The Labor Market of Public School Teachers with Flexible Pay

Résumé

We build and estimate an equilibrium model of the labor market of public school teachers, where districts are given the autonomy in choosing their teacher salary schemes. In the model, teachers, who differ in their comparative advantages in teaching low- and high-achieving students, care about salaries and district characteristics including their student composition. Districts care about a teacher's contribution to their students, and may directly care about teacher education and experience. Districts compete for their most preferred teachers via both teacher salary and job offer decisions. We estimate the model using data from Wisconsin, where a reform in 2011 abandoned collective bargaining by the state's teachers union. Given that student composition differs across districts, it is possible to gain in both efficiency and equity from a flexible pay regime that reward teacher contribution. However, advantaged districts may use this flexibility to attract teachers with absolute advantages in teaching both types of students, thus exacerbating cross-district inequality. When the second force is strong, policy interventions favoring disadvantaged districts can be justified on both equity and efficiency grounds, which will be examined via counterfactual policy simulations. (with Barbara Biasi and John Stromme)