The Labor Market for Teachers Under Different Pay Schemes
89 Pages Posted: 2 Apr 2017 Last revised: 28 Feb 2018
Date Written: February 23, 2018
Compensation of most US public school teachers is rigid and determined solely on the basis of seniority. This paper examines the effects of a major change in laws regulating teacher salaries. In 2011, the State of Wisconsin's Act 10 gave school districts full authority to design their own independent compensation schemes for teachers. Newly collected data on district-level policies show that roughly half of all districts retained seniority-based schedules, whereas the other half switched to flexible compensation and started paying high-quality teachers more. Teacher quality (measured using test scores) increased by 0.05 standard deviations in districts with flexible pay relative to those that retained the rigid compensation structure. This change was driven primarily by high-quality teachers moving into flexible-pay districts and low-quality teachers leaving these districts. Teachers' effort also increased by 0.07 standard deviations in flexible-pay districts compared with seniority-pay districts. Simulations based on a structural model of this labor market show that the introduction of individual salaries in all districts (as opposed to just a few) is associated with a smaller improvement in teacher quality, entirely attributable to exits of low-quality teachers.
Keywords: Teachers, Salaries, Pay-for-performance, Job Mobility, Unions, Teacher Selection, Teacher Retention
JEL Classification: I20, J31, J45, J51, J61, J63
Suggested Citation: Suggested Citation