Spurred by the Great Recession, recent economic conditions have forced many states to consider budget cuts in even traditionally untouched areas such as education.  Contending with tightening education budgets and ever persistent gaps in student achievement, policy makers have also begun to question the way in which teachers are compensated.  Citing the lack of evidence supporting the ability of tenure and master’s degrees to signal effective teaching, states have considered, and in some cases enacted, the elimination of tenure and master’s degree compensation.  While tenure and master’s degree compensation policies may not be tied to productivity, their elimination may prompt teachers to respond by seeking alternative job prospects both within and outside education.  This is particularly problematic if one considers that highly effective teachers are likely those that have the best alternative job prospects; suggesting that the way in which teachers respond has important implications for students’ access to effective teachers.  Research is needed to help inform policy makers of these potential consequences as they explore teacher compensation policy reforms.    

This paper seeks to fill this gap by examining how comprehensive state-wide teacher compensation reform influences teacher labor markets.  Specifically, the study addresses three main questions: (1) To what extent does the elimination of tenure and master’s degree compensation affect teacher attrition rates as well as the entrance rates of recent graduates?; (2) Do these rates vary depending upon teacher qualifications and performance?;and (3) Do these rates vary depending upon school location and characteristics?  The analysis uses data from North Carolina, where the North Carolina General Assembly enacted substantial education reforms during the 2013 session.  These reforms include the elimination of traditional tenure and ending compensation for master’s degrees for teachers not already receiving such compensation.

Preliminary analysis suggests that, in North Carolina, the elimination of tenure and master’s degree compensation is positively and significantly associated with increased teacher attrition rates.  These rates are higher in schools and districts located closer to state borders and metropolitan areas, suggesting that access to alternative labor markets both within and outside of education is important.  The preliminary results also find that teacher attrition rates are higher among more effective teachers and in schools that serve higher percentages of at-risk students.  This suggests that non-pecuniary sources of compensation, such as working conditions, may be important for teachers.  However and perhaps more importantly, this finding suggests that these policy changes may reduce disadvantage students’ access to effective teachers, which could potentially exacerbate student achievement gaps.  While more work needs to be done in evaluating the impact of state-wide teacher compensation policies on the size and composition of the teacher workforce, the findings of this study provide important first steps.