Premium or Penalty? Labor Market Returns to Novice Public Sector Teachers

Abstract

Countries spend education budgets primarily on teacher payroll. An unresolved debate on whether teachers earn a premium or a penalty relative to other occupations complicates teacher compensation decisions. A national screening exam in Colombia and administrative data show that teaching candidates scoring above the passing cutoff have greater annual earnings early in their tenure than those below. Extension of regression discontinuity methods away from the cutoff indicate similarly attractive earnings premia for high-scoring applicants. Despite sizeable earnings premia, teachers hold outside jobs and teaching does not attract top college graduates, underscoring challenges to improving education solely through teacher compensation.