The Quantity and Quality of Teachers: A Dynamic Trade-off

In the framework of dynamic general equilibrium OLG model we study the dynamics of the quantity and quality of teachers. They are jointly set by a government agency wishing to maximize the quality of basic education per student while being bound by teachers’ collective bargaining agreement which equalizes teacher pay. Our model features two stages of education: basic and advanced, the latter being required of teachers. The cost of hiring teachers is influenced by the outside opportunities that skilled individuals have in the production sector. We show that this factor strengthens in the process of endogenous growth and moreover that it pushes the optimal trade-off between quantity and quality of teachers in the direction of the former. Namely, the number of teachers hired will grow over time while their relative quality (but not the absolute human capital attainment) will decrease. Furthermore, we show that this evolution of human capital accumulation is accompanied by increasing inequality within the group of college educated workers as well as between it and the unskilled. JEL classification: H52, I2, O4 * Corresponding author: Michael Kaganovich, Department of Economics, Indiana University, Wylie Hall, Bloomington, IN, 47405, USA. Phone: (812) 855-6967, fax: (812)855-3736, [email protected]