Can a Teacher Salary Increase Promote Students' Educational Performance?

• Published date: 01 July 2024
• Author: Tianyang Liu,Baozhong Su,Jingjing Wang,Scott Rozelle
• Date: 01 July 2024
• DOI: http://doi.org/10.1111/cwe.12543

©2024 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 114–145, Vol. 32, No. 4, 2024

114

Can a Teacher Salary Increase Promote Students’

Educational Performance?

Tianyang Liu, Baozhong Su, Jingjing Wang, Scott Rozelle*

Abstract

Policymakers in China have attempted to improve the quality of rural education by

investing in teacher salaries through initiatives like the Rural Teachers Support Plan

(RTSP). This study estimates the effects of teacher salary increase on students’ educational

outcomes in rural China by utilizing the exogenous variations of rural teacher salaries

induced by the RTSP. It employs an intensity-based difference-in-differences strategy

and panel data from 2010 to 2018 with 3,351 rural children. The findings reveal that an

increase in teacher salaries had a significant positive impact on students’ examination

results. Moreover, the results of mechanism analysis indicate that salary increases could

have both quality and quantity effects on students’ outcomes by increasing the proportion of

highly educated teachers and reducing the student–teacher ratio. Our findings contribute

to the discussion on the importance of teacher salary incentives in education production

functions and provide insights for other countries undertaking rural education reforms.

Keywords: educational performance, rural children, Rural Teachers Support Plan, teacher

salary

JEL codes: I24, I28, I38

I. Introduction

Teacher quality and quantity, along with family background and school inputs, are

considered to be among the most significant determinants of student achievement in the

education production function (Hanushek et al., 2019; Glewwe et al., 2020). In recent

years, many developing countries have invested billions of dollars annually in teachers,

striving to improve the quality of education and enhance the national level of human

capital. However, in rural China, where living conditions are unfavorable, there is a

*Tianyang Liu, PhD Candidate, College of Economics and Management, China Agricultural University,

China. Email: b20203110770@cau.edu.cn; Baozhong Su (corresponding author), Professor, College of

Economics and Management, China Agricultural University, China. Email: sbz@cau.edu.cn; Jingjing Wang,

Lecturer, College of Agricultural Economics and Management, Shanxi Agricultural University, China. Email:

jjw@cau.edu.cn; Scott Rozelle, Professor, Stanford Center on China’s Economy and Institutions, Stanford

University, USA. Email: rozelle@stanford.edu.

© 2024 The Author(s). China & World Economy published by John Wiley & Sons Australia,

Ltd on behalf of Institute of World Economics and Politics, Chinese Academy of Social Sciences.

This is an open access article under the terms of the Creative Commons Attribution License,

which permits use, distribution and reproduction in any medium,

provided the original work is properly cited.

[Correction added on 8 February 2025, after first online publication: The copyright line was changed.]

©2024 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Teacher Salary Increase and Students’ Educational Performance 115

persistent shortage of teaching resources. The retention rate of rural teachers is notably

low, and many of the best teachers leave rural schools for urban institutions once their

initial contract period has been completed, or even break their contracts and leave their

teaching positions (Sargent and Hannum, 2005). According to Li et al. (2020), there was

an annual decrease of around 90,000 full-time teachers in rural schools. The loss of high-

quality teachers, especially those who have graduated from college recently, means that

most of the remaining rural teachers are older teachers who are less qualified for teaching

and feel that they are stuck in rural schools because their knowledge reserves and

teaching methods fall behind the updated teaching requirements (Wang and Gao, 2013).

One potential measure to attract and retain high-quality teachers is to provide them

with higher salaries. However, rural government and schools in China are currently

not meeting this need (Wang et al., 2011). Without sufficient salary support, rural

teaching jobs will have lower levels of professional attractiveness; in contrast, when

compensation levels are sufficiently high, teachers will have fewer personal concerns

and will be able to approach their teaching with greater focus (Reagan et al., 2019). In

2015, as a key component of the education poverty alleviation strategy, China introduced

the Rural Teachers Support Plan 2015–2020 (MOE, 2015a), aiming to invest in rural

teachers and improve the quality of rural education. The Rural Teachers Support Plan

(RTSP) includes various material and nonmaterial incentive measures but the increase

in rural teachers’ salaries stands out as the most central and crucial measure. A report on

the five-year implementation period of RTSP found that education officials at all levels

have carried out the policy and have provided significant amounts of additional financial

support for the increase in rural teachers’ salaries (Li, 2020). Our data also indicate

that the average annual increment for rural teachers’ salaries brought by this program

is about 10 percent of the average wages of employed persons in the urban nonprivate

sector in China in 2015.

However, limited research has been conducted in China to investigate whether and

to what extent the investment in teacher salaries can explain student achievements.

The extensive international literature has also not yet reached a clear consensus on this

issue, particularly concerning unconditional salary increases. Research (e.g., Hanushek,

1986) showed that there was no consistent relationship between student outcomes and

teacher pay. Studies with a more negative set of findings indicate that salary incentives

to teachers do not change the behavior of teachers and have no impact on students;

in fact, research has shown that, in public schools, higher teacher salaries may even

lower student test scores (Kingdon and Teal, 2007). By using large-scale administrative

data from Indonesia, De Ree et al. (2018) also found that unconditional teacher salary

increases did not improve teacher attendance or increase their efforts to improve their

© 2024 The Author(s). China & World Economy published by John Wiley & Sons Australia,

Ltd on behalf of Institute of World Economics and Politics, Chinese Academy of Social Sciences.

This is an open access article under the terms of the Creative Commons Attribution License,

which permits use, distribution and reproduction in any medium,

provided the original work is properly cited.

Tianyang Liu et al. / 114–145, Vol. 32, No. 4, 2024

©2024 Institute of World Economics and Politics, Chinese Academy of Social Sciences

116

teaching skills, thereby failing to promote student performance. Conversely, other

studies, especially those on performance-linked salary incentive programs, have

suggested a causal relationship between teacher salary growth and improvement in

student academic achievement, observed both in developing nations (Glewwe et al.,

2010; Muralidharan and Sundararaman, 2011; Contreras and Rau, 2012) and developed

countries (Lavy, 2002; Figlio and Kenny, 2007). These studies demonstrate consistently

that performance-based teacher compensation bonuses can enhance student performance

significantly in areas such as enrollment rates, exam participation rates, and standardized

test scores. Among a few studies sharing a similar contextual background as ours,

Loyalka et al. (2019) found that the incentive pattern of providing bonuses to teachers

based on students’ annual progress can contribute significantly to the improved academic

performance of Chinese pupils. However, there is currently little research estimating the

impact of the more typical unconditional teacher pay increases on students’ attainment

in China.

The aim of this paper is to estimate the impact of increasing teacher salaries on the

educational performance of rural students in China based on the exogenous variations

introduced by the RTSP to the rural teacher salaries. To do so, we used panel data from 3,351

rural children in China, collected from 2010 to 2018, to conduct an empirical analysis based

on the intensity-based difference-in-differences (DID) strategy. Specifically, we considered

the fixed salary increment quotas set by each province during the implementation of the

RTSP as the treatment intensity, and subsequently interacted it with a dummy indicating

the post-policy periods. The baseline estimation results indicate that the increase in rural

teacher salaries had a significant positive impact on children’s examination results after the

implementation of RTSP, with slightly larger effects observed in mathematics performance

compared to language performance. The patterns of the results appear consistent with the

interpretation that the salary increase has generated both quantity (fewer teachers have

left their teaching posts in rural China, and student–teacher ratios have fallen) and quality

effects (more highly educated teachers are attracted to teaching in rural schools).

This study contributes to the literature in two main ways. First, it provides crucial

evidence for the impact of an increase in teacher salary on student outcomes, especially

in the context of large-scale unconditional salary growth. These findings contribute

to the discussion concerning the importance of teacher incentives in the education

production function and provide validation to the predictions of the efficiency wage

theory (Glewwe et al., 2010; Muralidharan and Sundararaman, 2011; De Ree et al.,

2018).1 Second, as far as we are aware, it is the first empirical study, that uses a large

1The modern application of the efficiency wage theory typically refers to the prediction that higher wages may

improve productivity through various channels. For details, please refer to Akerlof (1984).

© 2024 The Author(s). China & World Economy published by John Wiley & Sons Australia,

Ltd on behalf of Institute of World Economics and Politics, Chinese Academy of Social Sciences.

This is an open access article under the terms of the Creative Commons Attribution License,

which permits use, distribution and reproduction in any medium,

provided the original work is properly cited.