THE EFFECTS OF TEACHER MERIT PAY ON ACADEMIC ATTAINMENT: AN ANALYSIS USING DISTRICT-LEVEL DATA

ABSTRACT This study uses district-level data for the academic year 2007-2008 in order to determine if teacher merit pay has any effect on student graduation rates and drop-out rates. Using data from the Schools and Staffing Survey (SASS) and the American Community Surveys, the results of this study suggest that merit pay is not positively related to student academic attainment. Factors that have an effect on academic attainment include region of residence, racial composition of student body, educational attainment of district residents, and median family income. This study is important because it is the first to use a national set of district-level data, and its findings are consistent with some of the research in this area in that it finds that merit pay has no positive and significant effects on academic attainment. INTRODUCTION The vast majority of public school teachers in the US are compensated according to a single salary schedule. With this type of compensation system, a teacher's pay is based upon only two factors: years of experience and level of education; the quality of a teacher's instruction has no bearing on a teacher's compensation. Some believe that such a salary schedule does not promote individual achievement or excellence (Figlio and Kenny, 2007). Rather, they believe that a compensation system based more on teacher performance and less on seniority would do much to improve public education in the US. Under such a merit pay system, teachers would be monetarily rewarded if their students excel according to some measure of academic achievement. If, however, a teacher's students did not attain some minimum level of academic success, then that teacher would not receive any merit pay. If a teacher's students continually failed to meet some measure of academic success, then that teacher would slowly see their compensation decline in real terms over time. Hence, under a merit pay system, the high-performing teachers would see gains in their incomes over time while low-performing teachers would see their real incomes fall. The goal of such a system would be to give the low-performing teachers a reason to leave the profession. If these types of teachers left, then it is hoped that students would benefit from having mostly high-performing teachers in the classroom. Under the current single salary schedule system, low-performing teachers have much less of an incentive to quit the profession. Thus, students suffer under such a system because of the greater prevalence of low-performing teachers. The purpose of this study is to examine the effects of a merit-based compensation system for teachers on two measure of student academic attainment. The next two sections of this paper will provide further background on faculty merit pay and will discuss prior research on this topic. The empirical model will then be presented, and finally, the results will be discussed. BACKGROUND INFORMATION As noted in the introduction, under a merit pay system, a teacher's pay would be based on their teaching effectiveness. Low-performing teachers would receive little or no annual pay raises. Over a number of years, these teachers would see their salaries decline in real terms. Such teachers may eventually realize that their services are no longer desired and would leave the teaching profession. On the other hand, effective teachers would receive potentially substantial pay raises, which would encourage them to improve their teaching even more and would provide an incentive for others to enter the teaching profession. Given that the rewards for excellent teachers would increase under a merit pay system, it is reasonable to assume that highly qualified individuals would be more inclined to enter the teaching profession. Hence, under a merit pay system, the good teachers would be retained, the bad teachers would leave, and many potentially excellent teachers would be enticed to enter the teaching profession. …