The Labor Market for Teachers Under Different Pay Schemes

Compensation of most US public school teachers is rigid and solely based on seniority. This paper studies a 2011 reform that gave school districts in Wisconsin full autonomy to redesign teacher pay schemes. I show that, following the reform, some districts switched to flexible compensation and started paying high-quality teachers more. Teacher quality increased in these districts relative to those with seniority pay, due to a change in workforce composition and an increase in effort. I estimate a structural model of this labor market to investigate the effects of alternative pay schemes on the composition of the teaching workforce