The Economic Journal, 122 ( June), 799–824. Doi: 10.1111/j.1468-0297.2012.02514.x. 2012 The Author(s). The Economic Journal 2012 Royal Economic Society. Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
COMPETITION, WAGES AND TEACHER SORTING: LESSONS LEARNED FROM A VOUCHER REFORM* Lena Hensvik This article examines how the entry of private independent high schools in Sweden affects the mobility and wages of teachers in a market with individual wage bargaining. Using matched employer–employee panel data covering all high school teachers over 16 years, I show that the entry of private schools is associated with higher teacher salaries, also for teachers in public schools. The wage returns from competition are highest for teachers entering the profession and for teachers in maths and science. Private school entry also seems to have increased wage dispersion between high- and low-skilled teachers within the same field.
The teacher labour market has received growing attention among social scientists and policy makers as evidence suggests that teacher quality is one of the key inputs in improving school performance (Rockoff, 2004; Hanushek et al., 2005). Despite this, teacher pay remains low and compressed in many countries compared to other occupations with similar qualification requirements. In addition, the factors that determine teacher salaries often bear little relationship to student achievement. The main concern with this pay structure is that it may limit the supply of potential teachers and push the most highly skilled teachers into other segments of the labour market (Ballou and Podgursky, 1997; Hoxby and Leigh, 2004). To achieve a school system of high quality it is therefore important to understand how the particular features of the teacher labour market affect teacher compensation. This article provides evidence on how private school competition affects teacher mobility and wages. I investigate the consequences of a Swedish policy reform implemented in the mid-1990s, which allows publicly funded private schools to operate in the market for high school education.1 The reform initiated a rapid expansion in the number of private schools (Figure 1) and large temporal and regional variation in private school entry. Because almost all Swedish schools were run by local governments prior to the reform the new sector of private employers dramatically increased competition in the teacher labour market.
* Corresponding author: Lena Hensvik, Institute for Labour Market Policy Evaluation, Box 513, 75120 Uppsala, Sweden. Email:
[email protected] I thank the editor and two anonymous referees for their constructive suggestions. I am also grateful to Olof Aslund, Erling Barth, David Figlio, Erik Gro¨nqvist, Caroline Hoxby, Francis Kramarz, Mikael Lindahl, Matti Sarvima¨ki, Peter Nilsson, Oskar Nordstro¨m Skans, Jonas Vlachos and audiences at IFAU, VATT, the Labor Development Reading Group lunch at Stanford, the 2010 ELE Summer Institute in Reykjavik and the 2010 All California Labor Conference in Santa Barbara for helpful discussions and comments. I am also ¨ ckert, Olle Folke, Mikael Lindahl and Anders Bo¨hlmark for kindly sharing the particularly grateful to Bjo¨rn O data. Part of this work was completed while visiting Stanford Institute for Economic Policy Research. I thank FAS and the Berch and Borgstro¨m foundations for their financial support. 1 The reform was implemented in 1992 at the compulsory level and in 1994 at the high school level. The reason for focusing on high school teachers is first of all that the expansion of private schools is larger and second, that the teachers have well-defined fields of specialisation, which enables a more detailed analysis of the differential effects with respect to teacher characteristics. [ 799 ]
800
[JUNE
THE ECONOMIC JOURNAL
0.3
0.2
0.1
0 1991
1993
1995
1997
1999 Year
Teachers Fig. 1.
2001
2003
2005
Schools
Private Share in Swedish Local Labour Markets 1991–2006
Reforms that increase local school competition can have a significant impact on teacher compensation through reductions in the monopsonistic power of incumbent schools and increased competition over students (Boal and Ransom, 1997; Hoxby, 2002; Manning, 2003). The teachers market has long been subject to monopsony concerns due to the limited geographic and occupational mobility options for teachers, which is likely to generate significant market power for schools when setting wages. While recent estimates of teacher mobility provide indirect evidence of monopsony power in the teacher labour market (Falch, 2010; Ransom and Sims, 2010), few empirical studies have convincingly demonstrated its actual impact on teacher wages.2 Many countries have recently adopted or considered reforms aimed at increasing competition between schools.3 The Swedish experience is particularly interesting given the substantial increase of private alternatives in the education market. The variation in private high school openings over time and across regions, together with the rich data at hand moreover, enables me to address many of the limitations in existing work, which has mainly relied on cross-sectional data (Vedder and Hall, 2000; Medcalfe and Thornton, 2006). Importantly, the local governments who run the public schools have 2 Several studies document large and systematic wage differences between observably identical workers, both across industries (Krueger and Summers, 1988; Katz and Summers, 1989; Murphy and Topel, 1990) and across local labour markets (Moretti, forthcoming). One theoretical explanation behind such differences is that they reflect variations in the competitiveness of markets that arise from, for example, search frictions or entry barriers (Manning, 2003). However, few studies have empirically investigated the consequences of increased competition in any labour market on workers wages. Black and Strahan (2001) and Bertrand and Kramarz (2002) provide evidence from the private sector in France and the US. 3 These reforms have spurred considerable debate on whether market reforms are effective in raising student achievement. However, there is no consensus in the literature on the effects of competition on school performance. A number of papers have investigated the relationship between private school competition on student test scores, grades and university attendance, finding only weak and inconsistent evidence of such student achievement gains both in Sweden and elsewhere; see Ahlin (2003), Sandstro¨m and Bergstro¨m (2005) and Bo¨hlmark and Lindahl (2009) for evidence from Sweden, Gibbons et al. (2008) and Clark (2009)from the UK, and Hoxby (2003) and Figlio and Hart (2010) from the US.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
COMPETITION, WAGES AND TEACHER SORTING
801
little influence over the inflow of private schools, since school entry is decided at the national level. The most closely related paper is Kirabo Jackson and Cowan (2009), who study the effects of charter school entry in North Carolina on the teacher labour market. They provide evidence that private charter school entry is associated with higher public school teacher salaries, in particular in difficult-to-staff schools. Though this evidence is compelling, one limitation is that fixed teacher credentials determine teacher pay to a large extent, which limits schools ability to respond to local competition. An important contribution of this article is that it examines the wage effects of competition in a context where the rigid wage scales have been abandoned in favour of individual wage setting. Hence, there is substantial room for wage adjustments to the local market conditions and the needs of recruiting and retaining employees in a competitive environment. In addition, detailed data on teachers’ fields of specialisation along with measures of their cognitive and social skills allow for an examination of whether competition has created winners and losers in the teaching pool. Such distributional effects are clearly important from an education policy perspective, as a more differentiated wage setting of teachers may affect the characteristics of the teachers’ pool and the quality of the teachers remaining in public schools. By looking at outcomes related to both teacher salaries and teacher mobility, this article aims to provide a comprehensive evidence on how competition affects teacher outcomes. The results suggest that private schools hire different teachers from the traditional public schools; they hire from a broader array of occupations and recruit more from the private sector than public schools. The entry of private schools also seem to affect the composition of the teachers remaining in public schools, as private schools systematically hire public school teachers with less formal qualifications but high cognitive ability. However, I also find that competition leads to higher teacher salaries. The effects are particularly pronounced for teachers with high mobility; teachers entering the profession in the most competitive areas receive 2–3% higher wages than comparable teachers in areas without competition from private schools. The effects persist once individual heterogeneity is controlled for and when restricting the sample to public school teachers. This suggests that public schools attempt to reduce teacher turnover by paying higher salaries to the most mobile teachers. The empirical strategy exploits changes in private high school entry within and across local labour markets, hence it accounts for many of the potential confounders that could generate a spurious relationship between school competition and wages, such as time-invariant differences between local labour markets and local linear trends in unobserved determinants of wages. Still, however, the main concern is that the effects capture changes in time-varying unobserved characteristics of local labour markets rather than competition. I provide a range of robustness tests addressing this concern; all contradict that the results are simply driven by spurious correlations. In the final part of the article, I examine whether the effects of competition vary with teachers field as well as their cognitive and social skills. Notably, the results suggest that the magnitude of the competition effect varies substantially depending on teacher characteristics. The effect is first of all concentrated on teachers in difficult-to-staff areas, such as maths and science and vocational subjects. Second, the competition 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
802
THE ECONOMIC JOURNAL
[JUNE
effect is most pronounced for maths and science teachers with high cognitive skills and among social science teachers with high social skills. By contrast, there is no effect on teachers below the median in the cohort-specific skill distribution. Together these results suggest that school competition and flexible wages lead to a more market-based wage setting, with a stronger association between local market conditions and teacher aptitude on the one hand and teacher compensation on the other. The rest of the article is as follows: Section 1 provides a background and related literature, Section 2 describes the data, and Section 3 describes the reform generating the variation exploited in the article and the setting of teacher wages in Sweden. Sections 4 and 5 provides the results and Section 6 concludes.
1. Background and Related Literature Private school entry could change the wages and mobility of teachers through several channels. On the supply side, a recent strand of the literature emphasises the relevance of monopsony effects in any labour market where employers have some market power over workers, for example due to imperfect information, search frictions or firm specific skills; see Boal and Ransom (1997) and Ashenfelter et al. (2010), for literature reviews on monopsony. Monopsony effects have long been a concern in the labour market for teachers, as the limited number of schools in a geographic area as well as the occupation-specific skills may allow schools to pay lower wages than in a fully competitive market.4 Recent estimates of teachers labour supply elasticity support the view that teachers have low mobility, although these studies do not provide evidence of whether or to what extent schools actually exploit their market power to lower wages (Falch, 2010; Ransom and Sims, 2010). Another strand of the literature based on cross-sectional evidence shows that areas with more private schools have higher public school teacher salaries (Vedder and Hall, 2000; Medcalfe and Thornton, 2006). However, given the inherent difficulties of isolating the impact of competition from other sources of regional wage differentials mentioned earlier, it is unclear whether these studies render the true association between school competition and wages. Market-based reforms implemented in several countries improve the scope for credible identification of competition effects in the teacher labour market as they allow researchers to focus on changes in market competition over time. In the dynamic monopsony models of Burdett and Mortensen (1998), the extent of employer’s market power depends on the rate at which job opportunities arrive to workers. The lower the arrival rate of job offers, the more market power employers will have. As the number of employers increases through private school entry, the expanded job opportunities for teachers are thus expected to lessen the monopsonistic power of incumbent schools as competition forces them to raise wages to avoid teacher turnover. Because the threat of separation is more powerful for teachers with low job switching costs, the wage effects from competition are expected to be more pronounced among 4 In addition, teachers are often secondary wage earners in the household, which may further limit their mobility. For example, Boyd et al. (2005) examine teacher mobility in the US and find that teachers delineate their job search to relatively small geographic areas close to where they grew up.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
COMPETITION, WAGES AND TEACHER SORTING
803
high mobility teachers. Wage competition is also assumed to be stronger for teachers in difficult-to-staff areas, as these are likely to receive more job offers from entering private schools. Manning (2003) proposes to use the fraction of new recruits from nonemployment to proxy for labour market tightness in different segments of the labour market. If the proportion of new recruits from non-employment is low, workers are assumed to be more mobile. If new recruits come primarily from non-employment, this indicates little mobility across employers. Calculating the fraction hired from nonemployment in my data reveals that while there is an ample supply of teachers in social science, there is a greater need for teachers in maths and science and vocational subjects. In addition, school competition may change the overall demand for certain teacher characteristics. As suggested by Hoxby (2002), the increased competition over students may raise the incentives for all schools to retain and attract the most effective teachers. Since the Swedish independent private schools compete with the traditional public schools over funding on a per-student basis, schools should face strong incentives to hire and retain teachers that are valued by students. Even if existing work has found it difficult to pinpoint the characteristics associated with teacher quality more competition has been associated with schools valuing teachers effort, independence, maths and science skills and the quality of their college education (Hoxby, 2002). Previous work also suggests that private schools demand different teacher characteristics than public schools, such as more inexperienced teachers and teachers with less formal qualifications than traditional public schools (Ballou and Podgursky, 2001). Private schools demand for certain teachers as well as public school teachers’ willingness to teach in private schools determine how private school entry affects teacher turnover in public schools. This will however also depend on public schools’ ability to compete with wages. Kirabo Jackson and Cowan (2009) show that charter school entry in the US led to slight declines in teacher quality and higher salaries in difficult-to-staff traditional public schools. There was, however, no significant impact on the distribution of wages with respect to teacher value added, certification status or subject area skills. Though this evidence is compelling, one limitation of their setting is that in the US, fixed teacher credentials determine teacher pay to a large extent, which limits schools ability to respond to local market conditions. An important contribution of this article is that I examine the consequences of school competition in a labour market where local administrators have substantial room to adjust wages at the individual level tailored to the needs of recruiting and retaining certain employees.
2. Data This Section provides the key features of the data and describes the variables used to measure competition and local labour markets. A more detailed description of the different data sources and the construction of the data is provided in online Appendix A. The data used to examine the relationship between private school entry and wages contain all high school teachers in Sweden in the years 1991 to 2006. Individuals with non-teaching appointments, such as study counsellors, are excluded from the sample. Apart from standard background and regional characteristics, the data include information on whether the individual is certified to be a teacher, his/her individual field of specialisation, annual income and monthly wages adjusted to full time. From 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
804
THE ECONOMIC JOURNAL
[JUNE
1995 onwards, it also contains unique school identifiers for the school in which the teacher is employed. While most of the variables are available for the universe of teachers, wages are available for all teachers employed in public schools and for a sample of privately employed teachers. Because part of the analysis will rely on within-teacher variation in competition from private schools, only private school teachers who appear in the sample twice or more will help to identify the coefficient of interest. To handle this, I impute the log monthly wage for private school teachers who are not sampled in a given year. This is possible because the data contain annual income for all workers, which can be used to recover information on wages for teachers in the private sector. I will check the sensitivity of the results using the weights contained in the data. However, it should be emphasised that for public school teachers, who constitute the great majority of the teaching pool, wages are available for the full working population. 2.1. School Competition and Local Labour Markets I use Statistics Sweden’s definition of local labour market regions (LLMs) to define the market in which schools compete for labour. These are based on commuting distance and seem to capture the teachers’ true labour market quite well; 88% of all teachers in the sample work in their residential local labour market. As a sensitivity check, I also consider alternative geographical boundaries of the local labour market.5 The main competition measure will simply be the share of private high school teachers in a given local labour market and year.6 To focus on the impact of the expansion of the government-funded private schools introduced by the voucher reform, I disregard variation in competition due to openings/closings of other public schools.7 I will however also show experiments with a Herfindahl index, where I exploit changes in market concentration generated by the entry of private independent high schools. 2.2. Teacher’s Cognitive and Social Skills Apart from standard demographic characteristics, the teacher register can also be linked to information on the cognitive and non-cognitive skills for a large part of the male population. The measures are obtained from the military enlistment, where comparable data are available for cohorts born between 1951 and 1980. In these cohorts, almost all males went through the draft procedure at age 18 or 19. The cognitive tests provide an evaluation of cognitive ability based on several subtests of logical, verbal and spatial abilities and are similar to the AFQT in the US. Individuals 5 There are 109 local labour markets in Sweden, which have 2.6 municipalities on average. Figures A1 and A2 provide a map. 6 An alternative available measure would be to use the share of private high schools in the local area. However, because private schools are systematically smaller than public schools (see Figure 1), this definition would lead me to understate the impact of competition. Another common measure is to use the share of high school students attending private schools in the local labour market. Because these data are not available for the study period of interest in this article I will focus on the measure described in the main text. 7 While competition effects between public employers are interesting, they are not the primary focus of this article.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
COMPETITION, WAGES AND TEACHER SORTING
805
are graded on a 1–9 scale, which I use to construct a percentile ranking within each cohort of teachers. The non-cognitive test scores are based on a standardised interview with a certified psychologist, with the objective to evaluate the conscript’s ability to succeed in the military. The personality traits evaluated in the draft procedure are psychological endurance, emotional stability, the ability to take initiative, social outgoingness, sense of responsibility and ease of adjusting to a military environment. The motivation for doing the military service is not a factor to be evaluated. Just as for the cognitive tests, the individuals are scored on a scale from 1 to 9 and ranked by percentile within each cohort. An advantage with these measures compared to, for example, value-added measures of teacher quality is that the tests are taken before individuals select into the teaching profession and thus do not rely on assumptions about the matching process of students to teachers.8 Previous research shows that both the cognitive and non-cognitive ability measures are strongly related to labour market outcomes, such as future wages and earnings (Lindqvist and Vestman, 2011). In the population of high school teachers used in this article, the estimated wage-test score relationship appears to be approximately linear (not in article). Teachers results on the military tests have also been associated with student outcomes at the compulsory level (Gro¨nqvist and Vlachos, 2008). Together, these findings suggest that the test scores capture teaching skills that parents and students care about. The average cognitive and social ability test scores, separately by field, suggest that there is variation in the average skills across subjects; maths and science teachers have higher cognitive and non-cognitive test scores than the rest of the teachers (online Appendix Table B1). Moreover, comparing teachers to the college-educated population in non-teaching professions supports the notion that teachers are disproportionally drawn from the lower parts of the skill distribution.9 It is not clear a priori whether cognitive or social teaching skills are relatively better predictors of student achievement. Gro¨nqvist and Vlachos (2008) show that highperforming students benefit from having teachers with high cognitive ability, whereas low-aptitude students are better off with teachers with non-cognitive skills. Moreover, being a good teacher in one field may not require the same skills as being a good teacher in another. In fact, the results will later suggest that the returns to cognitive and social skills differ depending on a teacher’s field of specialisation.
3. Institutional Framework The voucher reform, implemented in 1994, requires local governments, who run the public schools, to provide private schools with funding on a per-student basis. 8 See Rothstein (2010) for a critical evaluation of value-added models, and Lindqvist and Vestman (2011) for a more detailed description of the ability test scores. It should be noted that during this time period, it was not possible to avoid the military service by scoring low on the enlistment test. By contrast, there were strong incentives to obtain a high score, as the decision about the type of military service was based on the conscripts performance. 9 The college-educated population outside teaching score on average 6.65 (5.78) on the cognitive (noncognitive) tests.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
806
THE ECONOMIC JOURNAL
[JUNE
Importantly, local governments have limited possibilities to influence the entry of private schools in their municipality, as entry is approved at the national level by the National Agency of Education (NAE). To qualify for public funding, private schools must follow the same rules for enrolment as public schools, which means that they must provide tuition free and admit students based on grades. Besides this, the requirements to receive funding are fairly lax. There are, for example, no regulations on ownership structure and schools are operated by religious, non-profit cooperatives and for-profit corporations.10 Municipalities receive block grants from the central government to be spent on schooling but there are no ear-marked money for schools. Consequently, there is scope for differences in expenditures on public schools across municipalities (Bjo¨rklund et al., 2005). A key feature of the Swedish labour market for teachers is that wages are determined at the local level, through negotiations between the teacher and the principal. The individualised pay regime came into place in 1996 through an agreement between the employer’s organisation and the teacher labour unions. Prior to this, salaries were largely determined by fixed teacher credentials based on the type of work and experience, although local deviations were common when faced with, for instance, teacher shortages. The intention of the reform was to give employers more discretion over wages to reward teacher quality and effort. However, the conditions of teacher pay and employment are governed by central agreements between the teacher unions and the employer’s organisation. During the period under study, two agreements have been in place. The first was a five-year agreement on a 10% increase in teacher pay collectively over the five-year period with guaranteed minimum salaries after one and five years of employment. The second agreement, which came in place in 2000, entailed a minimum 20% increase in total for teachers in the country as a whole over the five-year period but the five-year guarantee was relaxed. As the agreement applies to all teachers in the country, it allows for variation in local wage policies. In the second agreement, it was in fact explicitly stated that salaries should be linked to local governments objectives and needs to recruit and retain effective teachers, with consideration to budget constraints (Strath, 2004). The pay compression induced by the agreed minimum salaries could lessen schools monopsony power over workers in the lower part of the wage distribution and hence mute the importance of market competition in these segments of the teacher labour market. Quantitative evidence suggests that the move to individualised pay had limited impact on the overall wage dispersion among high school teachers (So¨derstro¨m, 2006). There are several possible explanations for this. First, there were already deviations from the wage scales before 1996; the labour union of the majority of high school teachers (La¨rarnas Riksfo¨rbund) had, in fact, already accepted individualised wage setting in 1992 (So¨derstro¨m, 2006). Because the wage scales had a steep age-earnings 10
In the immediate aftermath of the reform, private schools were mainly run by non-profit organisations offering special profiles. Schools could charge tuition up to an amount considered reasonable by the NAE until 1997, although few schools did in reality do so. After this initial stage, the growth in private schooling has mainly been driven by independent schools with a general profile, often run by for-profit companies (Skolverket). 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
COMPETITION, WAGES AND TEACHER SORTING
807
profile in the old regime, wage increases in the lower parts of the age distribution could produce a more compressed wage structure than before. Interviews with single principals indeed highlight that teachers entering the profession have benefited most from the market-based wages (Skolledningsnytt 06/2004). It is also possible that schools incentives to introduce individualised pay were too weak in a non-competitive environment. To understand the full impact of individualised wage setting, it thus seems important to examine how the enforcement of localised wages interacts with the competitiveness of the labour market. It should be mentioned that the market-based reforms in the Swedish education sector were implemented during a severe economic downturn in the first half of the 1990s, which had a significant impact on the financial resources in local municipalities. The high unemployment rates and the need to cut expenditures are likely to have increased the incentives and ability for local governments to practise monopsony power over teachers, which may increase the economic relevance of competitive forces in the teachers labour market studied in this article. The regional variation in private school openings is illustrated in Figure 2, which shows the local labour market specific changes in privatisation between 1991 and 2006. It is clear that local labour markets had very different levels of private school penetration during the study period. Whereas some labour markets experienced increases in the share of private school teachers with up to 30 percentage points; in some locations, there had still been no entry of private schools in 2006. The empirical strategy uses the within and cross-regional expansion of private schools along with several robustness checks to identify the effect of school competition on teachers wages.11
10
Density
8 6 4 2 0 –0.6 Fig. 2.
–0.4
–0.2
0
0.2
0.4
Local Changes in Private Entry 1991–2006
11 The private schools operating in the market prior to 1994 were boarding schools, schools for students with special needs or religious schools. A few of these received state funding, although not on a per-student basis.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
808
[JUNE
THE ECONOMIC JOURNAL
4. Results on Hiring Patterns The mobility of teachers between public and private schools depends on several factors. On the supply side, certain teachers may find it particularly attractive to teach in private schools, where working conditions could differ from public schools. On the demand side, previous work suggests that private schools prefer teachers with different characteristics from those preferred by public schools, such as less experience and formal qualifications. How private school entry influences the hiring and mobility patterns of teachers in addition depends on how public schools respond to the wage competition in order to attract and retain teachers in the public sector. Table 1 shows the characteristics of teachers hired by public and private schools respectively. The data are longitudinal with unique identification numbers for workers and firms from 1995 and onwards, hence, all teachers can be followed over time as well as across schools and alternative employers. New recruits are defined as those not observed in the same school in the preceding three years, which restricts the sample period for this analysis is 1998 to 2006. In line with previous work, I find that private schools hire younger and fewer certified teachers than public schools. Private schools
Table 1 Teachers Hired by Public and Private Schools 1998–2006 Hiring school:
Private
Public
38.60 0.43 0.49 0.42 0.42
41.70 0.58 0.51 0.39 0.40
Fraction hired from: Public high schools Private high schools Other education levels Other industries Non-employment
0.14 0.08 0.36 0.24 0.18
0.24 0.01 0.39 0.20 0.16
Fraction from other industries Manufacturing Construction Wholesale and retail sale Hotels and restaurants Transport, storage and communication Financial intermediation Real estate, renting and business activity Public administration and defence Health and social services Other community, social and personal services
0.10 0.02 0.13 0.05 0.05 0.01 0.23 0.06 0.15 0.18
0.09 0.05 0.11 0.06 0.05 0.01 0.15 0.09 0.20 0.17
Hire characteristics Age Certified Female Cognitive ability (males) Social ability (males)
Notes. New recruits are defined as workers not receiving compensation from their current school in any of the three preceding years. This restricts the sample period to 1998–2006. Industries that employ <1% of the total recruits (Agriculture, hunting and forestry, Mining and quarrying and Electricity, gas and water supply) are not shown in the Table. 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
COMPETITION, WAGES AND TEACHER SORTING
809
also hire more frequently from other private schools, other industries and from nonemployment. When recruiting individuals from non-teaching professions, private schools mainly attract workers from the business and retail industries. Public schools in contrast, mainly hire workers from other public sector industries.12 Bjo¨rklund et al. (2005) show that the probability of leaving a public school for a private increased proportionally with the expansion of the private schools during the 1990s. (Table 1 suggested that, on average, 14% of the private school teachers come from public high schools.) Next, I look at the characteristics of the teachers who leave public for private schools. An advantage of the data used for this study is that they contain all teachers employed in each school, which allows me to compare teachers who leave for a private high school to all their co-workers who remain in the traditional public school. In practice, I estimate linear probability models of the following type: Hipt ¼ a þ X ipt b þ hpt þ ipt;
ð1Þ
where Hipt is a dummy taking a value of 1 if teacher i in public school p in year t switched to a private school, X ipt is a vector of teacher characteristics (age, gender, certification status and field of education) and hpt a vector of school year dummies (i.e. a fixed effect for each set of co-workers for public teacher i). Because the model includes school year fixed effects, it accounts for all school characteristics that could influence the decision to leave a public school in a given year, such as teacher and student composition and the regional location of the public school. The estimated bs presented in column (1) in Table 2 suggest that the probability of a teacher leaving a public school for a private one decreases with age and is significantly lower for certified teachers.13 Among certified teachers, there is a tendency for private schools to hire public school teachers in maths and social science more than in other subjects, although the differences are not statistically significant. Column (2) includes the teachers cognitive and social skills. Notably, these results indicate that teachers moving from public to private schools have above average cognitive skills compared to those who remain in public schools. Part of this effect seems to be explained by systematic skill differences related to teachers’ fields, although the pattern remains the same also when including school year field fixed effects (column 3). For comparison, columns (4)–(9) display the same results for teachers who leave a public school for another public school. I distinguish between destination schools located in the same municipality (columns 4–6) and those located in a different municipality (columns 7–9), as schools located in different municipalities are more likely to compete over teachers than public schools operated by the same decisionmaking unit. The results suggest that within a municipality, mobility is substantially higher for certified teachers, which may partly be explained by the involuntary reshuffling of teachers between public schools. Cross-municipality mobility is more similar to teacher 12 Public and private schools are subject to the same rules regarding recruitments in that all schools are obliged to hire teachers who have a degree (i.e. teacher certification) in the teaching they will be undertaking according to the Swedish Education Act (1985:1100). Exceptions can be made if people with the required training are not available. 13 The fraction of teachers switching schools is 8%.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
0.333 217,887 0.097 Yes No
0.030*** (0.005)
0.021*** (0.002) 0.006 (0.026) 0.100** (0.049) 0.078 (0.053) 0.089 (0.470) 0.074 (0.329)
0.322 49,345 0.097 Yes No
0.221** (0.109) 0.087 (0.117)
0.113 (0.099) 0.061 (0.659) 0.124 (0.110) 0.057 (0.066)
Males
All
0.164 31,324 0.256 Yes Yes
0.071 (0.154) 0.077 (0.169)
0.023*** (0.006)
Males
(3)
2.30 217,887 0.537 Yes No
0.027*** (0.003) 0.077 (0.071) 0.190** (0.095) 0.139 (0.118) 0.029 (0.100) 0.063 (0.090)
All
(4)
2.91 49,345 0.519 Yes No
0.008 (0.220) 0.231 (0.216)
0.188 (0.165) 0.058 (0.257) 0.120 (0.231) 0.041 (0.177)
0.005 (0.009)
Males
(5)
2.225 34,174 0.603 Yes Yes
0.286 (0.336) 0.193 (0.335)
0.011 (0.014) 0.150*** (0.044)
Males
(6)
Public (same employer)
1.029 257,894 0.018 Yes No
0.114* (0.070) 0.170* (0.094) 0.228** (0.073) 0.083 (0.052)
0.061*** (0.003)
All
(7)
1.087 59,791 0.03 Yes No
0.230 (0.187) 0.312* (0.176)
0.123 (0.156) 0.255 (0.233) 0.241 (0.206) 0.072 (0.145)
0.076*** (0.009)
Males
(8)
0.963 40,010 0.09 Yes Yes
0.289 (0.320) 241 (0.280)
0.079*** (0.014)
Males
(9)
Public (different employer)
THE ECONOMIC JOURNAL
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
Notes. Statistical significance at the *10%, **5% and ***1% levels. Standard errors are robust for clustering at the school level are shown in parentheses. The model is a linear probability model where the dependent variable is an indicator variable taking the value one if the teacher left the public school for a private/public destination school. The dependent variable has been scaled by 100, hence the mean probability for a public school teacher to leave for a private school is approximately 0.3%. The sample in columns (3), (6) and (9) is restricted to males born between 1951 and 1981.
Mean of dependent variable Observations R2 School year dummies School year field dummies
Social
Ability Cognitive
Vocational subjects
Social science
Maths and science
Certified
Female
Age
(2)
(1)
Private
Table 2 Teacher Mobility from Public Schools 1998–2006
810 [JUNE
2012 ]
COMPETITION, WAGES AND TEACHER SORTING
811
mobility between public and private schools. However, one distinct difference can be noted; whereas private schools hire teachers from the upper part of public school teachers skill distribution, public schools appear to recruit teachers with below average cognitive and social skills. These differences in mobility patterns suggests that competition may have increased the overall demand for teacher aptitude in the labour market.
5. Results on Wages This Section examines the relationship between private school competition and teacher wages. Before turning to the econometric specification and the estimation results, I provide a brief description of the variation in school competition exploited in the empirical analysis and illustrate the raw wage differences between teachers in more/less competitive labour markets. 5.1. Empirical Strategy To estimate the impact of school competition on teacher wages, I exploit the local variation in private school expansion induced by the voucher reform using individual data. The empirical specification is given by: logðwilt Þ ¼ b1 Plt þ ll þ lt þ wl t þ b2 X ilt þ ilt;
ð2Þ
where wilt is the wage for teacher i in local labour market l in time period t; Plt is the continuous measure of the degree of competition in the local labour market, X ilt is a vector containing observable teacher characteristics (gender, age, educational attainment and certification status) as well as the number of pupils of high school age in the local labour market where the teacher is employed, lt and ll are year and local labour market dummies, wlÆt are local labour market-specific time trends and ilt is the error term. This baseline specification takes into account many of the confounding factors that could generate a spurious relationship between competition and wages; the covariates in X ilt account for compositional changes in the observed characteristics of the teaching pool and for changes in the local demand for schooling due to cohort size fluctuations; the year dummies control for smoothly evolving factors such as businesscycle effects and long-term national trends and the local labour market dummies account for permanent spatial differences in economic outcomes. Importantly, the long time period allows me to eliminate local linear labour market-specific trends, which implies that the parameter of interest is identified from the residual variation in each labour market around its own linear time trend. One potential concern is that teachers may divide into labour markets with more or less competition based on unobserved characteristics. If this is the case, b1 may capture both direct effects of competition for incumbent teachers as well as compositional changes in the teaching pool. An advantage of using longitudinal data is that I am able to control for such compositional changes by including teacher fixed effects. To this end, I augment (2) with a vector of teacher-specific indicators, li. Since this 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
812
THE ECONOMIC JOURNAL
[JUNE
specification relies on variation in teachers exposure to local school competition it will identify the impact of school competition for incumbent teachers only. The parameter of interest is b1, which captures the full impact of competition in the local labour market averaged across all teachers, both public and private. I will however also estimate (2) for public school teachers separately, in order to assess how private school entry affect salaries of those who remain in the public schools. Apart from being associated with teacher mobility, privatisation could also affect the composition of students remaining in public schools. For example, if private schools cream-skim, the estimated effects could capture wage compensation for increased segregation in public schools rather than changes in market power (Epple and Romano, 1998). Because the private schools cannot charge for tuition and must follow the same admission rules as public schools, there is probably less room for such selectivity in the Swedish system than in other settings.14 Moreover, student mobility would only affect average wages in the local labour market if teacher wages increase disproportionally in relation to the share of low-ability students. Although it is impossible to rule this explanation fully out, it is difficult to reconcile with the distinct heterogeneous patterns with respect to teacher characteristics shown later in the study. The assumption maintained for identification is always that the regional private school expansion is uncorrelated with the error term once I have conditioned on all covariates included in (2). The main source of heterogeneity that is not controlled for and that may generate a spurious relationship between school competition and wages is the presence of local and non-linear trends in unobserved determinants of wages that are correlated with the degree of private school competition. Higher economic growth in a region could, for example, attract parents with a higher demand for private schooling, in which case regions with private school openings may even in its absence have experienced increasing wages. I discuss this and similar threats to identification in greater detail in Section 5.4, where I also present a number of robustness checks to validate my findings. 5.2. Descriptive Patterns: Local Private Entry and Wages Figure 2 illustrated the local changes in private high school entry during the study period. Geographically, private schools opened in all parts of Sweden, although most of the expansion took place in the population dense areas in the southern parts (Figures B1 and B2 in online Appendix). Table 3 reports the partial correlations between local (municipal) characteristics and private high school entry. The first column shows that localities with higher income, population density and a right wing local majority in the pre-reform period were particularly attractive targets for private school entry. The second column displays the local characteristics in the post-reform period that predict private high school entry in the subsequent (t þ 1) year. The only variable that is significant is population size. However, the signs on the other coefficients indicate that private schools seem to locate in municipalities with a higher fraction of college educated, native and high income individuals and higher teacher salaries. The current level 14 MacLeod and Urquiola (2009) show that competition via non-selective, for-profit schools leads to less stratification compared to a system with selective schools.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
COMPETITION, WAGES AND TEACHER SORTING
813
Table 3 Private Entry and Local Characteristics Dependent variable Fraction college educated Fraction immigrants Mean log income Right wing majority Log population
Private school share 2006
Private entrytþ1 1994–2006
0.017 (0.486) 0.087 (0.220) 0.475** (0.217) 0.101** (0.037) 0.082** (0.030)
0.152 (0.215) 0.062 (0.134) 0.066 (0.090) 0.037 (0.023) 0.169*** (0.020) 0.031 (0.061) 0.139 (0.161) 2,359 0.062
Private school share Log teacher wages Observations Mean dependent variable
546 0.076
Notes. The dependent variable in column (1) is the fraction of private high school teachers in 2006 and the explanatory variables are measured in 1993 (year prior to the voucher reform). The model in the second column is a linear probability model where the dependent variable is a dummy taking the value of one if a private high school opened in the municipality in the following year. The estimates in both columns are weighted according to the number of residents in the municipality used to calculate the means. Statistical significance is shown at the *10%, **5% and ***1% levels. Standard errors are robust for clustering at the school level and are shown in parentheses.
of private schools is moreover negatively related to the location decision, which suggests that private schools choose to enter markets with little competition from other private schools. For my empirical strategy to be valid, it is crucial that private school entry is not systematically related to trends in other factors that determine local wages. As a first assessment of the validity of this assumption, I look at the unrestricted time series of wages in local labour markets separated at the median amount of private school expansion during the study period. As illustrated by Figures 3 and 4, there is no clear trend prior to 1994, whereas wages start to diverge after the reform in favour of teachers in more competitive labour markets. Unless this pattern is explained by unobserved time-varying differences between more or less competitive markets the Figures clearly suggest that private competition has a positive effect on teachers wages. For non-teaching occupations with similar qualification requirements as teachers, such as pre-school teachers and nurses, there seems however to be no difference in wages between regions with more or less private high school entry. This suggests that the pattern below is probably not an outcome of general trends common to these workers in the same local labour market (Figures B3 and B4 in the online Appendix). 5.3. Estimation Results The estimate in the first column in Table 4 shows the baseline effect from estimation of (2), which relates teacher wages to the private school share in the assigned local labour market. The dependent variable is the individual log monthly wage and all 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
814
[JUNE
THE ECONOMIC JOURNAL
26,000
Median Wage
24,000 22,000 20,000 18,000 16,000 1991
Fig. 4.
1995
1997
1999 2001 2003 Year Treated Comparison
2005
Median Wages for Teachers in Treated and Comparison Local Labour Markets
Median Wage Ratio (Treated Versus Non-treated)
Fig. 3.
1993
102
101
100
99 1991
1993
1995
1997
1999 Year
2001
2003
2005
Relative Median Wages for Teachers Employed in Treated and Comparison Local Labour Markets
specifications include individual wage controls, the log of the number of individuals in high school age, year dummies, local labour market fixed effects and local labour market linear trends.15 The estimated effect indicates that private entry has a positive impact on teacher wages, although the effect is not statistically different from zero and it is rather small. Columns (2) and (3) continue to show the differential impact between entering and incumbent teachers, where entering teachers are defined as those who are not observed 15 To conserve space I do not report the estimates of the control variables but it should be noted that all of these enter with expected signs; wages are higher for males than for females, increases with age and level of education and are higher for certified teachers. Weighting the sample instead of using imputed wages does not alter any of the results although the estimates are less precise. These results are available upon request.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
815
COMPETITION, WAGES AND TEACHER SORTING
Table 4 Baseline Estimates Dependent variable: log(monthly wage)
Sample: Private share Observations R2 LLM fixed effects LLM linear trends Teacher fixed effects
All teachers, All schools (1)
Entering teachers, All schools (2)
All schools (3)
All schools (4)
Public schools (5)
0.038 (0.023) 351,875 0.731
0.111** (0.050) 31,389 0.661
0.029 (0.023) 320,486 0.735
0.050** (0.022) 320,389 0.903
0.049** (0.021) 308,455 0.903
Yes Yes No
Yes Yes No
Yes Yes No
Yes Yes Yes
Yes Yes Yes
Incumbent teachers
Notes. Each column represents a separate regression. Statistical significance at the *10%, **5% and ***1% levels. Standard errors are robust for clustering at the local labour market level are shown in parentheses. The sample covers 1991–2006. In addition to the fixed effects indicated by the Table, all regressions control for year fixed effects, a dummy indicating whether the individual is a certified teacher and a dummy indicating whether the wage is imputed or not, and the log of the number of student in high school age in the given labour market and year. The individual controls include gender, age, age2 and education dummies (six bins).
in the teacher register in any of the five preceding years. As previously discussed, the impact of competition is likely to be higher among teachers who are entering the profession than among incumbents, due to the higher mobility in this group. Consistent with this, I find that the effect is significantly larger among new teachers; those who enter the most competitive areas (where the private share is one third) receive 3% higher wages than those who enter labour markets without any competition from private schools. This difference is roughly comparable to one additional year of college education and somewhat smaller than the difference in wages between a certified and non-certified teacher who enter the teaching profession (5%). It moreover corresponds to a monthly wage difference of roughly 550 Swedish Krona (SEK)/Euro 50/USD 85. Columns (4) and (5) present the results from teacher fixed effects models. As argued above, it is possible that the main effects capture both the direct impact of competition and compositional changes in the teachers labour pool. The estimates increase and are more precisely estimated when teacher heterogeneity is controlled for, suggesting a negative sorting of teachers into more competitive markets.16 The estimated effect of 5% implies that teachers receive on average 1.5% higher monthly salary in areas with the highest realised levels of private school entry. Finally, the last column shows that the estimated effect remains approximately the same when the sample is restricted to public school teachers only, suggesting that public schools respond to private school competition by raising the wages for incumbent teachers. 16
Note that identification in the teacher fixed effects specification comes from both within and between local labour market variation in school competition. However, including teacher LLM fixed effects produces a similar estimate which suggests that changes in the competition measure is not driven by teacher mobility from low to high private school districts. The estimate using the weights contained in the data instead of the imputed wages yields the estimate 0.046 (0.022). 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
816
THE ECONOMIC JOURNAL
[JUNE
5.4. Robustness Specifications An alternative measure of competition to the share of private high school teachers would be to use a measure that captures the overall competitiveness of the local labour market. Table 5 shows results using a Herfindahl index score, which is a common measure of market concentration. The index is calculated as the sum of the squared market shares held by each competitor in the market and it takes values from 0 to 1, where a higher value corresponds to markets characterised by lower concentration of employers and, hence, less competition. Because it is not clear whether/how public schools within the same municipality compete over teachers, I computed two alternative index scores. The first measures competition by the concentration of teachers into all schools in the local labour market and the second measures competition by the concentration of teachers into decision-making units (local districts and private schools).17 To continue focusing on competition from private school entry, I use the private share as an instrument for the Herfindahl index score, which allows me to compare the estimates to those in Table 4. The first stage regression displayed in the upper panel of Table 5 suggests that labour markets with the highest levels of private entry, has a 0.24 lower concentration index. According to the second column, which displays the estimates based on the Herfindahl decision-unit index, this translates into a 1.5% higher wage. The magnitude is comparable to that reported in column (3) of Table 4, although more precisely estimated. Using the index based on all schools produces smaller estimates, which indicates that the decision-unit concentration index is a more relevant measure in capturing the competitiveness of the local labour market.18 A causal interpretation of the estimates in Table 4 relies on the assumption that the expansion of private schools is uncorrelated with trends in unobserved determinants of wages not captured by the local linear trends. This would be violated if for example private schools choose to locate in areas with higher demand for private schooling. Interviews with private secondary schools indicate that attitudes toward privatisation are an important factor for the location decision (Bo¨hlmark and Lindahl, 2008). In addition, if the fixed salary schemes were binding prior to the wage bargaining legislation in 1996, the results may simply capture a spurious relationship between private school competition and wages showing only after the removal of the wage scales. To address this main concern I examine whether wages of other occupational groups are also affected when the share of private high schools increases. The results provided earlier showed that the inflow of private high schools did not impose any increased competition for pre-school teachers (only 0.8% of the total recruits come from 17
Hanushek and Rivkin (2003) use a similar strategy. Note that the index treating all schools as independent competitors naturally generates lower concentration (higher competition) since labour markets without private schools and only one districts but many schools within the district would will have low concentration according the first measure, but high according to the second. 18 I also estimated the model using the private school share as an instrument instead of the share of private high school teachers. As indicated by Figure 1 in the Introduction, this generated a much lower estimate on the association between private entry and market concentration, which is explained by the fact that private schools are typically smaller than public schools. The estimate from the second stage however was very similar to column (2) of Table 5. In addition to the exercise with the Herfindahl index, I also tried interacting the private share in eq. (2) with the absolute number of private high schools in the area but found no difference depending on the number of schools entering the market. Using alternative labour market definitions, such as the municipality or county suggests that the estimates increase with the definition of the labor market, although the estimates are not significantly different from those in Table 4 (Table C4 in the online Appendix). 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
817
COMPETITION, WAGES AND TEACHER SORTING
Table 5 Alternative Competition Measures (1)
(2) First stage
Dependent variable Private share (teachers) Mean dependent variable
H-index schools 0.620*** (0.005) 0.255
H-index districts 0.797*** (0.003) 0.512 Second stage
H-index schools
0.021** (0.009)
H-index districts Observations R2 LLM fixed effects LLM linear trends Teacher fixed effects
351,875 0.730 Yes Yes No
0.064*** (0.012) 351,875 0.730 Yes Yes No
Notes. The Table report estimates from a two stage least squares model where the share of private high school teachers is used as an instrument for the overall competitiveness of the local labour market. Overall competition is measured by the Herfindahl index score, which takes the sum of the squares of the market shares held by each competitor. In the first column, a competitor is defined as any school in the local labour market. In the second column, a competitor is defined as an independent employer, which can be either a public school district or a private independent school. Higher values of the Herfindahl index implies less competition. Except for the controls indicated in the Table, the model includes the same controls as Table 4, the sample covers 1991–2006. Statistical significance is shown at the *10%, **5% and ***1% levels. Standard errors are robust for clustering on the local labour market.
pre-schools). These teachers should therefore be unaffected by the variation generated by the voucher reform, unless high school entry is correlated with trends in other factors that influence public sector wages, such as public spending, demands for private schooling, area amenities or labour quality. The point estimate of the private high school share on preschool teacher salaries is 0.007 (0.024); hence, private school expansion is unrelated to the wage growth of pre-school teachers, which supports the conclusion that the main effect is not driven by local trends in omitted factors common to teachers at the preschool and high school levels (reported in online Appendix Table C2).19 Several additional robustness checks strengthen the interpretation of the main results. The estimates are somewhat sensitive to omitting the linear trends, suggesting that these capture unobserved determinants of wages. However, I find no association between future privatisation (t þ 2) and current wages (online Appendix Table C1). Unless the baseline model is picking up spurious effects, future privatisation should not affect today’s wages, conditional on the current level of privatisation. I also tried restricting the sample period to the post-wage bargaining legislation years (post-1996), which reduced the coefficient of interest in my preferred linear trends specification. 19 Pre-school teachers also experienced an increase in private alternatives although much less dramatic. Hanspers and Hensvik (2011) show that this increase did not affect wages among pre-school teachers. In addition, because the funding of schools is based on the number of pupils enrolled, any potential negative spill-over effects of wage increases among high-school teachers are likely to be small.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
818
THE ECONOMIC JOURNAL
[JUNE
However, this is not surprising since the local time trends are likely to absorb much of the variation in private school expansion, which seems to have evolved gradually in many local labour markets and, in particular, those employing many teachers (the standard errors increase quite a lot when the pre-reform years are discarded). The estimates without the linear trends are however identical in the full and restricted period, and future privatisation is always small and insignificant.20 In addition, the estimate remains unchanged when adding the local political majority (left/right) and the fraction of college educated in the local areas to capture changes in the demand for privatisation as well as when including county year fixed effects, removing the Stockholm metropolitan from the sample and including local wages of college educated workers in other sectors (online Appendix Table C3). Together, these results support that the estimated effect is capturing privatisation rather than spurious effects caused by unobserved factors.21 5.5. Differential Effects by Field and Teacher Skills While the baseline model assumes that the wage effect is the same for all teachers, we know from the discussion in Section 1 that the effects could differ between teachers with different characteristics. Competition over funding may for example shift the demand for certain teacher credentials, pushing up wages of the most effective teachers. While the overall impact of school competition is interesting from an economic perspective, policy makers should primarily be interested in the impact of the expansion on the distribution of wages, as this may affect the selection of teaches in and out of the teaching pool. The first panel of Table 6 reports the results of the estimation of fully interacted versions of model (2) with respect to teachers field of specialisation (defined by their field of education). Notably, there is substantial heterogeneity across different teachers; the effect of private competition is primarily concentrated to teachers specialised in maths and science, but teachers in vocational subjects are also found to benefit from competition.22 Restricting the sample to public school teachers produces similar estimates, suggesting that public school teachers in maths and science get higher wages in local labour markets with more private alternatives. Several robustness checks support that the relationship is unlikely to be spurious. For example, there is no association between current wages and future privatisation and the main estimate increase when accounting for the future private share. Accounting for wages among other college-educated in the local labour market leaves the estimates virtually unchanged, 0.079 (0.040).23 20
Including quadratic trends produces a smaller and less precise estimate, 0.026 (0.034). Because changes in the demand for privatisation may be correlated with changes in other factors determining wages, we would like to control for local preferences for privatisation in the model. Although local politicians cannot directly influence the approval of private schools, their attitudes toward privatisation should reflect local preferences for private schooling. A conservative local authority (which is known to be friendlier toward privatisation) could also indirectly affect private schools location decisions through its influence on, for example, the supply of buildings. 22 Because the model controls for local labour market fixed effects and local linear trends, differences between regions, such as for example higher demand for maths and science teachers in metropolitan areas with more employment in high-technology industries, is unlikely to explain this result. I address this and similar concerns further below. 23 Estimates are available upon request. 21
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
819
COMPETITION, WAGES AND TEACHER SORTING
Table 6 Heterogeneity by Teachers Field Dependent variable: log(monthly wage)
Sample: All Private share Observations Sample: Males Private share Observations Sample: Females Private share Observations LLM fixed effects LLM linear trends Teacher fixed effects
(1)
(2)
(3)
(4)
All
Maths and science
Social science
Vocational subjects
0.005** (0.022) 320,486
0.080** (0.040) 24,270
0.013 (0.020) 44,414
0.049* (0.025) 105,819
0.053** (0.023) 182,134
0.068 (0.043) 15,714
0.015 (0.028) 16,673
0.027 (0.025) 59,871
0.040* (0.023) 169,741
0.082* (0.048) 8,556
0.010 (0.022) 27,741
0.078** (0.030) 45,948
Yes Yes Yes
Yes Yes Yes
Yes Yes Yes
Yes Yes Yes
Notes. Statistical significance is shown at the *10%, **5% and ***1% levels. Standard errors are robust for clustering at the local labour market level are shown in parentheses. The sample covers 1991–2006. The controls are the same as in Table 3. Because the model includes teacher fixed effects it estimates the effect for incumbent teachers only. Column (1) includes all teachers employed in Swedish high schools. Besides those specialised in the fields mentioned in the Table, this category also includes non-certified teachers and teachers defined as having other as field of specialisation.
The second and third panels of Table 6 report the estimates separately by gender. While the impact of competition is similar in the group of maths and science teachers, it is concentrated to female vocational teachers. As discussed before, the wage effects are expected to depend on the labour supply to the teacher labour market in the different fields, as teacher shortages increase the job offer arrival rate, and hence the quit threat, among public school teachers. Manning (2003) proposes the use of the fraction of new recruits from non-employment to proxy for labour market tightness. In line with the estimates in Table 6 and other descriptions of the labour market, the fraction hired from non-employment in my data is highest among teachers in social science (14%) compared to vocational subjects (5%) and maths and science teachers (11%). The gender differences found for vocational teachers are also consistent with differences in the specific vocations taught; the most common field for female vocational teachers is health and social work, which employs 35% of the female vocational teachers and suffer greater shortages than any other field (only 2% of the hires come from non-employment). Manufacturing, which employ a majority of the male vocational teachers, is in comparison more than twice as likely to employ teachers that were previously non-employed. Together these estimates are consistent with that competition matters more for teachers in difficultto-staff subjects. 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
820
[JUNE
THE ECONOMIC JOURNAL
Finally, I turn to the association between school competition and the link between teacher wages and teacher ability. I estimate models similar to those in Table 6 but allow the effect of school competition to vary by the teachers ability by estimating models of the form: logðwilt Þ ¼ b1 Plt þ b2 Plt Ai þ b3 Ai þ ll þ lt þ wl t þ b3 X ilt þ ilt;
ð3Þ
where Ai is a continuous measure of the teacher’s rank in the cognitive and social skill distributions, respectively. I estimate the model separately by teachers field of specialisation, and a positive estimate of b2 implies that high-ability teachers have higher returns to competition than low-ability teachers within the same field. Estimates of b1 and b2 are reported in Table 7. To make the interpretation of the estimates meaningful, Plt and Ai are centred on their means. The sample consists of all male teachers belonging to the cohorts born between 1951 and 1980. Note that b3 will be absorbed by the teacher fixed effects and that beginning teachers are automatically excluded from the estimation sample. The results suggest that there are significant differences in the wage impact of competition depending on the skill level of the teacher. In particular, the effects are concentrated among teachers in maths and science with high cognitive skills (column 2) and among teachers in social science with high social skills (column 3). Splitting the sample into high and low-skilled teachers by the median military test score within the teachers cohort produces similar patterns and the estimate for the cognitive skills of maths and science teachers become significant (online Appendix Table C5). Dividing teachers into finer groups based on their position in the test score distribution Table 7 Heterogeneity by Teachers Ability Dependent variable: log(monthly wage)
Sample: Private share Cognitive skills Social skills Observations R2 LLM fixed effects LLM linear trends Teacher fixed effects
(1)
(2)
(3)
(4)
All
Maths and Science
Social science
Vocational subjects
0.043 (0.030) 0.036 (0.061) 0.010 (0.026) 67,213 0.880
0.030 (0.062) 0.257 (0.179) 0.016 (0.096) 5,750 0.855
0.016 (0.041) 0.178*** (0.063) 0.125 (0.100) 8,331 0.877
0.044 (0.030) 0.012 (0.089) 0.028 (0.052) 21,133 0.891
Yes Yes Yes
Yes Yes Yes
Yes Yes Yes
Yes Yes Yes
Notes. Statistical significance is shown at the *10%, **5% and ***1% levels. Standard errors are robust for clustering at the local labour market level are shown in parentheses. The sample covers 1991–2006 and the controls are the same as in Table 4. Because the model includes teacher fixed effects it estimates the effect for incumbent teachers only. Column (1) includes all teachers employed in Swedish high schools. Besides those specialised in the fields mentioned in the Table, this category also includes non-certified teachers and teachers defined as having other as field of specialisation. Note that the baseline estimates of the skill measures are absorbed by the teacher fixed effects. 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
COMPETITION, WAGES AND TEACHER SORTING
821
moreover reinforces the pattern. To ensure that the estimates reflect returns to teaching skills as opposed to general trends in the returns to ability, I also ran the same regression for engineers, an occupation that is a potential alternative for teachers educated in maths and science.24 Reassuringly, there is no evidence that privatisation is associated with higher returns to cognitive skills for the sample of engineers and the main estimate for the private share is negative and not statistically significant (online Appendix Table C6). These results are interesting for at least two reasons. First, they suggest that competition increases wage dispersion between high- and low-skilled teachers within the same field, which can have important implications for the selection of individuals who decide to become a teacher. Second, the results also indicate that the market returns to teacher skills are not the same for all teachers, which highlights the difficulties of using measurable teacher characteristics as general proxies for teacher quality.
6. Conclusions This article has examined the impact of local private school competition in Sweden, introduced by a voucher reform, on teacher flows and wages in a decentralised wage setting. The findings can be summarised in the following main conclusions: • First, private schools deviate substantially from public schools in their recruitment behaviour. Whereas private schools do not necessarily hire the most qualified teachers in terms of formal certification they do seem to attract teachers from the upper part of the skill distribution. In line with previous research, these findings suggest that the entry of private schools, with presumably stronger incentives to attract students, raise the demand for teacher characteristics not necessarily valued by traditional public schools. • Second, the increase in local school competition is also associated with higher teacher salaries. This effect cannot be explained by compositional changes in the teaching pool and it remains when the sample is limited to public school teachers. While the average effects are modest, there are substantial differences in the effect of private competition with respect to teacher characteristics. The effect is, first of all, twice as large for teachers entering the profession. One potential explanation is that these teachers have higher wage elasticity than incumbent teachers, which allows them to exploit the increased number of employers when negotiating over the entry wage. Second, there are also differences with respect to teachers field of specialisation; the effects are concentrated among teachers in areas of needs, such as teachers in maths and science and female teachers in vocational subjects. • Finally, there is evidence that school competition increases wage dispersion between high and low-skilled teachers within the same field. Specifically, I find that competition has introduced higher returns to cognitive skills for maths and science teachers and higher returns to social skills for social science teachers. 24 I define engineers as workers in the industries labelled as engineering with at least two years of college education. They score on average 7.31 (5.87) on the cognitive (social) test, which is similar to the average test scores among maths and science teachers in online Appendix Table A1.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
822
THE ECONOMIC JOURNAL
[JUNE
The results are consistent with a demand side response to competition, where schools pay higher wages for area-specific teacher aptitude. In sum, the article has shown that abolishing the local monopoly in the Swedish educational market has increased teacher salaries and introduced a wage setting more closely related to teacher mobility, the current market conditions and teachers skills. The conclusions may extend to related markets that share common attributes with teacher labour markets, such as nursing and other social services. My results display more heterogeneity in the wage responses to competition than found by Kirabo Jackson and Cowan (2009) in their study of charter school entry in the US. One obvious difference is the individual wage setting in the Swedish labour market, which is likely to generate more room for local school administrators to adjust wages to local market conditions. Given the literature highlighting the relationship between the pay structure and the secular declines in teacher quality observed in many countries, these findings are interesting, as more competition between schools and wage flexibility can generate a wage setting that may enhance the selection of teachers as well as the effort and output levels in a given teaching pool. Institute for Labour Market Policy Evaluation and Uppsala Centre for Labour Studies Submitted: 21 October 2010 Accepted: 4 October 2011 Additional Supporting information may be found in the online version of this article: Appendix A. Construction of the Data Sets. Appendix B. Descriptive Statistics. Appendix C. Additional Results. Please note: The RES and Wiley-Blackwell are not responsible for the content or functionality of any supporting materials supplied by the authors. Any queries (other than missing material) should be directed to the authors of the article.
References Abadie, A., Diamond, A. and Hainmueller,J. (2009). Synthetic control methods for comparative case studies: estimating the effect of California’s tobacco control program, Journal of the American Statistical Association, vol. 105(490), pp. 493–505. Ahlin, A. (2003). Does school competition matter? Effects of a large-scale school choice reform on student performance, Working Paper No. 2003:2, Uppsala University. Ashenfelter, O.C., Farber, H. and Ransom, M. (2010). Modern models of monospony in labor markets: a brief survey, IZA Discussion Paper No. 4915. Ballou, D. and Podgursky, M. (1997). Teacher Pay and Teacher Quality, Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. Bertrand, M. and Kramarz, F. (2002). Does entry regulations hinder job creation? Evidence from the French retail industry, Quarterly Journal of Economics, vol. 117(4), pp. 1369–413. Bjo¨rklund, A., Clark, M., Edin, P.-A., Fredriksson, P. and Krueger, A. (2005). The Market Comes to Education in Sweden: An Evaluation of Swedens Surprising School Reforms, New York: Russel Sage Foundation. Black, S.E. and Strahan, P.E. (2001). The division of spoils: rent-sharing and discrimination in a regulated industry, American Economic Review, vol. 91(4), pp. 814–31. Boal, W. and Ransom, M. (1997). Monopsony in the labor market, Journal of Economic Literature, vol. 35(1), pp. 86–112. 2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
2012 ]
COMPETITION, WAGES AND TEACHER SORTING
823
Bo¨hlmark, A. and Lindahl, M. (2008). Does school privatization improve educational achievement? Evidence from Sweden’s voucher reform, IZA Discussion Paper No. 3691. Bo¨hlmark, A. and Lindahl, M. (2009). Effect of choice and competition between public and private high schools in Sweden, mimeo, Uppsala University. Boyd, D., Lankford, H., Loeb, S. and Wyckoff, J. (2005). The draw of home: how teachers preferences for proximity disadvantage urban schools, Journal of Policy Analysis and Management, vol. 24(1), pp. 113–32. Burdett, K. and Mortensen, D.T. (1998). Wage differentials, employer size and unemployment, International Economic Review, vol. 39(2), pp. 257–73. Clark, D. (2009). The performance and competitive effects of school autonomy, Journal of Political Economy, vol. 117(4), pp. 745–83. Epple, D. and Romano, R. (1998). Competition between private and public schools, vouchers and peer group effects, American Economic Review, vol. 88(1), pp. 33–62. Falch, T. (2010). The elasticity of labor supply at the establishment level, Journal of Labor Economics, vol. 28(2), pp. 237–66. Figlio, D.N. and Hart, C. (2010). Competitive effects of means-tested school vouchers, NBER Working Paper No. 16056. Gibbons, S., Silva, O. and Machin, S. (2008). Choice, competition and pupil achievement, Journal of the European Economic Association, vol. 6(4), pp. 912–47. Gro¨nqvist, E. and Vlachos, J. (2008). One size fits all: the effects of teacher cognitive and non-cognitive abilities on student achievement, IFAU Working Paper No. 2008:5. Hanspers, K. and Hensvik, L. (2011). Konkurrens och Sysselsa¨ttning – En Empirisk Studie av Fem Marknader, SOU 2010:93, Bilaga 7 till Langtidsutredningen 2011. Hanushek, E., Kain, J., O’Brian, D.M. and Rivkin, S.G. (2005). The market for teacher quality, NBER Working Paper No. 11154. Hanushek, E. and Rivkin, S. (2003). Does school choice affect teacher quality, in (C. Hoxby, ed.), The Economics of School Choice, pp. 23–47, Chicago, IL: University of Chicago Press. Hoxby, C. (2002). Would school choice change the teaching profession?, The Journal of Human Resources, vol. 37(4), pp. 846–91. Hoxby, C., ed. (2003). School choice and school productivity (or, could school choice be a rising tide that lifts all boats?), in (C. Hoxby, ed.), The Economics of School Choice, pp. 287–342, Chicago, IL: University of Chicago Press. Hoxby, C. and Leigh, A. (2004). Pulled away or pushed out? Explaining the decline of teacher aptitude in the United States, American Economic Review, vol. 94(2), pp. 236–40. Katz, L. and Summers, L. (1989). Industry rents: evidence and implications, Brookings Papers on Economic Activity: Microeconomics, pp. 209–75. Kirabo Jackson, C. and Cowan, J. (2009). School competition and teacher quality: evidence from charter school entry in North Carolina, mimeo, Northwestern University. Krueger, A. and Summers, L. (1988). Efficiency wages and the inter-industry wage structure, Econometrica, vol. 56(March), pp. 259–93. Lindqvist, E. and Vestman, R. (2011). The labor market returns to cognitive and non-cognitive ability: evidence from the swedish enlistment, American Economic Journal: Applied Economics, vol. 3(1), pp. 101– 28. MacLeod, B. and Urquiola, M. (2009). Anti-lemons: school reputation and educational quality, NBER Working Paper No. 15112. Manning, A. (2003). Monopsony in Motion: Imperfect Competition in Labor Markets, Princeton, NJ: Princeton University Press. Medcalfe, S. and Thornton, R.J. (2006). Monopsony and teachers salaries in Georgia, Journal of Labor Research, vol. 27(4), pp. 537–54. Moretti, E. (forthcoming). Local labor markets, in (O. Ashenfelter and D. Card, eds.), Handbook of Labor Economics, vol. 4b, pp. 1237–313, New York: Elsevier. Murphy, K. and Topel, R. (1990). Efficiency wages reconsidered: theory and evidence, in (Y. Weiss and G. Fishelson, eds.), Advances in the Theory and Measurement of Unemployment, pp. 204–40, London: MacMillan. Ransom, M. and Sims, D.P. (2010). Estimating the Firm’s labor supply curve in a new monopsony framework: school teachers in Missouri, Journal of Labor Economics, vol. 28(2), pp. 331–5. Rockoff, J.E. (2004). The impact of individual teachers on student achievement: evidence from panel data, American Economic Review, vol. 94(2), pp. 247–52. Rothstein, J. (2010). Teacher quality in educational production: tracking, decay, and student achievement, Quarterly Journal of Economics, vol. 125(1), pp. 175–214. Sandstro¨m, M. and Bergstro¨m, F. (2005). School vouchers in practice: competition won’t hurt you, Journal of Public Economics, vol. 89, pp. 351–80.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
824
THE ECONOMIC JOURNAL
[ J U N E 2012]
So¨derstro¨m, M. (2006). Evaluating institutional changes in education and wage policy, Doctoral Dissertation Economic Studies, Uppsala University. Strath, A. (2004). Teacher policy reforms in Sweden: the case of individualized pay, mimeo, International Institute for Educational Planning. Vedder, R. and Hall, J. (2000). Private school competition and public school teacher salaries, Journal of Labor Research, vol. 21(1), pp. 161–8.
2012 The Author(s). The Economic Journal 2012 Royal Economic Society.
