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 the effects of a reform that gave school districts in Wisconsin full autonomy to redesign teacher pay schemes. Following the reform some districts switched to flex- ible compensation. Using the expiration of preexisting collective bargaining agreements as a source of exogenous variation in the timing of changes in pay, I show that the introduction of flexible pay raised salaries of high-quality teachers, increased teacher quality (due to the arrival of high-quality teachers from other dis- tricts and increased effort), and improved student achievement.