Merit Pay Effects

For the most part, economics analyses of merit pay programs (with either individual or group incentives) have tended to find positive effects. So it’s interesting to see a new study by Pedro Martins using data from Portugal that observes the opposite:

Individual Teacher Incentives, Student Achievement and Grade Inflation
Pedro S. Martins
How do teacher incentives affect student achievement? We contribute to this question by examining the effects of the recent introduction of teacher performance-related pay and tournaments in Portugal’s public schools. Specifically, we draw on a matched student-school panel covering the population of secondary school national exams over eight years. We then conduct a difference-in-differences analysis based on two complementary control groups: public schools in autonomous regions that were exposed to lighter versions of the reform; and private schools, which are subject to the same national exams but whose teachers were not affected by the reform. Our results indicate that the increased focus on individual teacher performance caused a significant decline in student achievement, particularly in terms of national exams, and a significant increase in grade inflation.

I don’t know enough about Portugal to know whether the control groups are reasonable (ie. would they otherwise have followed a similar trajectory to the affected schools?), but on first blush, the analysis seems pretty reasonable.

(HT: Peter Martin)