the idea is NOT to LEARN so you can get a good job.

    I believe that when we get to a point where we connect gaining knowledge with finding life fullfillment, then the focus on what quality is for both teachers and students will present itself.

    Afterall, many of the “billionaires” in this world never finished college. Does that mean their teachers let them down? Was the quality of their education (such as it may have been) faulty?

  • Dick Allington says:

    MHJ continues the incorrect propaganda bit that US teachers are low academic performers. This fallacy was generated when HS juniors when taking the SAT in preparation for college attendance were asked what they were planning to study in college. Many of the low-performing students indicated they were planning to be teachers. But, many, and I mean most, of these low performers never completed a college degree. Many never completed two years of post-secondary education. Nevertheless, for those who seek to undermine confidence in American teachers the data were culled and used to indicate low teacher performance/teacher quality. In a study designed to actually answer the question of teacher quality it was found that teacher candidates do not differ from MBA candidates or from students entering other profession except engineering, where engineer candidates score higher on math ability than teachers who score higher than engineers on verbal skills. The only difference between teachers and other professionals in the study was on salaries with teachers earning approximately 60% of the salaries offered in other professions. That so many talented people continue teach for much less than their peers earn may suggest they are more idealistic or less money driven. But less talented or capable, not by the data.

  • Brian Ford says:

    I’ve been reading a lot about how Eric Hanuschek’s work calls for a radical restructuring of our system, but even if we take it at face value, I believe it does not.

    He does say that teacher quality is the most important determinant of educational success, differing from those that poverty and family background are the most important determinants and that every solution is futile without addressing these issues. He also states (withou, by the way, any research to back it up as far as I can see) that good teachers are born and not made, thus implying/leading up to a Darwnian style process of selection and deselection (his term) in choosing who stays and who goes. But what does he say about the quality of teachers? And where would he suggest his research leads?

    On the first issue he says he quality of the average teacher is really quite good. But this seems to get lost in the noise about Finland:
    So bringing up Finland, if we could replace the bottom five to eight percent of our teachers in terms of effectiveness with just an average teacher — and an average teacher is quite good in our schools — if we could replace the bottom five to eight percent with an average teacher, our national achievement would rise to the level of Finland. (From the Diane Rehms show, 8 Marck 2011)
    Not only is the average teacher ‘quite good, but in defending his position in the WSJ (Oct 2010), Hanushek writes he is not attacking “teachers en masse . . . but a small number are dreadful. . . . The typical teacher is both hard-working and effective [but] a small proportion of teachers at the bottom is dragging down our schools. . . . replace the bottom 5%-10% of teachers with an average teacher–not a superstar–we could dramatically improve student achievement.”

    If the average teacher is actually ‘quite good,’ does that suggest that the system is failing and needs to be drastically restructured? Or does it suggest that, as regards teacher quality, it is basically sound? Does it seem to justify removing 5 to 8% (10%?) of teachers year after year?
    Also, if we need to remove only 5 to 8% (it seem to have gone up to 10% only in the WSJ article) – a big article of faith with the Teacher Quality people – what does that say about the other 90 to 92 to 95%? Was Arne Duncan wrong when he said the evaluation system was broken because 95% of teachers received satisfactory ratings?
    I am not going to answer those questions, but just point out getting rid of these teachers would be in keeping with a world system based on merit and value-added assessments – the value, measured in market terms, an individual adds.

    One problem with that, among others, is the way an increasing amount of wealth is skewed to the top of the curve, but we won’t discuss that here directly. Instead, let us point out that while teaching, which involves custodial care or face-to-face contact, cannot be outsourced, salaries can be lowered and this may indeed be the long-lasting effect — restructuring of public education and eliminating job security for teachers. Will that improve the teaching force?

    What may irk people most about EH –and it should– is that after “you let go of the least effective teachers” he indicates “increasing class size” is not a problem and may even been beneficial – ”we would have a dramatic increase in our performance of our kids.” (Also from Diane Rehm Show on Class Size)

    EH does not think class size is so important a factor:
    “A simple conclusion from the estimates is that, even without eliminating any teachers, the most effective teachers should be assigned larger classes and the least effective should be assigned smaller classes.” (See his NBER paper at; he also states teachers might be “paid a portion of their economic returns” to make up for the extra work.)

    The way this proposal is usually stated in media ignores that 8-9 percent of teachers leave the profession every year, a good many of them frustrated with their own ability or counseled out.

    Hanushek, at least according to Matt DiCarlo (Shanker Blog), does not surrport systematic firings, thinking “In the long run, it would probably be superior…to develop systems that upgrade the overall effectiveness of teachers.” DiCarlo believes he offers the firing proposal “less an actual policy recommendation than a stylistic illustration of the wide variation in teacher effects,” adding his own view, “Systematically firing large numbers of teachers based solely on test scores is an incredibly crude, blunt instrument, fraught with risk.”

    Sorry to write so long, but I’m trying to put this all into an article and had a lot to say.

    Brian Ford

  • indie says:

    Its really too bad that information is not more available at the school level. We can see which school is persistently low in achievement via test scores and we can even see who drops after several years of improvement. What we cannot see, unless you are in the school yourself as a teacher, student or parent (thus closely involved), is the factor that caused that drop. Its usually one or two teachers impacting an entire class of students, i.e. 11th graders taking the math achievement test required by NCLB. In some schools, one or two teachers are teaching an entire class ineffectively and the test scores bear that out, but its a dirty little secret at the school. If you could drop your research to that level, it would solidify your findings. The examples alone would prove what parents have been saying for years. One bad teacher can have a disastrous impact on a child. Multiply that by the 100 kids they teach, and it impacts the entire school.

    Unfortunately, that data is not available, and no school would ever want to admit to the public who that bad teacher is that caused their scores to plummet. Maybe the researchers should start talking to the parents.

  • […] between an average math teacher and an excellent one is estimated to translate into an increase of $20,000 in a student’s lifetime […]

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