Double for nothing? Experimental evidence on an unconditional teacher salary increase in Indonesia

Joppe De Ree, Karthik Muralidharan, Menno Pradhan, Halsey Rogers

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Abstract

How does a large unconditional increase in salary affect the performance of incumbent employees in the public sector?We present experimental evidence on this question in the context of a policy change in Indonesia that led to a permanent doubling of teacher base salaries. Using a large-scale randomized experiment across a representative sample of Indonesian schools that accelerated this pay increase for teachers in treated schools, we find that the large pay increase significantly improved teachers' satisfaction with their income, reduced the incidence of teachers holding outside jobs, and reduced self-reported financial stress. Nevertheless, after two and three years, the increase in pay led to no improvement in student learning outcomes. The effects are precisely estimated, and we can rule out even modest positive impacts on test scores. Our results suggest that unconditional pay increases are unlikely to be an effective policy option for improving the effort and productivity of incumbent employees in public-sector settings.

Original languageEnglish
Pages (from-to)993-1039
Number of pages47
JournalQuarterly Journal of Economics
Volume133
Issue number2
Early online date13 Nov 2017
DOIs
Publication statusPublished - May 2018

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