The government could be picking up a £31 million bill to train replacements for teachers who leave when pay in other sectors rises, according to research by Chris Belfield to be presented at the Royal Economic Society''s annual conference at the University of Bristol in April 2017.
The study by the Institute for Fiscal Studies finds that when wages for other jobs increase by 10%, teacher retention drops by six percentage points over five years – equivalent to 1,350 teachers finding other jobs or £31 million in training costs to find replacements.
''Outside options'', the prospect of earning better money in another job, is one reason why teachers leave the profession. While state schools no longer have to conform to strict pay scales, they still have budgets set by central government, which limits wriggle room to raise salaries if teachers are being lured away by another career. The problem is particularly acute in London: outside the capital, higher wages for other jobs have little effect on teacher retention.
The author comments: Increased flexibility in pay or financial incentives to remain in the state sector could be effective mechanisms for improving teacher retention in shortage subjects, particularly in London.''
In England, around 40% of all new teachers leave the state sector within five years. This high rate of teacher turnover reduces the average level of teachers'' experience and potentially creates disruption to schools, both of which have negative implications for pupils'' learning. High dropouts from the profession also incur high costs of training additional teachers for the government (around £23,000 per trainee, on average).
There are likely to be multiple factors associated with the decision to leave the teaching profession in the state-sector, such as school characteristics and personal circumstances. Our research concentrates on one possible additional channel that is affected by government policy – the difference in teacher and non-teacher pay in the local area.
Until recently, teacher pay in England was set centrally through teacher pay scales, with separate pay scales for Inner London, Outer London, Fringe London and the rest of England and Wales. This meant that for a given level of experience, teachers'' pay was the same across large areas of the country, despite large differences in non-teacher pay.
Recent policies have increased the flexibility for school leaders to set the level of teachers'' pay and introduce performance-related pay. But government policy remains important by setting the overall school budget, which limits schools'' flexibility in setting teachers'' pay to take account of the local labour market.
We find that a 10% increase in the local (non-teacher) wage reduces teacher retention in the state sector by around 1.2 percentage points each year on average. This effect is cumulative, so after five years, teacher retention is about six percentage points lower.
This would be equivalent to an additional 1,350 teachers leaving the profession after five years, or £31 million in the cost of training replacement teachers. But this is largely driven by very high responsiveness in London, whereas teachers outside the capital do not appear to respond significantly to the level of local wages.
We also find evidence that teachers in high priority subjects and those with a greater labour market attachment (on Teach First or Graduate Training Programme routes) are more responsive to outside wages. This suggests that outside options are more relevant for particular groups of teachers.
Overall, our findings suggest that teachers'' career decisions depend in part on monetary factors. This suggests that increased flexibility in pay or financial incentives to remain in the state sector could be effective mechanisms for retaining effective teachers who might have higher non-teaching earnings potential and improving teacher retention in shortage subjects, particularly in London.
The lack of responsiveness to the difference between teacher and non-teacher wages elsewhere, however, implies that policies other than financial compensation are likely to be required to increase teacher retention in the majority of the country.