Teacher Labor Market Equilibrium and Student Achievement

Abstract

We study the equity and efficiency consequences of the allocation of teachers to schools. Within a district, wages are uniform across potential assignments, which may lead to inequity among students—because teachers prefer schools with more advantaged students—and inefficient allocations—because teachers are not compensated for match effects. While we do observe inefficient allocations (there are meaningful gains from reallocation), surprisingly, we do not observe inequity: advantaged and disadvantaged students have teachers with similar value-added. To understand why uniform wages lead to inefficiency but not inequity, we use rich data from the teacher transfer system linked to test score data to estimate an equilibrium model of the teacher labor market. We find that the allocation is equitable because principals hire noisily, tending not to select their most effective applicants. Achieving most efficiency gains, however, requires differentiated wages that compensate teachers for match output.