Information Frictions and the Labor Market for Public School Teachers

Information frictions—where a worker and her current employer know more about the worker’s productivity than prospective employers—have complex equity-efficiency implications in the teacher labor market. Reducing information frictions may make it easier for effective teachers to move to their preferred schools and increase cross-school inequality, but it may also attract high-quality entrants and improve market-level teacher quality. Taking these factors into account, we develop an equilibrium model of the teacher labor market and estimate it using data from the Houston Independent School District, which launched a transparent teacher evaluation system in 2011. Counterfactual simulations reveal that (1) making district teachers’ quality observable to all district schools improves average teacher quality at the district level and in the top and bottom quartiles of schools ranked by student performance, while decreasing it in other schools; (2) budget-neutral bonus programs that incentivize high-quality teachers to teach in low-performing schools can increase overall teacher quality and reduce cross-school inequalities; and (3) these programs are more effective in markets with cross-employer information symmetry.