Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/207417 
Year of Publication: 
2019
Series/Report no.: 
IZA Discussion Papers No. 12592
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
A common feature of public sector labor markets is the use of pay scales. This paper examines how the removal of pay scales impacts productivity, by exploiting a reform that compelled all schools in England to replace pay scales with school-designed performance related pay schemes. We find that schools in labor markets with better outside options for teachers saw relatively higher increases in teacher pay. Schools in these areas relatively increase their spending on teachers, have higher teacher retention and larger improvements in student tests scores. These effects are largest in schools with the high proportions of disadvantaged students. We conclude that the pay rigidities in the form of centralized pay schedules result in a misallocation of resources, by preventing such schools from retaining their teachers.
Subjects: 
pay scales
teachers
performance related pay
productivity
JEL: 
J33
I28
Document Type: 
Working Paper

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