The Misallocation of Pay and Productivity in the Public Sector: Evidence From the Labor Market for Teachers

Abstract:

We use a unique dataset of 1,533 teachers from 574 public schools to present estimates of (a) teacher value added (TVA) and its correlates in a low income country and (b) the link between TVA and teacher wages. Moving a student from a teacher in the fifth to the ninety-fifth percentile of the TVA distribution leads to a 0.64 standard deviation increase in test scores, relative to a 0.39-0.55 increase in the United States. Although the first two years of experience, as well as content knowledge, are associated with TVA, all observed teacher characteristics explain no more than 5 percent of the variation in TVA. Finally, there is no correlation between TVA and wages in the public sector (although there is in the private sector), and a policy change that shifted hiring from permanent to temporary contracts, reducing wages by 35%, had no adverse impact on TVA, either immediately or after 4 years. The study confirms the importance of teachers in low income countries, extends previous experimental results on teacher contracts to a large-scale policy change, and provides striking evidence of significant misallocation between pay and productivity in the public sector.

Notes:

A full copy of this working paper is available on request.  

Last updated on 07/13/2016