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Teacher Pay, Class Size and Local Governments: Evidence from the Latvian Reform


  • Hazans, Mihails

    () (University of Latvia)


This paper employs a rich collection of survey and administrative datasets, including linked school-teacher payroll data, to document the reform of teacher compensation and school network implemented in Latvia amidst the economic crisis of 2008-2010, immediately after territorial reform. We explore diverse responses by local governments in terms of proportion of state subsidy transferred to schools, extent of redistribution of state funds between schools, degree of autonomy in compensation policies given to schools, and municipal contribution to school wage bills. Other things equal, municipalities tend to redistribute funds from schools with high student-teacher ratio (S/T) to ones with low S/T. Nevertheless, the reform has changed the effect of the local student-teacher ratio on teacher earnings per workload from negative to positive of the same size. Survived schools feature strong heterogeneity in terms of workload and staff reduction, change in class size, and compensation strategies. We provide evidence for a substantial incidence of using performance-related criteria for teacher base salary differentiation. We analyze school and individual level determinants of teacher pay using mixed models with municipality and school level random effects.

Suggested Citation

  • Hazans, Mihails, 2010. "Teacher Pay, Class Size and Local Governments: Evidence from the Latvian Reform," IZA Discussion Papers 5291, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5291

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    References listed on IDEAS

    1. Victor Lavy, 2010. "Effects of Free Choice Among Public Schools," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1164-1191.
    2. Baicker, Katherine & Gordon, Nora, 2006. "The effect of state education finance reform on total local resources," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1519-1535, September.
    3. Patrick J. Bayer & Robert McMillan, 2010. "Choice and Competition in Education Markets," Working Papers 10-47, Duke University, Department of Economics.
    4. Stephen Gibbons & Stephen Machin & Olmo Silva, 2008. "Choice, Competition, and Pupil Achievement," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 912-947, June.
    5. Walden, Michael L. & Newmark, Craig M., 1995. "Interstate variation in teacher salaries," Economics of Education Review, Elsevier, vol. 14(4), pages 395-402, December.
    6. Nora Gordon & Brian Knight, 2008. "The Effects of School District Consolidation on Educational Cost and Quality," Public Finance Review, , vol. 36(4), pages 408-430, July.
    7. Billger, Sherrilyn M., 2010. "Demographics, Fiscal Health, and School Quality: Shedding Light on School Closure Decisions," IZA Discussion Papers 4739, Institute for the Study of Labor (IZA).
    8. Peter Friedrich & Janno Reiljan, 2010. "Strategies In The Fiscal Reform Of Estonian General Education," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 73, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    9. Walden, Michael L. & Sogutlu, Zulal, 2001. "Determinants of intrastate variation in teacher salaries," Economics of Education Review, Elsevier, vol. 20(1), pages 63-70, February.
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    Cited by:

    1. Tom Coupe & Anna Olefir & Juan Diego Alonso, 2011. "Is Optimization an Opportunity? An Assessment of the Impact of Class Size and School Size on the Performance of Ukrainian Secondary Schools," Discussion Papers 44, Kyiv School of Economics.
    2. Manabu Nose, 2015. "Estimation of Drivers of Public Education Expenditure; Baumol’s Effect Revisited," IMF Working Papers 15/178, International Monetary Fund.
    3. repec:kap:itaxpf:v:24:y:2017:i:3:d:10.1007_s10797-016-9410-7 is not listed on IDEAS

    More about this item


    local governments; teacher compensation; linked employee-employer data;

    JEL classification:

    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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