Teacher Compensation and Structural Inequality: Evidence from Centralized Teacher School Choice in Perú

• Authors: Matteo Bobba, Tim Ederer, Gianmarco León-Ciliotta, Christopher A. Neilson and Marco Nieddu
• BSE Working Paper: 1273 | July 2021
• Keywords: inequality, teacher school choice, teacher wages, matching with contracts
• JEL codes: J31, J45, I21, C93, O15

We exploit data on centralized teacher recruitment in Per´u to establish that wage rigidity creates large urban-rural disparities in teacher effectiveness. Leveraging a teacher compensation reform, we provide causal evidence that increasing salaries in less desirable locations attracts qualified teachers and improves student learning. We estimate a model of teacher sorting and student achievement featuring rich heterogeneity in teachers’ preferences and effectiveness. Substantial equity and efficiency gains arise from reallocating existing teachers to exploit match effects or attracting applicants with higher average effectiveness into public teaching. Cost-minimizing counterfactual wage schedules aimed at achieving these gains imply the latter is more cost-effective.