The impact of teachers’ wages on students’ performance in the presence of heterogeneity and endogeneity. Evidence from Brazil

In this paper we estimate the effect of teachers’ wages on students’ achievement in a developing country. We use test scores of pupils enrolled in the 8th grade of primary school, surveyed in 2001 in Brazil. We regress individual student test scores on gross monthly teacher wages allowing for nonlinearities. Given the strong heterogeneity of Brazilian pupils and teachers, we estimate quantile regressions (QR), which provide, instead of a constant mean coefficient, a detailed characterization of the effect of teachers’ wages on conditional pupils’s scores. For the same reason, we also run separate regressions for private and public schools. We then account for potential endogeneity of teachers’ wages through the estimation of instrumental variables models (IV). Finally, we estimate two-stage least absolute deviation models (2SLAD), that allow us to cope simultaneously with the heterogeneity of the student-teacher relationship and with the endogeneity of teachers’s wages. Our results show that wages of language teachers have a small, but positive and significant effect, on student test scores in private schools, controlling for endogeneity, but that they are insignificant, or even negative, in public schools. We also observe that teacher wages show a decreasing effect as we move along the conditional distribution of scores. The same effects are found for mathematics teachers, but the results are less robust and the coefficients are smaller.