March 31, 2014 8:53AM

Can Incentives Improve Performance of Public School Teachers?

A fundamental problem for most public schools is that teacher compensation is minimally related to performance, relying instead on years of service and credentials. So poor teachers face minimal incentive to improve or leave.

In a new study, Thomas Dee (Stanford) and James Wyckoff (Virginia) suggest this failure to employ incentives has substantial costs. Their analysis examines IMPACT, a

teacher‐​evaluation system introduced in the District of Columbia Public Schools by then‐​Chancellor Michelle Rhee. IMPACT implemented uniquely high‐​powered incentives linked to multiple measures of teacher performance.

Dee and Wyckoff

compare the retention and performance outcomes among low‐​performing teachers whose ratings placed them near the threshold that implied a strong dismissal threat [as well as] … outcomes among high‐​performing teachers whose rating placed them near a threshold that implied an unusually large financial incentive. …

[Their] … 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 [low‐​performing] teachers who remained.

The financial incentives also improved performance by high‐​performing teachers. 

These results are not surprising; as economists are fond of saying, incentives matter! 

But failure to use incentives is one reason why public schools are a bad way to subsidize education, setting aside whether any subsidy is desirable.