Association for Public Policy Analysis & Management

Abstract: In 2012, the Ministry of Labor and Social Development in Saudi Arabia introduced a wage-subsidy program to employ the rising number of unemployed teachers in the country. The Teachers’ Subsidy Program (TSP) provides a 50% wage subsidy for all private schools willing to hire new teachers for up to five years. This paper evaluates the impact of the wage subsidy on academic performance. Specifically, I examine standardized exam scores before and after the subsidy program, using a Diff-in-Diff empirical approach. The take up rate of subsidized teachers amongst private schools was 93%, but schools differed in terms of their subsidized faculty ratio. Therefore, I compare student outcomes in private schools with a high ratio of subsidized faculty to private schools with a low ratio of subsidized faculty.

Higher wages are predicted to improve student performance through two channels: higher wages should attract better teachers into the market and incentivize more effort. One caveat is that the subsidy is targeted at unemployed workers. Here, the literature suggests selection-bias may lead to different outcomes. On one hand, scholars have found that when governments introduce a wage subsidy program targeted specifically at a disadvantaged group: unemployed workers, then such workers will be motivated to work harder and maintain their jobs, thus raising the quality of services within the subsidized sector. On the other hand, some studies have found that wage subsidy program negatively affect the overall quality of goods or services in a given sector as it presumably attracts “less productive” workers into a sector who would not have been employed absence a wage subsidy program.