Union Reform, Performance Pay, and New Teacher Supply: Evidence from Wisconsin's Act 10

Abstract

This study examines the impact of performance pay on teacher selection. I exploit a shift toward performance pay in Wisconsin induced by the enactment of Act 10, which gave school districts autonomy to redesign their compensation schemes. Following the law, half of Wisconsin school districts eliminated salary schedules and started negotiating pay with individual teachers based on performance. Comparing the quantity of teaching degrees in Wisconsin institutions before and after Act 10, and relative to those in similar states in a difference-in-differences framework, I find that Act 10 led to a 20% increase in teaching degrees. This effect was entirely driven by the state's most selective universities, which suggests that the quality of the prospective teacher pool in Wisconsin increased as a result of the union reform. Consistent with improvements in new teacher supply, I show that the reform increased average test scores on the state's standardized exam by roughly 20% of a standard deviation four years after its implementation.

Keywords: Teachers' Unions, New Teacher Supply, Performance Pay, Salary Schedule

JEL Classification: I20, I28, J24, J31, J45, J51