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A theoretical general equilibrium analysis of local teacher labor markets under different compensation regimes

Muharrem Yesilirmak

No GRU_2021_013, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: Bargaining power of teacher unions over teacher wages has been either reduced or eliminated by several states in U.S. since 2011. This caused public school districts to move away from single salary schedules (fixed compensation regime) and adapt a flexible compensation regime at which teacher wage rises with quality (value added). In this paper, using a fully tractable general equilibrium model of local teacher labor markets, we theoretically analyze the eect of dierent compensation regimes on teacher eorts and average teacher quality in a district. In our model, teachers, heterogeneous in exogenously set quality, endogenously sort across two districts and also choose teaching eorts. Districts dier by endogenous teacher wages and exogenous revenues. The marginal disutility of eort for a teacher is dierent across the districts. Teacher labor markets clear in each district and teacher wages are determined. We solve for the unique equilibrium under each compensation regime and theoretically show that low(high) quality teachers exert the highest eort under fixed(flexible) compensation regime and exert the lowest eort under flexible(fixed) compensation regime. Also, we show that average teacher quality is highest in each district under flexible compensation regime and lowest in each district under fixed compensation regime. Our findings are consistent with several empirical studies.

Keywords: teacher labor markets; teacher compensation regimes; teacher spatial sorting; teacher effort (search for similar items in EconPapers)
JEL-codes: I21 I28 J20 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2021-05-01
New Economics Papers: this item is included in nep-ure
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