Teacher Compensation and Structural Inequality: Evidence from Centralized Teacher School Choice in Peru

Résumé

We exploit data on centralized teacher recruitment in Peru to establish that wage rigidity creates large urban-rural disparities in teacher effectiveness. Leveraging a teacher compensation reform, we provide causal evidence that increasing salaries in less desirable locations attracts qualified teachers and improves student learning. We estimate a model of teacher sorting and student achievement featuring rich heterogeneity in teachers’ preferences and effectiveness. Substantial equity and efficiency gains arise from reallocating existing teachers to exploit match effects or attracting applicants with higher average effectiveness into public teaching. Counterfactual wage schedules achieving these gains suggest that the latter is more cost-effective.