Does Wage Regulation Harm Children? Evidence from English Schools

Teacher wages are commonly set in a manner that results in flat wages across heterogeneous labor markets. Consequently teacher wages will be relatively worse in areas where local labor market wages are high. The implication is that teacher output will be lower in high outside wage areas. This paper exploits the centralized wage regulation of teachers in England to examine the effect of wages on school performance. It uses data on over 3000 schools containing around 200,000 teachers who educate around half a million children per year. We find that teachers respond to pay and schools add less value to their pupils where the regulation bites harder. Our calculations suggest that the removal of regulation would have positive social benefits.