In most job sectors, employers use their compensation dollars to purchase what they most value. If that were the case in education, one would conclude that the teachers most valued by their school districts are those holding doctorates, instead of teachers who consistently work magic with kids.

Despite the fact that earning a graduate degree does not necessarily make someone a better teacher and most teachers support differentiated pay, the majority of states and the largest school districts have not adopted policies that reward teachers based on the quality of their teaching. The result? A teacher labor market that does little to ensure and promote the supply of quality teachers to the workforce.

Could more flexible pay schemes change this dynamic?

New research from Barbara Biasi at the Yale School of Management gives us some insight into this question. She takes advantage of a unique situation in Wisconsin to test the effects of more flexible pay policies on school districts and her findings are well worth some attention.

After Wisconsin passed a law in 2011 ending the requirement that districts negotiate anything beyond a teacher's base pay, about half of Wisconsin's school districts elected to steer away from their traditional salary schedules. Instead they adopted various types of more flexible pay, including performance pay. Biasi examined what happened to the teacher workforce in these flexible pay districts as compared to those that adhered to the traditional salary schedule, and concluded that, with pay flexibility, the teacher labor market is indeed sensitive to supply and demand.

While teacher transfers between Wisconsin districts are infrequent, Biasi found that high-quality teachers after 2011 were more likely to move to a district offering flexible pay. Lower quality teachers were then more likely to move to a district that had stuck with the traditional salary schedule, or exit teaching all together.

The moves paid off for the higher-quality teachers, who earned nearly five percent more on average in the year after their move compared to the salaries earned by similar teachers who transferred districts before 2011.

Overall, the quality of the teacher workforce in the districts offering flexible pay increased compared to the seniority pay districts, but it was not all from new entrants. The quality of the incumbent teachers in flexible pay districts also increased compared to incumbents in seniority pay districts. Biasi attributes this to increased effort by the incumbents in response to the new pay incentives. It's also worth considering what other research has found, but which Biasi did not address: that high-quality teachers entering a school can help increase the quality of incumbent teachers on their team.

While flexible pay possibilities may also have attracted a stronger crop of new teachers to the profession, Biasi leaves analysis of this longer-term potential impact to future research. Still, the paper provides promising indication that teachers will respond to the labor market as much as the rest of us.