A Comparable Wage Approach to Geographic Cost Adjustment Research and Development Report May 2006 U.S. Department of Education Institute of Education Sciences NCES 2006-321 Lori L. Taylor Bush School of Government and Public Service Texas A&M University William J. Fowler, Jr. National Center for Education Statistics William J. Fowler, Jr. Project Officer National Center for Education Statistics
U.S. Department of Education Margaret Spellings Secretary Institute of Education Sciences Grover J. Whitehurst Director National Center for Education Statistics Mark Schneider Commissioner The National Center for Education Statistics (NCES) is the primary federal entity for collecting, analyzing, and reporting data related to education in the United States and other nations. It fulfills a congressional mandate to collect, collate, analyze, and report full and complete statistics on the condition of education in the United States; conduct and publish reports and specialized analyses of the meaning and significance of such statistics; assist state and local education agencies in improving their statistical systems; and review and report on education activities in foreign countries. NCES activities are designed to address high-priority education data needs; provide consistent, reliable, complete, and accurate indicators of education status and trends; and report timely, useful, and high quality data to the U.S. Department of Education, the Congress, the states, other education policymakers, practitioners, data users, and the general public. We strive to make our products available in a variety of formats and in language that is appropriate to a variety of audiences. You, as our customer, are the best judge of our success in communicating information effectively. If you have any comments or suggestions about this or any other NCES product or report, we would like to hear from you. Please direct your comments to: National Center for Education Statistics Institute of Education Sciences U.S. Department of Education 1990 K Street NW Washington, DC 20006-5651 May 2006 The NCES Education Finance World Wide Web Home Page address is http://nces.ed.gov/edfin. The NCES World Wide Web Home Page address is http://nces.ed.gov. The NCES World Wide Web Electronic Catalog is http://nces.ed.gov/pubsearch. Suggested Citation Taylor, L.L., and Fowler, W.J., Jr. (2006).A Comparable Wage Approach to Geographic Cost Adjustment(NCES 2006-321). U.S. Department of Education. Washington, DC: National Center for Education Statistics. For ordering information on this report, write to U.S. Department of Education ED Pubs P.O. Box 1398 Jessup, MD 20794-1398 or call toll free 1-877-4ED-Pubs or online at http://www.edpubs.org. Content Contact: William J. Fowler, Jr. (202) 502-7338 [email protected]
iiiExecutive Summary Introduction Geographic cost differences present many complications when researchers attempt to make systematic comparisons of educational resources, and failure to address such differences can undermine the equity and adequacy goals of school finance formulas. Therefore, there is considerable interest in developing measures of the cost of education that can facilitate such comparisons and possibly may be used to adjust school finance formulas in some states. Geographic cost adjustment data for states, metropolitan areas, and school districts are frequently and widely requested by the public and school finance research community.1 Previous Cost Adjustments Much of the geographic cost adjustment work published by NCES (Brazer and Anderson 1983; Chambers 1997) used sophisticated statistical modeling of data on teacher salaries and school district characteristics. Cost analyses based on education data are attractive because they are directly related to school district costs and can be used to make adjustments for a wide array of district-level cost factors, such as school district size or student demographics.However, they are also extremely complex, and there can be great uncertainty in classifying variables in the statistical model as controllable or uncontrollable by the school district (Fowler and Monk 2001). Such attempts may miss important differences in teacher quality (Goldhaber 1999), and the resulting estimates of higher costs may simply reflect inefficiency (Rothstein and Smith 1997; McMahon 1996).Finally, the main source of data for constructing nationwide estimates of geographic cost variation, the NCES School and Staffing Survey (SASS), is only available from NCES approximately every 4 years, making the adjustment untimely for educational researchers. As an alternative, Goldhaber (1999) generated a comparable wage index at the state level using data on the earnings of college graduates from the Current Population Survey (CPS). However, Goldhaber's General Wage Index (GWI) could not identify intrastate variations in cost. Given that intrastate variations accounted for more than one-third of the total variation in other cost indexes, the lack of intrastate variation in the GWI limits its usefulness for the purpose of making geographic cost adjustments. In this report, NCES extends the analysis of comparable wages to the labor market level using a Comparable Wage Index (CWI). The basic premise of a CWI is that all types of workers—including teachers—demand higher wages in areas with a higher cost of living (e.g., San Diego) or a lack of amenities (e.g., Detroit, which has a particularly high crime 1 The National Center for Education Statistics (NCES) has had a long tradition of publishing work that reflects the latest research and development of education geographic cost adjustments. See, for example, Brazer and Anderson (1983), Chambers (1997), Fowler and Monk (2001), Goldhaber (1999), and Taylor and Keller (2003).