In recent years, the casual observer of debates over public education policy might be led to believe that improving teacher quality and ensuring that low income and minority school children have access to high quality teachers has little or nothing to do with the equity or adequacy of financing of schools. The casual observer might be led to believe that there actually exists a sizable body of empirical research that confirms a) that high quality teaches matter, b) that money doesn’t matter and c) by extension money has nothing to do with recruiting, retaining or redistributing teacher quality. These arguments, while politically convenient for those hoping to avoid thorny questions of tax policy and state aid formulas, are not actually grounded in any body of decisive, empirical research. Rather, to the contrary, it is reasonably well understood that while teacher quality does indeed matter, teacher wages also matter and teacher working conditions matter, both in terms of the level of quality of the overall teacher workforce and in the distribution of quality teachers.
The modern debate over the role of teachers and teaching quality for improving student outcomes dates back to findings within the Coleman report in the 1960s. The Coleman report looked at a variety of specific schooling resource measures, most notably teacher characteristics, finding positive relationships between these traits and student outcomes. A multitude of studies on the relationship between teacher characteristics and student outcomes have followed, producing mixed messages as to which matter most and by how much. Inconsistent findings on the relationship between teacher “effectiveness” and how teachers get paid – by experience and education – added fuel to “money doesn’t matter” fire. Since a large proportion of school spending necessarily goes to teacher compensation, and (according to this argument) since we’re not paying teachers in a manner that reflects or incentivizes their productivity, then spending more money won’t help. In other words, the assertion is that money spent on the current system doesn’t matter, but it could if the system was to change.
Of course, in a sense, this is an argument that money does matter. But it also misses the important point about the role of experience and education in determining teachers’ salaries, and what that means for student outcomes.
While teacher salary schedules may determine pay differentials across teachers within districts, the simple fact is that where one teaches is also very important in determining how much he or she makes. Arguing over attributes that drive the raises in salary schedules also ignores the bigger question of whether paying teachers more in general might improve the quality of the workforce and, ultimately, student outcomes. Teacher pay is increasingly uncompetitive with that offered by other professions, and the “penalty” teachers pay increases the longer they stay on the job.
A substantial body of literature has accumulated to validate the conclusion that both teachers’ overall wages and relative wages affect the quality of those who choose to enter the teaching profession, and whether they stay once they get in. For example, Murnane and Olson (1989) found that salaries affect the decision to enter teaching and the duration of the teaching career, while Figlio (1997, 2002) and Ferguson (1991) concluded that higher salaries are associated with more qualified teachers. In addition, more recent studies have tackled the specific issues of relative pay noted above. Loeb and Page showed that:
“Once we adjust for labor market factors, we estimate that raising teacher wages by 10 percent reduces high school dropout rates by 3 percent to 4 percent. Our findings suggest that previous studies have failed to produce robust estimates because they lack adequate controls for non-wage aspects of teaching and market differences in alternative occupational opportunities.”
In short, while salaries are not the only factor involved, they do affect the quality of the teaching workforce, which in turn affects student outcomes.
Research on the flip side of this issue – evaluating spending constraints or reductions – reveals the potential harm to teaching quality that flows from leveling down or reducing spending. For example, David Figlio and Kim Rueben (2001) note that, “Using data from the National Center for Education Statistics we find that tax limits systematically reduce the average quality of education majors, as well as new public school teachers in states that have passed these limits.”
Salaries also play a potentially important role in improving the equity of student outcomes. While several studies show that higher salaries relative to labor market norms can draw higher quality candidates into teaching, the evidence also indicates that relative teacher salaries across schools and districts may influence the distribution of teaching quality. For example, Ondrich, Pas and Yinger (2008) “find that teachers in districts with higher salaries relative to non-teaching salaries in the same county are less likely to leave teaching and that a teacher is less likely to change districts when he or she teaches in a district near the top of the teacher salary distribution in that county.”
With regard to teacher quality and school racial composition, Hanushek, Kain, and Rivkin (2004) note: “A school with 10 percent more black students would require about 10 percent higher salaries in order to neutralize the increased probability of leaving.” Others, however, point to the limited capacity of salary differentials to counteract attrition by compensating for working conditions.
Finally, it bears noting that those who criticize the use of experience and education in determining teachers’ salaries must of course produce a better alternative, and there is even less evidence behind increasingly popular ways to do so than there is to support the policies they intend to replace. In a perfect world, we could tie teacher pay directly to productivity, but contemporary efforts to do so, including performance bonuses based on student test results, have thus far failed to produce concrete results in the U.S. More promising efforts to measure productivity, such as new teacher evaluations that incorporate heavily-weighted teacher productivity measures based on their students’ test scores, are still a work in progress, and there is not yet evidence that they will be any more effective (or cost-effective) in attracting, developing or retaining high-quality teachers.
To summarize, despite all the uproar about paying teachers based on experience and education, and its misinterpretations in the context of the “Does money matter?” debate, this line of argument misses the point. To whatever degree teacher pay matters in attracting good people into the profession and keeping them around, it’s less about how they are paid than how much. Furthermore, the average salaries of the teaching profession, with respect to other labor market opportunities, can substantively affect the quality of entrants to the teaching profession, applicants to preparation programs, and student outcomes. Diminishing resources for schools can constrain salaries and reduce the quality of the labor supply. Further, salary differentials between schools and districts might help to recruit or retain teachers in high need settings. In other words, resources used for teacher quality matter.
 Hanushek, E.A. (1971) Teacher Characteristics and Gains in Student Achievement: Estimation Using MicroData. Econometrica 61 (2) 280-288, Clotfelter, C.T., Ladd, H.F., Vigdor, J.L. (2007) Teacher credentials and student achievement: Longitudinal analysis with student fixed effects. Economics of Education Review 26 (2007) 673–682, Goldhaber, D., Brewer, D. (1997) Why Don’t Schools and Teachers Seem to Matter? Assessing the Impact of Unobservables on Educational Productivity. The Journal of Human Resources, 332 (3) 505-523, Ehrenberg, R. G., & Brewer, D. J. (1994). Do school and teacher characteristics matter? Evidence from High School and Beyond. Economics of Education Review, 13(1), 1-17, Ehrenberg, R. G., & Brewer, D. J. (1995). Did teachers’ verbal ability and race matter in the 1960s? Economics of Education Review, 14(1), 1-21, Jepsen, C. (2005). Teacher characteristics and student achievement: Evidence from teacher surveys. Journal of Urban Economics, 57(2), 302-319, Jacob, B. A., & Lefgren, L. (2004). The impact of teacher training on student achievement: Quasi-experimental evidence from school reform. Journal of Human Resources, 39(1),50-79, Rivkin, S. G., Hanushek, E. A., & Kain, J. F. (2005). Teachers, schools, and academic achievement. Econometrica, 73(2), 471, Wayne, A. J., & Youngs, P. (2003). Teacher characteristics and student achievement gains. Review of Educational Research, 73(1), 89-122, For a recent review of studies on the returns to teacher experience, see: Rice, J.K. (2010) The Impact of Teacher Experience: Examining the Evidence and Policy Implications. National Center for Analysis of Longitudinal Data in Educational Research.
 Some go so far as to argue that half or more of teacher pay is allocated to “non-productive” teacher attributes, and so it follows that that entire amount of funding could be reallocated toward making schools more productive. See, for example, a recent presentation to the NY State Board of Regents from September 13, 2011 (page 32), slides by Stephen Frank of Education Resource Strategies: http://www.p12.nysed.gov/mgtserv/docs/SchoolFinanceForHighAchievement.pdf
 Lankford, H., Loeb., S., Wyckoff, J. (2002) Teacher Sorting and the Plight of Urban Schools. Educational Evaluation and Policy Analysis 24 (1) 37-62
 Allegretto, S.A., Corcoran, S.P., Mishel, L.R. (2008) The teaching penalty : teacher pay losing ground. Washington, D.C. : Economic Policy Institute, ©2008.
 Richard J. Murnane and Randall Olsen (1989) The effects of salaries and opportunity costs on length of state in teaching. Evidence from Michigan. Review of Economics and Statistics 71 (2) 347-352
 David N. Figlio (2002) Can Public Schools Buy Better-Qualified Teachers?” Industrial and Labor Relations Review 55, 686-699. David N. Figlio (1997) Teacher Salaries and Teacher Quality. Economics Letters 55 267-271. Ronald Ferguson (1991) Paying for Public Education: New Evidence on How and Why Money Matters. Harvard Journal on Legislation. 28 (2) 465-498.
 Loeb, S., Page, M. (2000) Examining the Link Between Teacher Wages and Student Outcomes: The Importance of Alternative Labor Market Opportunities and Non-Pecuniary Variation. Review of Economics and Statistics 82 (3) 393-408
 Figlio, D.N., Rueben, K. (2001) Tax Limits and the Qualifications of New Teachers. Journal of Public Economics. April, 49-71. See also: Downes, T. A. Figlio, D. N. (1999) Do Tax and Expenditure Limits Provide a Free Lunch? Evidence on the Link Between Limits and Public Sector Service Quality52 (1) 113-128
 Ondrich, J., Pas, E., Yinger, J. (2008) The Determinants of Teacher Attrition in Upstate New York. Public Finance Review 36 (1) 112-144
 Hanushek, Kain, Rivkin, “Why Public Schools Lose Teachers,” Journal of Human Resources 39 (2) p. 350
 Clotfelter, C., Ladd, H.F., Vigdor, J. (2011) Teacher Mobility, School Segregation and Pay Based Policies to Level the Playing Field. Education Finance and Policy , Vol.6, No.3, Pages 399–438, Clotfelter, Charles T., Elizabeth Glennie, Helen F. Ladd, and Jacob L. Vigdor. 2008. Would higher salaries keep teachers in high-poverty schools? Evidence from a policy intervention in North Carolina. Journal of Public Economics 92: 1352–70.
 For recent studies specifically on the topic of “merit pay,” each of which generally finds no positive effects of merit pay on student outcomes, see: Glazerman, S., Seifullah, A. (2010) An Evaluation of the Teacher Advancement Program in Chicago: Year Two Impact Report. Mathematica Policy Research Institute. 6319-520, Springer, M.G., Ballou, D., Hamilton, L., Le, V., Lockwood, J.R., McCaffrey, D., Pepper, M., and Stecher, B. (2010). Teacher Pay for Performance: Experimental Evidence from the Project on Incentives in Teaching. Nashville, TN: National Center on Performance Incentives at Vanderbilt University, Marsh, J. A., Springer, M. G., McCaffrey, D. F., Yuan, K., Epstein, S., Koppich, J., Kalra, N., DiMartino, C., & Peng, A. (2011). A Big Apple for Educators: New York City’s Experiment with Schoolwide Performance Bonuses. Final Evaluation Report. RAND Corporation & Vanderbilt University.