Wanted: Teachers who understand economics


If there was not already enough reason to worry about the quality of economics teaching in our schools, last week’s call by the National Union of Teachers for a 10% pay rise has provided ample evidence.

At a time when prices are flat, the UK economy is shrinking rapidly and the Bank of England is warning the Government to keep a lid on public sector spending, it might seem to the casual observer – or the student of economics – that this was no time to be increasing the wages of public sector workers at all, let alone by a tenth.

Yet the Times Educational Supplement reports that: "The nut is calling for a pay rise of at least 10 per cent plus a bonus of almost £1,400 for the average teacher, despite the worsening economic conditions. Christine Blower, the union’s acting general secretary, has warned the Government not to use the recession as an “excuse" to offer a low pay package. While the demands of other teaching unions are not quite as exaggerated as those of the NUT, “They are all lobbying for an increase of more than 2.3 per cent this year".

It seems that Ms. Blower and her union friends could use an economics lesson.

In a free society, wages – like any other price - would be determined by supply and demand. Parents (who are ultimately the paying customers) would bid up wages until a sufficient quality and quantity of teachers were available to teach their children, while would-be teachers would bid each other down until there were no more would-be teachers of sufficient quality than there was parental demand. Thus, one would know whether wages were at the right level by examining whether supply and demand were in equilibrium: if the number of would-be teachers was falling it would suggest that prices were too low; if applications for teacher training courses in England have risen by 10% this year (as reported by the Training and Development Agency) then it would suggest that wages were (more than) sufficient.

Unfortunately, neither parents nor teachers are given such freedom. But in the absence of market mechanisms, the government can use overall rates of wage and price changes as a proxy. Thus, government should freeze public sector pay if money and prices are stable, and reduce wages if money and prices fall.

Indeed, falling wages are essential if unemployment is to be kept down. It stands to reason that if there is less money in the economy and if there is less money for government to spend, then there must be either lower wages or fewer waged. What is more, if prices are falling, wages can fall without undermining workers’ standards of living.

Sadly, the NUT and the other teaching unions still believe that they can apply political pressure to squeeze extra money out of government at the expense of other workers all across the UK, whose own wages are falling and whose jobs are in peril.

Even more sadly, there is a reason for this. All too often, they have been proved right.