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

How does a large unconditional increase in salary affect the performance of incumbent employees in the public sector? This paper presents experimental evidence on this question in the context of a policy change in Indonesia that led to a permanent doubling of teachers' base salaries. The analysis uses a large-scale, randomized experiment across a representative sample of Indonesian schools that accelerated this pay increase for teachers in treated schools. The findings show 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, making it possible to rule out even modest positive impacts on test scores. The 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.

author
De Ree, Joppe Jaitze
Muralidharan, Karthik
Pradhan, Menno Prasad
Rogers, F. Halsey
series
Policy Research Working Paper
language
ENG
Series volume
WPS8292
Institutions
World Bank
date
2017
Pages
74 p.
regions
Asia and the Pacific
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themes
Conditions of employment for teachers
Teachers
Pays
Indonesia

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