This is exciting. It is very difficult to tease out solid statistical evidence that teacher pay incentives improve education outcomes. Alex Tabarrok has found real evidence in India that pay incentives produce better outcomes than the same expenditure on general education inputs. Try to imagine running a 500 school controlled study like this in America or Australia!
In an impressive new paper, Karthik Muralidharan and Venkatesh Sundararaman provide evidence on the power of teacher incentives to increase learning. The paper is impressive for three reasons:
1) Evidence comes from a very large sample, 500 schools covering approximately 55,000 students, and treatment regimes and controls are randomly assigned to schools in a careful, stratified design.
2) An individual-incentive plan and a group-incentive plan are compared to a control group and to two types of unconditional extra-spending treatments (a block grant and hiring an extra teacher). Thus the authors can test not only whether an incentive plan works relative to no plan but also whether an incentive plan works relative to spending a similar amount of money on “improving schools.”
3) The authors understand incentive design and they test for whether their incentive plan reduces learning on non-performance pay margins.
The results are as follows:
We find that the teacher performance pay program was highly effective in improving student learning. At the end of two years of the program, students in incentive schools performed significantly better than those in comparison schools by 0.28 and 0.16 standard deviations (SD) in math and language tests respectively….
We find no evidence of any adverse consequences as a result of the incentive programs. Incentive schools do significantly better on both mechanical components of the test (designed to reflect rote learning) and conceptual components of the test (designed to capture deeper understanding of the material),suggesting that the gains in test scores represent an actual increase in learning outcomes. Students in incentive schools do significantly better not only in math and language (for which there were incentives), but also in science and social studies (for which there were no incentives), suggesting positive spillover effects….
School-level group incentives and teacher-level individual incentives perform equally well in the first year of the program, but the individual incentive schools significantly outperformed the group incentive schools in the second year….
We find that performance-based bonus payments to teachers were a significantly more cost effective way of increasing student test scores compared to spending a similar amount of money unconditionally on additional schooling inputs.
Surprisingly, since absent teachers are a big problem in India, reduced teacher absenteeism per se does not appear to be the primary mechanism by which incentives improve learning. Instead the primary mechanism appears to be more intensive teaching, including more homework and classwork and better attention to weaker students, this greatly increases the relevance of these results to teaching in the developed world.