Adjusting teacher salaries for the cost of living: the effect on salary comparisons and policy conclusions

Teaching salaries are commonly adjusted for the cost of living, but this incorrectly accounts for welfare differences across states. Adjusting for area amenities and opportunities, however, produces more accurate salary comparisons. Amenities and opportunities can be measured by the wage premium other workers in a state face. The two methods produce significant differences in state rankings. Additionally, salaries adjusted for alternative wages are strongly associated with student outcomes, while those adjusted for the cost of living are not. The method of adjustment also alters results from regressions that examine the effects of other policies, like unionization, on teacher salaries.