Keynote Presentation at the Kansas Economic Policy Conference on "Higher Education as an Engine for Regional Growth."

Last week, Michelle Rhee, chancellor of D.C. public schools, made national news by firing 241 — six percent — of the District’s teachers deemed underperformers. Rhee’s move came after negotiations in June with the Washington Teachers’ Union that created a merit-based bonus system that permits well-performing teachers to earn up to a 21 percent pay increase. The agreement also allows the District to fire those who did not meet minimum benchmarks. Teacher assessment scores will be based half on student improvement and half on in-class teacher evaluations.

While performance-related pay has been around since the 1700s and affects the pay scale of over 85 percent of private sector employees, the debate over merit pay for teachers is still highly contentious. On one hand, proponents argue merit pay will help cash-strapped schools retain good teachers and shed bad ones. They also argue that this will create a salary scale that is fairer than the system of seniority pay that currently exists in most school systems. On the other hand, opponents contend that merit pay may work for seamstresses, but teaching is too complicated to base quality on student performance on a standardized test.

The argument goes, evaluating teachers based solely on a set of student-achievement benchmarks will incentivize teachers to neglect the essential but non-tested responsibilities of educators. As George Parker, current president of the Washington Teachers’ Union put it, “It [merit pay] takes the art of teaching and turns it into bean counting.” Yet numerous other professions that require complex skills and responsibilities have adopted merit pay with positive results. For example, the department of Homeland Security has recently implemented performance-related pay for security analysts, and few would equate scrutinizing terrorist threats with “bean counting”.

The real question for education policy makers is to what degree can metrics assess the added value of different teachers? Part of the answer to this question relates to the availability of good data. Teacher performance may vary significantly depending on a number of variables such as student household income or the percentage of students with English as a second language. Without significant aggregate databases recognizing and accounting for such variables when developing performance pay systems may be difficult or even impossible. Yet technological advancements in the longitudinal data systems being put in place in states and districts are increasingly allowing for a more granular understanding of where educators do and do not add value to the learning process. Although it’s probably true that the current level of data may not be enough to predict exactly what makes a good teacher, what’s important is to use the data, along with the ways of assessing teacher performance, we have to make a better incentive system for the nation’s educators.

Yet that hasn’t been the case. In 1950, for example, 97 percent of public school teachers were paid based on seniority and education attainment (because data did not exist to fairly reward teachers based on any other benchmarks). But by 2007, 96 percent were still being paid based on these payment schedules; regardless of the numerous studies that have actually found experience (after the first two years) and teaching certifications are two of the worst indicators of teacher performance.

The blatant disregard of the evidence is not accidental. Several players in education policy—particularly teachers’ unions—have described evidence-based pay as some sort of pedagogical chimera, sucking the lifeblood out of what it takes to be a good teacher. For example, Doug McAvory, general secretary to the National Association of Head Teachers, a teachers’ union in the UK, argues, “The extension of performance-related pay based on pupil progress will further demoralize and demotivate teachers.” Yet given that educators readily embrace handing out grades to seven year olds, the argument that performance metrics might “demoralize” underperforming adult professionals seems unpersuasive. Such arguments do little more than distract educators from the importance of using technology and advanced metrics to create better schools.

ITIF and others have emphasized the importance of an educated workforce to improving the innovative and global competitiveness of the United States, but U.S. students are falling behind when measured against their counterparts in other countries. For example, in 2007, only ten percent of U.S. fourth-graders and six percent of eighth-graders scored at or above the international benchmarks in mathematics. Yet as other nations, such as Finland, South Korea and Sweden, have embraced data-based pay in public schools, United States has resisted.

Educators and policy makers should keep in mind the simple syllogism that there is nothing better than a good teacher and nothing worse than a bad one. As a society, we should do what is necessary to get more of the former and fewer of the latter, whether that requires more money, monitoring or better metrics.

In this Huffington Post blog ITIF president Robert Atkinson discusses the shortcomings of many U.S. educated college graduates and three ways to fix the problem.

Over the last decade U.S. policy makers have debated the issue of high skill immigration in general, and the H-1B visa program in particular. The H-1B visa program is a temporary work visa for high skill immigrants and is used extensively by the technology industry.

Defenders of the H-1B visa program argue that it is needed to help U.S. technology tech companies fill critical scientific and technical positions in the United States and enable companies to be more globally competitive. Opponents of the program, principally unions representing professional technical workers, argue that the H-1B program is used by companies as a way to lower the wages they have to pay to American workers and that additional H-1B visa slots come at the expense of American jobs. Largely because of the concerns raised by opponents, since 2004 Congress has limited H-1B visas to 65,000 per year (with an additional 20,000 for foreigners graduating from U.S. universities with a master’s or higher degree.) It should be noted that each year since then the cap has been reached, with applications significantly outnumbering available slots.

Much of this debate was informed by anecdotes and arguments marshaled by both sides. Each side would provide what they considered to be compelling arguments about why the program was either critical to U.S. competitiveness or a corporate ploy to undermine American worker’s wages. But until now, little objective analysis was available to inform the debate. However, a scholarly, peer reviewed study of the H-1B program and its impacts on the labor market published in May sheds new light on this debate. The study, “Are Foreign IT Workers Cheaper? U.S. Visa Policies and Compensation of Information Technology Professionals,” was written by Sunil Mithas and Henry Lucas, of the Robert H. Smith School of Business and appeared in the May, 2010 issue of the journal Management Science.

In the study, Mithas and Lucas examine the largest segment of H-1B visa entrants, those taking jobs in IT occupations (which account for an estimated 60 percent of H-1B visas). There are close to 3.5 million IT jobs in the United States, and of these approximately 300,000 are in the H1-B category. The authors use salary surveys conducted from 2000 to 2005 of more than 50,000 IT professionals. Moreover, they use a number of variables such as education level, gender, size of the employer, years of experience to control for possible differences between immigrant and non-immigrant IT professionals.

In contrast to those who argue that H-1B visas are used as a way for companies to avoid paying higher wages to American citizens or permanent residents, the study in fact finds just the opposite. After controlling for differences, they find that IT professionals with an H-1B or other work visa earn on average 6.8 percent more annually than IT professionals who have U.S. citizenship. When they add additional controls for the state in which the IT professionals work and for job titles, the premium declines, but is still significant at 2.6 percent. Moreover, they also note that H-1B visa IT workers earn less than foreign IT workers with a green card, who make 12.9 percent more than workers with U.S. citizenship. But in either case, their evidence suggests that at least for their sample, H-1B visa workers are not being used by U.S. firms as a way to undercut the wages of domestic workers.

While it is true that their sample size is relatively small relative to the entire population of IT workers and that there is a possibility that some lower wage IT workers are not fully represented in the sample, it does suggest that the reflectivc notion that H-1B visa workers are low-wage substitutes for does not appear to hold up. In fact, the authors’ findings are in direct contrast to the claims of opponents that U.S. companies use H-1B visas to undercut the salaries of U.S. workers. In fact, the authors find that in years when Congress has expanded the number of visas available to companies, the wage premium for H-1B visa workers actually decreases. As they state, “the yearwise results on salary premium for foreign professionals do not provide support for the notion that firms are misusing U.S. work visa provisions to pay less to foreign professionals. The presence of a significant salary premium for H-1B and other visa holders in 2000 when the H-1B cap was 115,000, but insignificant premium in 2001 when the H-1B cap went up to 195,000, appears to vindicate the IT industry’s plea for raising the H-1B cap to make it easier to hire foreign professionals to overcome ‘tightness’ in the IT labor market.”

Why do H-1B visas not appear to negatively impact American IT workers? As the authors argue, the H-1B salary premium “lends support to foreign IT professionals as being complements rather than substitutes for American professionals.” In other words, these high skill immigrants do not substitute for or directly compete with U.S. tech workers. Rather, they complement them so that hiring foreign workers increases demand for domestic workers. A major reason for this is that firms that are able to attract and retain talented workers from overseas may be able to be more competitive and expand more domestically, thus creating even more demand for American high-skilled technology workers. Foreign high-skilled workers may have unique skills that make the U.S. firm more competitive in global markets. These skills may be quite narrow (an H-1B visa worker with deep expertise in cybersecurity in health information technology, for example), or may be broader (IT skills supplemented by a knowledge of foreign business practices and linkages to global professional networks). Likewise, foreign IT workers may be more willing to travel internationally. If U.S. firms only competed nationally, then additional immigrants in one occupational category like IT professionals might in fact reduce wages for domestic workers in that occupation. But when the economy is global and the occupations in question are in firms that are in global markets (e.g., as opposed to occupations like nurses or truck drivers that serve the domestic market), then high-skill foreign immigrants can expand jobs and opportunity for American workers by making U.S. firms more competitive.

The authors go on to note that “policies that restrict the supply of highly skilled professionals for U.S. firms may force U.S. companies to hire professionals overseas, thus defeating the very rationale invoked for reactive policy responses.” In other words, when Congress imposes strict limits on H-1B visas, well below levels of demand, they may actually be hurting not just overall U.S. technology job growth, but employment growth of U.S. citizens. This suggests that a key component of a robust national innovation and competitiveness policy needs to include a more liberal approach to high skill immigration so that America can attract and retain the world’s best and brightest.