Restoring Teachers’ Total Service Time

Policy Evaluation from an Intergenerational Perspective:

Policy Description and Objectives

The 2011 State Budget approved the freezing of public administration careers, which continued until January 1, 2018. As a result, teachers’ careers were frozen for six years, six months and 23 days. Restoring this service time, such that it counts for their career and wages, has been a controversial issue in recent years. Despite the existence of a perceived injustice (teachers’ salaries have been frozen, regardless of their performance), reversing this measure has a high budgetary cost. The cost could increase even more if we consider that the freeze was applied to all public administration professionals, and for the sake of fairness, the government could eventually decide to reverse the freeze for these other professionals.

After several years at the center of political debate, on May 21, 2024, the Ministry of Education reached an agreement with seven unions for the recovery of the teachers’ career freeze period. Under the agreement, teachers will recover their frozen service time over four years, at a rate of 25% per year. The first tranche will be in September 2024, the second tranche in July 2025, the third tranche in July 2026 and the final tranche in July 2027.

Objective: Undoing the effects of the teaching career freeze between 2011 and 2017.

Final assessment of the measure: Effective, but intergenerationally unfair.

Portuguese Teachers’ Salaries Compared to the European Union Average

• Salaries for full-time teachers in Portugal are in line with salaries in other EU countries.
• Portuguese teachers are the second-lowest paid in Europe at the start of their careers. From 2014 to 2021, real salaries fell by 9.2%, whereas salaries rose in the EU on average over the same period.
• Portugal has the second largest gap between starting and ending salaries for high school teachers in the European Union.

Source: European Commission/EACEA/Eurydice, 2023. Teachers’ and School Heads’ Salaries and Allowances in Europe – 2021/2022. Eurydice Facts and Figures. Luxembourg: Publications Office of the European Union.

Intergenerational Transmission of Knowledge: from Teachers to Students

• If a student is taught by a top 1% teacher in terms of quality, the likelihood of them graduating the year rises by 20 percentage points (Freitas et al., 2023).
• Better salaries motivate the teachers to dedicate more effort to teaching, improving students’ academic performance. Thus, better wages improve human capital formation in the country, which will have a direct impact on economic growth (Hanushek and Wöβmann, 2007).
• A 10% increase in teachers’ wages leads to a 5-10% increase in students’ PISA performance (Dolton and Marcenaro-Gutierrez, 2014).

Policy’s budget cost between 2024 and 2077

We used a simplified demographic model of overlapping generations to calculate the financial impact on future generations of restoring the teachers’ service time. The model has been implemented in several studies (Franco et al., 2021; Bernardino et al., 2024), to study the financial impact of a certain policy on future generations, allowing for an intergenerational assessment.

Our projections differ from those presented by UTAO and the government on three aspects:

• The inclusion of retirees into the policy calculations.
• The incorporation of the career progression of the teachers who will be covered by the policy.
• Long-term projection and not only the expenditure amount that will increase during the restoring years (i.e. until 2028).

Figure 1: Policy implementation costs (million euros)

Assessment of Intergenerational Fairness and Effectiveness

• Moves Portugal away from its vision for the future? Uncertain. Portugal faces a considerable shortage of teachers, and it is necessary to prevent current teachers from leaving. The policy allows for a salary increase for those teachers who were affected by the career freeze between 2011 and 2017, motivating them to stay in their careers and provide a better service. This can lead to better student performance. To date, it is unclear how the current government intends to finance this cost. There might be a risk that the government will cut important public investment for generations to come.
• Increases inequality between generations? Probably yes. Restoring the service time has serious costs in the medium and long term that will have to be paid for by raising taxes, cutting expenditure or by raising debt.  Moreover, restoring the service time can create internal political pressures to avoid further investment in teachers’ professional careers, such as wage increases, which can exacerbate the career’s undesirability and lead to even larger teacher shortages in the future.
• Increases intragenerational inequality? Probably not. The policy corrects an intragenerational inequality. Teachers affected by the career freeze were unable to progress between 2011 and 2017, thus earning lower salaries. Pension calculations in Portugal consider the entire contributory career (last 40 years.) Freezing teachers’ careers, however early or partially, will have a knock-on effect on their future pensions. This inequality is particularly striking if we compare them with peers from the same generation who started their profession earlier (and had the time to advance their careers before the freeze), or those who started after the freeze ended (and may achieve a higher average contributory salary due to faster career progression).
• Reinforces the transmission of inequalities across generations? Probably yes. The more teachers are paid, the better their students perform. As the policy leads to an increase in teachers’ salaries, it likely reduces the transmission of intergenerational inequalities in the short term. However, the significant increase in fiscal spending due to the policy may prevent an increase in salary for all teachers, reinforcing the career’s undesirability. Thus, the teachers’ shortage might remain in the medium and long term, which will disproportionately affect the most disadvantaged children.
• Limits the choices of future generations? Yes. The policy will limit the choices of future generations given that the policy costs upwards of €500 million per year in the medium term (0.2% of 2023’s GDP) and will cost over €100 million per year up to 2050.

Final assessment: Effective (allows the defined objectives to be achieved), but intergenerationally unfair.

Recommendations

Create incentives to recruit teachers.
Over 40,000 students did not have a teacher for at least one subject during the second term of the 2023/24 school year (Valente, 2024). Prolonged periods of teachers shortages have a negative impact on students’ performance and future wages and it increases the probability of not graduating the school year (Belot e Webbink, 2010; Goodman, 2014; Jaume e Willén, 2019).

Higher salaries attract more candidates, which will allow to hire more and better teachers. It also decreases teacher turnover. Using the same amount of expenditure we calculated above (€11.5 billion), it is possible to increase real teachers’ salaries by €2,359 per year from 2025 onwards. This alternative policy would have the potential to be more effective and intergenerationally fair because it would affect all teachers and, therefore, all students. It would also have the potential to combat the career’s undesirability more effectively.

There are other measures with a positive potential impact on hiring/retaining teachers with little to no fiscal impact and are intergenerationally fair: increase the career stability (length/type of contract and geographical allocation), greater school autonomy in the recruitment process, and postings for teachers with more diversified qualifications.

The government must state how it intends to finance the policy.
There is no information on how the government intends to finance the increase in public spending associated with the policy. There is no information on whether the increase in public spending will be offset starting this year – a decrease in expenditure on other budget lines or tax increases – or if it will lead to a deterioration in the fiscal budgets and potentially higher public debt. The latter will require future generations that did not benefit from the policy to pay for it, making this measure particularly intergenerational unfair.

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