If you pay peanuts, do you get monkeys? If teachers were better paid and higher up the national income distribution, would there be an improvement in pupil performance? Peter Dolton and Oscar Marcenaro-Gutierrez examine the enormous variation in teachers' pay across OECD countries and its significance for educational outcomes.incentive systems, merit pay, education, teacher salaries, pupil outcome

Oscar Marcenaro Gutierrez

Peter Dolton

English

Research Papers in Economics

CentrePiece Autumn 2011
20
W
hy do teachers in
Switzerland earn
four times what
teachers in Israel
earn? Why are
teachers in South Korea paid at the 78th
percentile of their country’s income
distribution whereas those in United States
are paid at only the 49th percentile? And
do these massive variations in the way
different countries treat their teachers
matter for the outcomes of their pupils? 
Answers to these questions are at the
heart of the educational policy debate and
we can learn a lot about the relationship
between teacher quality and pupil
outcomes from cross-national
comparisons. The issue is especially
relevant in the context of pressures to
reduce public spending. Most countries
devote a sizeable proportion of their
budgets to education – and around 70%
of that money goes on teacher salaries.
Our research considers the
determinants of teacher salaries across
OECD countries and examines the
relationship between the real and relative
levels of teacher remuneration and the
measured performance of secondary
school pupils over the last 15 years.
There are two potential explanations
as to why teachers’ pay may be causally
linked to pupil outcomes. The first is that
higher pay will attract more able
graduates into the profession. As the
potential supply of teachers rises because
of the higher pay on offer, entry into
teaching as a profession will become more
competitive. This in turn will mean that
the average ability of those entering the
job will rise. Once recruited, higher relative
pay and/or more performance-related pay
may provide teachers with stronger
incentives to improve their pupils’
educational outcomes. 
The second mechanism is more subtle
If you pay peanuts, do you get monkeys? If
teachers were better paid and higher up the
national income distribution, would there be 
an improvement in pupil performance? 
Peter Dolton and Oscar Marcenaro-Gutierrez
examine the enormous variation in teachers’
pay across OECD countries and its 
significance for educational outcomes.
Teachers’pay and 
pupil performanceCentrePiece Autumn 2011
21
– namely that improving teachers’ pay
improves their standing in a country’s
income distribution and hence the
national status of teaching as a profession.
As a result of this higher status, more
young people will want to become
teachers. This in turn makes teaching a
more selective profession and hence
facilitates the recruitment of more able
individuals.
Higher status and higher pay are
invariably linked but the two can provide
separate driving forces to engineer better
recruits to the profession. The key
hypothesis is that better pay for teachers
will attract higher quality graduates 
into the profession and that this will
improve pupil performance.
The most comprehensive sources of
comparative information about teachers in
different countries are the OECD’s annual
‘Education at a Glance’ reports. These
publications provide information on
starting salaries, salaries after 15 years 
of teaching experience and salaries at the
top of the profession.
The relative supply of teachers in a
country is measured by the number of
teachers as a fraction of the labour force
and the pupil/teacher ratio in the
education system. An additional supply
factor relates to the proportion of the
stock of teachers who are women. We
also control for the number of teaching
hours supplied, since having a lower
number of teachers can be compensated
for by them working more hours.
We measure the nature of a country’s
investment in education by the level of
educational expenditure as a fraction of
GDP, controlling for the rate at which a
country is growing, since clearly this will
constrain its possible investments in
education. The changing nature of the
increase in pupil performance. Likewise, a
5% increase in the relative position of
teachers in the income distribution would
increase pupil performance by around 
5-10%.
What are the policy implications of
these findings? Most obviously, if a
government is concerned with educational
outcomes, then it should be aware that
the quality of its teachers is of
fundamental importance. We suggest that
the route to hiring teachers from higher
up the ability distribution is to pay them at
a higher point in the country’s income
distribution.
How could this be achieved? 
A country with a stock of low quality
teachers cannot simply raise the pay of all
teachers immediately and expect the
quality of teaching to improve. The
existing stock of teachers would clearly
have an incentive to appropriate these
economic rents with no responsibility to
Better pay for
teachers will
attract higher
quality graduates
into the
profession and
improve pupil
performance
demand for teacher services is measured
by the demographic growth in the size of
the population of school age.
To examine the relationship between
teacher remuneration and educational
attainment, we use the internationally
comparable results from the OECD
Programme for International Student
Assessment (2000, 2003 and 2006) and
Trends in International Mathematics and
Science Study (1995, 1999 and 2003). 
Figure 1 provides an insight into the
relationship between teacher salaries and
pupil outcomes, showing a clear statistical
association between higher relative
teachers’ pay and higher standardised
pupil scores across countries.
Our research with aggregate country
data supports the hypothesis that higher
pay leads to improved pupil performance.
As an indication of the relative size of this
effect, we find that a 10% increase in
teachers’ pay would give rise to a 5-10%
0
20
40
60
80
100
>12 months
  1-12 months
$60,000 $50,000 $40,000 $30,000 $20,000 $10,000
● Turkey
● Israel ● Greece
● Italy
● Portugal
● Hungary
● Iceland
● Czech Republic
● Sweden
● Austria
● UK
● Denmark
● Germany ● Ireland
● Belgium
● Japan
● Australia
● New Zealand
● Finland
● Korea
● Netherlands
● Switzerland
● France
● Norway ● USA
● Spain
S
c
o
r
e
 
p
e
r
c
e
n
t
i
l
e
s
Teachers’ salaries in US dollars at purchasing power parity
Figure 1:
Pupil score percentile as a function of teacher
salaries after 15 years of experience
A 5% increase 
in the relative position of 
teachers in the income
distribution would increase pupil
performance by around 5-10%CentrePiece Autumn 2011
22
become better teachers. And while the
quality of new recruits to the profession
would rise as a result of this upward shift
in relative pay, it would take a long time –
30 or so years – to change the quality of
the whole stock of teachers.
The answer then must be to consider
how teacher quality can be raised
gradually. If the government were to
ratchet up starting pay, this would secure
better quality new teachers. But improving
the stock of existing teachers would
require continued professional
development and in-service training and/or
attempting to fire the worst teachers.
Such policy measures are not within
the scope of this study, but there is a
wealth of research evidence about them
as possible remedies to improve the
existing stock of teachers. One solution is
to provide an incentive mechanism for
existing teachers to improve quality by
paying them according to the percentile
performance (in value added terms) of
their pupils. Another possible solution is to
increase the rate at which teachers’ pay
rises with their level of experience.
Another dimension of the problem 
is the time scale over which any
improvement in pupil outcomes is 
sought. If replacing existing teachers with
ones of higher quality would take too
long, then a quicker fix might be to
reduce the pupil/teacher ratio or increase
pupil contact hours by simply employing
more teachers from the pool of 
inactive teachers.
Our analysis finds a clear trade-off
between pupil/teacher ratios and teachers’
pay across countries – that is, countries do
not necessarily have to pay higher salaries
to secure better pupil outcomes. But if a
country is not prepared to pay teachers
relatively well, then it will have to go a
long way down the road of reducing class
sizes to compensate them – in short,
governments and educational
administrators need to know that there is
‘no free lunch’ here.
The policy implications of our findings
are relevant to the recruitment of teachers
and the improvement of educational
standards. The link we find between
teacher quality and high educational
standards has logical implications for any
government’s commitment to recruit,
retain and reward good teachers. In this
regard, it seems that increasing teacher
salaries (and the speed at which they can
reach higher pay levels within a particular
pay structure) will help schools to recruit
and retain the higher ability teachers that
schools need to offer all pupils a high-
quality education.
At a wider policy level, improvements
in education appear to be a common
factor behind economic growth in 
recent decades in all OECD countries. 
The increase in human capital accounted
for more than half an extra percentage
point of growth in the 1990s compared
with the previous decade. One 
clear way to improve the stock of
human capital is to invest in higher
quality teachers. 
This article summarises ‘If You Pay Peanuts,
Do You Get Monkeys? A Cross-country
Analysis of Teacher Pay and Pupil
Performance’ by Peter Dolton and 
Oscar Marcenaro-Gutierrez, Economic 
Policy 26(65): 5-55, January 2011
(http://onlinelibrary.wiley.com/doi/10.1111/
j.1468-0327.2010.00257.x/full).
Peter Dolton is a professor of economics at
Royal Holloway College, University of London,
and a senior research fellow in CEP’s
education and skills programme. Oscar
Marcenaro-Gutierrez is at the University 
of Malaga.
There is a clear
trade-off between
pupil/teacher
ratios and
teachers’ pay
across countries

Teachers' Pay and Pupil Performance

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Teachers' Pay and Pupil Performance

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