Teacher Turnover and Financial Incentives in Underprivileged Schools: Evidence from a Compensation Policy in a Developing Country

Abstract

This paper evaluates the impacts of a policy that introduced a sizeable wage premium (24% to 36%) to teachers at disadvantaged schools on teacher turnover in the public school system in São Paulo, Brazil. We explore a discontinuity at the eligibility rule to identify the policy effect. We find that the wage compensation reduced turnover by 5 p.p. (10.4% over the pre-treatment average). We also show that this policy positively impacted the achievement of low-performing students, but had no effects on average test scores. We rule out alternative explanations, such as reallocation of teachers or direct effects of the wage increase. These results suggest a disruptive effect of teacher turnover on learning, especially on students at the bottom of the test score distribution.