NCPA - National Center for Policy Analysis

Incentive Structure for Education System

October 28, 2013

Teachers in the United States are compensated largely on the basis of fixed schedules that reward experience and credentials. However, there is a growing interest in whether performance-based incentives based on rigorous teacher evaluations can improve teacher retention and performance, says a recent study from the National Bureau of Economic Research.

The researchers compare the retention and performance outcomes among low-performing teachers whose ratings placed them near the threshold that implied a strong dismissal threat. They also compare outcomes among high-performing teachers whose rating placed them near a threshold that implied an unusually large financial incentive.

  • The results indicate that dismissal threats increased the voluntary attrition of low-performing teachers by 11 percentage points (i.e., more than 50 percent) and improved the performance of teachers who remained.
  • They also find evidence that financial incentives further improved the performance of high-performing teachers.

Overall, the evidence presented in the study indicates high-powered incentives linked to multiple indicators of teacher performance can substantially improve the measured performance of the teaching workforce. Nonetheless, implementing such high-stakes teacher-evaluation systems will continue to be fraught with controversy because of the difficult trade-offs they necessarily imply. Any teacher-evaluation system will make some number of objectionable errors in how teachers are rated and in the corresponding consequences they face.

Policymakers must ultimately weigh these costs against the substantive and long-term educational and economic benefits such systems can create for successive cohorts of students both through avoiding the career-long retention of the lowest-performing teachers and through broad increases in teacher performance.

Source: Thomas Dee and James Wyckoff, "Incentives, Selection, and Teacher Performance: Evidence from IMPACT," National Bureau of Economic Research, October 2013.


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