In most markets, scarcity corrects itself. When supply is low, prices rise, drawing in new suppliers. When demand shrinks, businesses close, and resources shift elsewhere. If a city lacks chefs, restaurant wages rise until cooking jobs become attractive again. If a town has too many hair salons, some shut down. This is how markets work—or at least how they’re supposed to.
But something unusual happens with schools. Across the U.S., particularly in underfunded districts, teacher shortages have reached crisis levels (Jackson, 2018). Schools struggle to recruit and retain staff, yet they don’t close. Instead, they persist, operating with worsening conditions. Unlike in traditional markets, the shortage does not lead to wage increases or school closures. Why?
A Market That Refuses to Close
In most industries, an inability to hire enough workers would lead to reduced services, business failures, or price adjustments. But schools operate under different rules. When they can’t find enough teachers, they don’t shut their doors. They don’t reduce class sizes to match available staff. They don’t stop accepting students. Instead, they continue running.
The reason is straightforward: schooling is not just another market commodity. Unlike restaurants or factories, public schools operate as a state-mandated institution for basic education, shaped by policy choices and societal norms. Shutting down a school is not a typical business decision but a complex political and logistical issue. If a struggling school were to close due to teacher shortages, where would its students go? Nearby schools are often already at capacity. Long-distance busing is expensive and widely opposed. Families resist relocation. School closures are frequently perceived as a governance failure rather than a natural consequence of market dynamics (Hanushek, 1992).
Governments also have strong incentives to prevent school closures. Unlike a struggling business, which can shut down with minimal external consequences, a failing school generates cascading societal problems. Displaced students often perform worse academically, and community disruption can fuel poverty cycles (Chetty, Friedman, & Rockoff, 2014). Politicians, facing public pressure, rarely advocate for closures—even when the numbers suggest they should.
But if schools can’t shut down, then why doesn’t the teacher labor market adjust?
The Puzzle of the Teacher Labor Market
The standard economic response to labor shortages is simple: increase wages to attract more workers. Yet, teacher salaries remain stagnant in many regions, even as shortages worsen (Hendricks, 2014). Why?
One major issue is wage rigidity. Teacher salaries are largely set by government pay scales, which are slow to adjust. Unlike in private industries, where businesses can raise wages in response to labor shortages, public schools must navigate bureaucratic and political hurdles before increasing pay. Teachers’ unions, while advocating for better wages, also prioritize stability and benefits, sometimes at the expense of flexible pay structures that could help address shortages (Rothstein, 2015).
Another problem is barriers to entry. Becoming a teacher is not as simple as switching to a new job. State certification requirements, licensing exams, and degree prerequisites limit entry—even when there is a clear need (Angrist & Guryan, 2008). In contrast, industries like technology or retail can respond to labor shortages more fluidly because they have fewer regulatory barriers.
More importantly, teaching is not just about wages. Many teachers leave the profession not because of pay alone, but because of stress, poor working conditions, and lack of professional autonomy (Papay & Kraft, 2016). Raising salaries helps, but it does not address the structural issues that make the profession unappealing.
Compounding the problem is the rigidity of demand. In most industries, when labor becomes too expensive or scarce, consumers adjust their demand accordingly. If engineers are too costly, companies automate tasks. If meat prices rise, consumers switch to chicken or plant-based alternatives. But schooling does not have an elastic demand curve—students do not stop attending school just because there aren’t enough teachers. Parents cannot simply “opt out” of public schooling en masse.
Is This a Market Failure?
From an economic perspective, the teacher shortage exhibits traits of market failure (Lazear, 2003):
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- Supply is constrained due to regulatory and institutional barriers.
- Demand is fixed—students must attend school, regardless of labor shortages.
- Prices (wages) are inflexible, as salaries are set by government pay scales rather than competitive market forces.
- Externalities are significant—understaffed schools create long-term social costs, from lower economic productivity to higher incarceration rates (Deming, 2011).
However, calling this a simple market failure oversimplifies the issue. Schooling has never functioned as a fully market-driven sector. It exists within a framework shaped by legal mandates, political decisions, and historical precedent. The market is not “failing” in the traditional sense—it is constrained by structural factors that prevent it from behaving like a typical competitive industry.
If we were to apply traditional economic reasoning, the solution might be to close underperforming schools and allow flexible private or charter institutions to emerge. But such a move would be politically explosive and socially disruptive. Instead, we find ourselves in an uneasy equilibrium: teacher shortages persist, but schools continue to operate in increasingly fragile conditions.
Schools as a Unique Economic Institution
Unlike private markets, schools do not shut down when teacher shortages occur because they are government-mandated institutions rather than standard market goods. A company that cannot hire enough workers may reduce production or close. Schools, however, persist—regardless of efficiency—because government policy ensures universal schooling for its taxpayers.
The teacher labor market does not self-correct because it is shaped by policy choices and structural constraints:
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- Government-set salaries prevent wages from responding to labor shortages.
- Licensing barriers restrict new entrants into the profession.
- Harsh job conditions push teachers out, even when pay is competitive.
- Public funding limitations prevent market-driven solutions.
Recognizing this, teacher recruitment initiatives, like Teach Chicago, have emerged to address shortages by providing financial incentives, mentorship, and alternative pathways into teaching. While such programs offer targeted solutions, they also highlight the broader structural question: If special initiatives are needed just to ensure adequate staffing, it suggests that the fundamental incentives in the teacher labor market may not be functioning optimally.
Ultimately, the persistence of schools despite severe shortages reflects the unique role of schooling as both a public service and an economic institution. The challenge is not simply about market failures or rigid policies but about balancing accessibility, quality, and sustainability in a way that meets the needs of students, teachers, and society. As teacher shortages continue, the focus must be on how the system can evolve to better align incentives while maintaining its core function.
References
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- Angrist, J. D., & Guryan, J. (2008). Teacher testing, teacher education, and teacher characteristics. American Economic Review, 98(2), 241-246.
- Chetty, R., Friedman, J. N., & Rockoff, J. E. (2014). Measuring the impacts of teachers I: Evaluating bias in teacher value-added estimates. American Economic Review, 104(9), 2593-2632.
- Deming, D. J. (2011). Better schools, less crime? Quarterly Journal of Economics, 126(4), 2063-2115.
- Hanushek, E. A. (1992). The trade-off between child quantity and quality. Journal of Political Economy, 100(1), 84-117.
- Hendricks, M. D. (2014). Does it pay to pay teachers more? Evidence from Texas. Journal of Public Economics, 109, 50-63.
- Jackson, C. K. (2018). Does school spending matter? The new literature on an old question. National Bureau of Economic Research (NBER Working Paper No. 25368).
- Lazear, E. P. (2003). Teacher incentives. Swedish Economic Policy Review, 10(3), 179-214.
- Papay, J. P., & Kraft, M. A. (2016). The productivity costs of ineffective teacher hiring practices: Evidence from late teacher hiring. Journal of Policy Analysis and Management, 35(4), 791-817.
- Rothstein, R. (2015). The social cost of inadequate education. Teachers College, Columbia University.