Since the Chicago school teachers went out on strike Monday, many political figures have tried to convince the public that their $70,000 average annual pay is excessive. This is peculiar, since many of the same people had been arguing that the families earning over $250,000, who would be subject to higher tax rates under President Obama's tax proposal, are actually part of the struggling middle class. They now want to convince us that a household with two Chicago public school teachers, who together earn less than 60 percent of President Obama's cutoff, have more money than they should.
Anyhow, if we want to assess whether someone is getting too much money, we always have to ask the follow-up question, compared to what? Here are a few comparisons that I have found useful.
Source: Author's calculations, see text.
The first comparison number is the annualized pay that Chicago Mayor Rahm Emanuel got for a 14-month stint as a director at Freddie Mac. President Clinton appointed him as a director shortly after he left the administration. It's not clear exactly what Mr. Emanuel did as a director, he was not appointed to any board committees. While Emanuel's stint ended just as the housing bubble was building up steam, Freddie Mac was involved in an accounting scandal during this period for which it was forced to pay several million dollars in fines.
The second comparison is the compensation that Emanuel received for his day job after leaving the White House, working for Wasserstein Perella, an investment bank. According to Wikipedia, he earned $16.5 million for two and a half years of work.
The third comparison is the compensation that Erskine Bowles received as a director of Morgan Stanley, the huge Wall Street investment bank in 2008. Erskine Bowles has been mentioned in the news frequently as the co-chair of President Obama's deficit commission. The plan that he co-authored with former Senator Alan Simpson, the other co-chair, is often held up as providing a basis for a "grand bargain" on the budget.
The year 2008 is noteworthy because this was the year that the bank was driven to the edge of bankruptcy. It was saved from imminent bankruptcy by a bailout from the Federal Reserve Board, which allowed it to change its status to become a bank holding company on an emergency basis. This gave it the protection of the Federal Reserve Board and the FDIC. Morgan Stanley also received tens of billions of dollars in below market loans and guarantees from the government. (Bowles continues to serve as a director of Morgan Stanley as well as several other companies. Here is a fuller discussion of his record as a director.)
These pay packages might be useful information for those trying to decide whether $70,000 a year is too much to pay a teacher working in inner city schools in Chicago. On the same topic, Catherine Rampell provides a useful comparison of the pay of teachers in the United States relative to the pay of teachers in other countries, most of which have better student performance on standardized exams.