School Competition Can Boost Teachers” Pay

New teachers and top quality teachers of mathematics and science can enjoy higher salaries as a result of increased competition between schools. These are the findings of research on the effects of a Swedish privatisation reform by Dr Lena Hensvik.

Her study, published in the June 2012 issue of the Economic Journal, finds a wage premium for certain teachers working in Sweden’s public education system in parts of the country where the number of private secondary schools has grown significantly.

Teachers in fields that are difficult to staff, highly skilled teachers and teachers new to the profession benefit most from the increase in competition between schools.

Dr Hensvik notes that many countries have recently adopted or considered market reforms in their public education systems. This has spurred considerable debate on the effectiveness of competition in raising pupil achievement.

One possible mechanism through which competition can change outcomes is by introducing competition into the market for teachers, which in turn could affect the pay and composition of the pool of teachers. But until now, there has been little evidence on how a more competitive school system affects the labour market for teachers.

During the 1990s, Sweden implemented a number of market-oriented reforms aimed at increasing competition in public education. One of the most radical policies was a voucher system, which allowed private independent schools to operate with public funding in the market for compulsory and high school education.

The reform led to a substantial increase in the number of private schools: from a market without any private alternatives, over 20% of Sweden’s high school pupils now attend a private independent school. This study examines whether teachers’ salaries responded to the local changes in private school competition following the voucher reform.

The Swedish setting is particularly interesting given the rapid increase in the number of private schools. It is also interesting in that teachers’ salaries are set at the local level through individual negotiations, which allows schools to respond to changes in competition and their need to retain and recruit teachers.

The results of the study suggest that the effect on average salaries is positive. The estimates indicate that public education teachers in markets with the biggest expansion in the proportion of private schools (an increase of 30 percentage points) receive wages that are 1.5% higher than public teachers in areas without any private schools.

While this overall effect is rather modest, there are notable differences in the wage premium depending on the characteristics of the teachers.

For example, new, inexperienced teachers benefit more from competition. The effects are also more pronounced among teachers in fields that are difficult to staff, such as mathematics and science. Finally, among teachers within the same field of specialisation, the competition effect is more pronounced for highly skilled teachers.

Overall, these results indicate that increased competition between schools along with flexible wages can strengthen the relationship between the demand for and skills of certain teachers and what they are paid.

From the perspective of education policy, such distributional effects are important as more differentiated wage-setting for teachers may affect the characteristics of the pool of teachers and the quality of teachers remaining in the public education system.

‘Competition, Wages and Teacher Sorting: Lessons Learned from a Voucher Reform’ by Lena Hensvik is published in the June 2012 issue of the Economic Journal.