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

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This paper studies how increasing teacher compensation at hard-to-staff schools can reduce structural inequality in the access to high-quality teachers. Using rich administrative data from Peru, we document dramatic inequities in schooling inputs and teacher quality to which students have access. Using a regression discontinuity design, we show that a 25% increase in teacher pay at less desirable public schools attracts better quality applicants, increases teacher quality, and improves subsequent student test scores. These results suggest that targeted pay increases can help reduce spatial inequalities in the access to quality education. To quantify how teachers trade-off local community amenities, school characteristics and compensation more generally, we estimate a model of teacher school choice using detailed job posting and application data from the country-wide centralized teacher assignment system. We use the model to decompose the factors that drive teachers’ labor supply and to approximate the cost-effectiveness of alternative policies. The estimated model indicates that while current pay bonuses in less desirable regions are helpful, the
current policy is woefully insufficient to compensate teachers for the lack of school and community amenities. Model estimates suggest that investing in other schooling inputs and infrastructure as well as in training new teachers from these locations in addition to wage bonuses could be a more cost-effective policy to mitigate structural inequality.