Teacher Quality Policy When Supply Matters

Recent proposals would strengthen the dependence of teacher pay and retention on performance, in order to attract those who will be effective teachers and repel those who will not. I model the teacher labor market, incorporating dynamic self-selection, noisy performance measurement, and Bayesian learning. Simulations indicate that labor market interactions are important to the evaluation of alternative teacher contracts. Typical bonus policies have very small effects on selection. Firing policies can have larger effects, if accompanied by substantial salary increases. However, misalignment between productivity and measured performance nearly eliminates the benefits while preserving most of the costs. ∗E-mail: [email protected]. I thank Sarena Goodman for excellent research assistance and David Card, Sean Corcoran, Richard Rothstein, Cecilia Rouse, and conference and seminar participants at APPAM, Berkeley, IEB, IRP, NBER, Northwestern, and NYU for helpful discussions. I am grateful to the Institute for Research on Labor and Employment at UC Berkeley for research funding.