We investigate two possibilities that could lead to this result: either (1) teachers hired prior to the policy change possessed attributes that were rewarded in the outside labor market, but these attributes are not correlated with TVA, or (2) there is a significant wage premium in the public sector even conditioning on teacher characteristics. The weight of the evidence favors the latter as the more plausible explanation. Average education levels and test scores of new hires, both of which are arguably rewarded in the non-teaching labor market, did not decline after the regime shift. Moreover, the significant wage premium in public sector teaching jobs is also seen in a comparison of teachers’ wages in public and private schools. In 2003, teacher salaries in the public sector were 5 times higher than those in the private sector (Andrabi et al., 2008) and by 2011, they were 8 times as high. When private sector wages are one-fifth as high, decreasing the public wage by one-third does not affect the quality of new entrants; the outside option is _never_ more attractive than the public sector in our data.

Our paper contributes to an important and growing literature on the estimation of TVA and its correlates. Studies from the U.S. and Ecuador demonstrate (a) the importance of teachers; (b) low correlations between observed characteristics and TVA (Staiger and Rockoff, 2010) and; (c) the positive effects of the first two years of teacher experience on TVA (Rockoff, 2004; Chetty et al., 2014a Rivkin et al., 2005, Araujo et al. (2016)).<sup>6</sup> These first estimates from a large sample in a low-income country demonstrate the external validity of these findings to an environment where the variation in observed characteristics is arguably much greater than in the U.S.<sup>7</sup> In addition, we are also able to extend these results to teachers in private schools and to show that content knowledge and TVA are highly correlated once we account for measurement error. It could be that, at the very low levels of learning that we see in our sample, both among children and among teachers, content knowledge becomes increasingly important.

The main empirical challenges in estimating TVA arise from the lack of experimental variation and the fact that much of our sample is from small, rural schools with a single classroom per grade. Although this is a common scenario in Pakistan – in the census of primary public schools for Punjab, average class sizes for grades 3, 4 and 5 in 2005 were only 17, 16, and 13 – it does not permit grade-specific, within school-year TVA estimates since we typically do not observe multiple teachers teaching the same grade in the same school in the same year. We assess whether our TVA

> 6In perhaps the first study of teacher and classroom effects outside of a high income country, Araujo et al. (2016) present estimates of the variance of teacher effects in Ecuador after randomly allocating students to teachers and also find that observed characteristics explain little of the variation in students’ outcomes, even after including direct measures of classroom effort.

> 7In our data, 49% of public school teachers and 74% of private school teachers do not have a bachelor’s degree, and (self-reported) mean days absent per month range from 0.5 at the 10th percentile to 5 at the 90th percentile of the absentee distribution in the public sector and 0 at the 10th percentile and 4 at the 90th percentile in the private sector. For comparison, the absence rate of an average teacher in the U.S. is 5%, and is only 3.5 percentage points higher for schools whose proportion of African American students (a marker associated with disadvantage in the United States) is in the 90th percentile (Miller, 2012).

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