Equilibrium in The Market for Public School Teachers: District Wage Strategies and Teacher Comparative Advantage

Proper allocation of public servants across local employers is often hampered by a major institutional friction: wage rigidity. Through the lens of the market for public-school teachers, we study the equilibrium equity-eciency implication of this friction. In our model, teachers di↵er in their comparative advantages in teaching low- or high-achieving students. School districts, which serve di↵erent student bodies, use both wage and hiring strategies to compete for their preferred teachers. We estimate the model using data from Wisconsin, where districts gained control over teacher pay in 2011. We find that, all else equal, giving districts control over teacher pay would lead to more ecient teacher- district sorting but larger educational inequality. Teacher bonus programs that incentivize comparative advantage-based sorting, combined with bonus rates favoring districts with more low-achieving students, could improve both eciency and equity.