Preferences, Selection, and the Structure of Teacher Pay

Human-capital formation in school depends largely on the selection and retention of teachers. I use a discrete-choice experiment to examine teacher preferences for compensation structure and working conditions, and I link responses to administrative records on teachers and student achievement. I calculate willingness-to-pay for a rich set of work attributes. High-performing teachers have similar preferences to other teachers, but they have stronger preferences for performance pay. Taking the preference estimates at face value in a model of teacher behavior, I explore how schools would structure compensation to meet various objectives. Under each objective, schools appear to underpay in salary and performance pay while overpaying in retirement. Restructuring compensation can increase both teacher welfare and student achievement.