Teacher Wages, the Recruitment of Talent, and Academic Achievement

This paper studies the effects of a large unconditional increase in the salary of public sector teachers in Peru. Population-based rules that determine the level of teacher compensation generate locally exogenous discrete changes in wage posting across rural locations. School vacancies offering 25 percent higher wages attract better teachers, as measured by standardized evaluation tests that are used to determine priorities in national recruitment drives. Students in primary schools offering higher wages have better performance on standardized test scores, with effect sizes of 0.6 of a standard deviation in math and 0.5 of a standard deviation in Spanish three years after the salary increase. These results are entirely driven by schools that had multiple open vacancies over time, suggesting that the re-allocation of contract (and hence mobile) teachers is the main mechanism at work. Overall, our results suggest that unconditional pay increases targeted at less desirable locations can help reduce spatial inequalities in the quality of public good provision.