Are Students The Real Losers When Teachers Salaries Are Low?

The role of teacher compensation in school performance is something of interest globally to governments, teachers, and parents alike. A study in the UK examined this relationship in the context of the English school system. Findings of the study indicated that there is a relationship between teachers’ compensation and school performance, such that compensation paid below market rate adversely affects school performance.

Key Topics: Teacher compensation; School performance

Title of Reviewed Article: Teacher Pay and School Productivity: Exploiting Wage Regulation
 
Researchers: Jack Britton (Institute for Fiscal Studies) and Carol Propper (University of Bristol).
 
Publication: Journal of Public Economics, 2016, Vol. 133, pp. 75–89.

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Setting the Scene
 
Education is an area that has a wide range of stakeholders and as such the performance of teachers is of concern to many. Central to this is often the role of teacher’s pay, although prior research relating to the relationship of teacher pay and performance is limited and not conclusive (Hanushek, 2003; Hanushek, 1997). For example, Hanushek (2003) found very limited positive effect of teachers wages on the performance of schools, while Loeb and Page (2000) found teachers wages to be a significant factor in the academic success of students. Dolton and Marcenaro-Gutierrez (2011) also found teacher wages to be an important influence on student performance across 39 countries.
 
A common feature of teacher pay determination globally is the use of wage setting at regional or country level. While this avoids negotiations at a lower level, it does often result in teacher’s wages not fully accounting for local differences in regional labour markets in which teachers are directly employed (e.g. Duncombe & Yinger, 1998), with the result being that teacher wages can be relatively better or worse depending on the local market conditions.
 
In England the national Government Department for Education sets teachers’ pay centrally, with limited regional adjustments. This is against a backdrop where there are considerable regional differences in wages in the private sector (Bulman, 2002), which results in the creation of a wage gap between regulated teachers wages and local labour market wages.
 
The researchers sought to further examine the role of teacher compensation in school performance.
 
How the research was conducted
 
The study dataset included information from approximately 3,000 schools, with approximately 200,000 teachers, teaching approximately 500,000 students per year in the English public (state) school system.
 
The primary measure used to access school performance was school results in key national exams. Data was taken from the Pupil Level Annual School Census (PLASC) for the years 2002 – 2007. A number of other measures of school performance were also examined, including data from the English government school’s regulator (OFSTED).
 
To measure teacher compensation, English centralised wage regulation of teachers’ information was used, from the English Department for Education Teacher Pay and Conditions Handbooks.
 
The researchers also accessed alternative local labour market opportunities, using the Annual Survey of Hours and Earnings (ASHE) dataset, in order to examine the wage gap between ‘outside wages’ (local outside labour market wages) and ‘inside wages’ (regulated teacher wages). The measure of outside wages was intended to provide insight into alternative private sector wages teachers could expect.
 
Key Research Findings
 
The results indicate that a wider wage gap between inside and outside wages relates to lower overall school performance, as well as being associated with lower quality of teaching. For example, a 10% increase in outside wages resulted in a decrease of 1.4 points in quality of teaching, which is a significant drop considering that the average teaching quality score is 2.6. Additionally, such a 10% increase also led to a decrease of approximately 2% in average exam scores.
 
The results also found that when outside wages were high, schools had teachers with lower tenures. A £1,000 increase in outside annual wages resulted in a 0.25% increase in the proportion of teachers with less than 1 year’s tenure.
 
Results Commentary
 
The findings of this study suggest that one effect of teacher wage regulation is that teachers may leave their position sooner, as demonstrated by the decreasing of tenures when outside wages are higher. This issue appears to be greater in areas where outside wages are higher. As the researchers point out, this is likely to negatively affect students in various ways, and other research suggests that this issue could also affect the morale and performance of remaining teachers (Ronfeldt et al., 2011).
 
The results also support the idea that teacher compensation is an important element in determining school performance. While many countries have begun to look at using pay for performance compensation structures for teachers (e.g. Lavy, 2009), the more prevalent compensation structure internationally is still centralised pay setting. What the findings of this study suggest is that flexibility and acknowledgement of regional pay differences in these centralised policies may yield better results.
 
Organizational and Reward Implications
 
High turnover is not advisable for most organizations, not least for schools. The results of this study demonstrate that external wages available to teachers can have a negative effect on teacher turnover. What schools can do to rectify this may be constrained somewhat by regulations or other factors, depending on the country or region, but as much as possible the wage gap between teachers wages and external wages should be kept to a minimum in order for schools to retain their best teachers. In the absence of the ability to close a wage gap, schools could consider other reward methods to improve retention, such as non-financial recognition plans, more flexible working, and autonomy.  
 
The results of this study should also provide food for thought for school regulatory bodies with oversight of teacher’s wages. This study demonstrates that while there are obvious cost savings in lower teacher’s wages, there are also a number of negative consequences, such as lower school performance and higher turnover of teachers.
 
Final Thoughts
 
This study provides valuable insights into the interplay of teacher’s compensation, external market compensation, and school performance, and helps to establish and demonstrate the important links between these elements. While an important study, it must be noted that it is specific to the English teaching environment, and its generalizability to other countries is likely to be limited. Further research in other countries would be welcomed to understand how universal some of the relationships found in this study are and how different regulatory environments might affect outcomes.

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Source Article: Britton, J., & Propper, C. (2016). Teacher pay and school productivity: Exploiting wage regulation. Journal of Public Economics, 133, 75-89. 
 
Published by: Elsevier
 
For further details and access to the full journal article Click Here (subscription or payment may be required).

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References:

Bulman, J. (2002). Patterns of pay: results of the 2002 new earnings survey. Labor Market Trends, 110(December), 643–655.
 
Dolton, P., & Marcenaro-Gutierrez, O. D. (2011). If you pay peanuts do you get monkeys? A cross-country analysis of teacher pay and pupil performance. Economic Policy, 26(65), 5–55.
 
Duncombe, W., & Yinger, J. (1998). School finance reform: aid formulas and equity objectives. National Tax Journal, 51(2), 39–62.
 
Hanushek, E. (1997). Assessing the effects of school resources on student performance: an update. Educational Evaluation and Policy Analysis, 19(2), 141–161.
 
Hanushek, E. (2003). The failure of input-based schooling policies. The Economic Journal, 113(485), 64–98.
 
Lavy, V. (2009). Performance pay and teachers effort, productivity and grading ethics. American Economic Review, 99(5), 1979–2011.
 
Ronfeldt, M., Lankford, H., Loeb, S., & Wyckoff, J. (2011). How Teacher Turnover Harms Student Achievement. NBER Working Paper 17176.