Association for Public Policy Analysis & Management

How do alternative job opportunities affect teacher quality? This is a crucial policy question as teachers are a key input in the education production function who affect their students’ outcomes even in adulthood. Despite their importance, individuals entering the teaching profession in the United States tend to come from the lower part of the cognitive ability distribution of college graduates. One frequently cited reason for not being able to recruit higher-skilled individuals as teachers is low salaries compared to other professions. Existing research provides evidence consistent with this argument. A first strand of the literature has used regional variation in teacher salaries to assess how teacher pay is related to teacher quality. However, salaries may be endogenous to teacher quality. A second strand has used changes in the labor market over time – in particular, the expansion of job opportunities for women – to estimate how observable teacher characteristics vary with job market alternatives. However, these same observable characteristics are poor predictors of teacher quality. This important policy question therefore remains unresolved.

To provide the first causal evidence on this question, we exploit business cycle conditions at career start as a source of exogenous variation in the outside labor-market options of potential teachers. Because the business cycle conditions at career start are exogenous to teacher quality, our reduced-form estimates reflect causal effects. In contrast to prior research, we directly measure teacher quality with value-added measures (VAMs) of impacts on student test scores, a common and well-validated measure of teacher effectiveness.

Our value-added measures are based on individual-level administrative data from the Florida Department of Education on almost 33,000 fourth- and fifth-grade teachers in Florida’s public schools and their students. The data include Florida Comprehensive Assessment Test (FCAT) math and reading scores for every 3rd-, 4th, and 5th-grade student tested in Florida in the 2000-1 through 2008-9 school years. The data also contain information on teachers’ total experience in teaching (including experience in other states), which is used to compute the year of entering the profession (which is not directly observed). We then relate the VAMs in math and reading to several business cycle indicators from the National Bureau of Economic Research (NBER) and the Bureau of Labor Statistics (BLS).

We find that teachers who entered the profession during recessions are, on average, roughly 10% SD more effective in math than teachers who entered the profession during non-recessionary periods. Under the more realistic assumption that only 10% of recession-cohort teachers are pushed into teaching because of the recession, these teachers are roughly one SD more effective in math than the teachers they push out. The recession effect is one third as large for reading value-added.

Our analysis has important policy implications. First, our results suggest that increasing the relative economic benefits of becoming a teacher may be an effective strategy to increase the quality of the teaching workforce. Second, they suggest that recessions may provide a window of opportunity for governments to hire more able applicants.