Teacher Behavior under Performance Pay Incentives

Over the last decade many districts have implemented performance pay incentives to reward teachers for improving student test scores. Economic theory suggests that these programs could alter teacher work effort, cooperation, and retention. Because teachers can choose to work in a performance pay district that has characteristics correlated with teacher behavior, I use the distance between a teacher’s undergraduate institution and the nearest performance pay district as an instrumental variable. Using data from the 2003 and 2007 waves of the Schools and Staffing Survey (SASS), I find that teachers respond to performance pay incentives by working fewer hours per week at school. Performance pay also decreases participation in unpaid cooperative school activities, while there is suggestive evidence that teacher turnover decreases. The treatment effects are heterogeneous; male teachers respond more positively to performance pay than female teachers. In Florida, which restricts state performance pay funding to individual teachers or teams, I find that work effort and teacher turnover increase.