Scandinavian Working Papers in Economics

Working Paper Series, Center for Labor Studies,
Uppsala University, Department of Economics

No 2010:12: Competition, wages and teacher sorting: four lessons learned from a voucher reform

Lena Hensvik ()
Additional contact information
Lena Hensvik: Uppsala Center for Labor Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: This paper studies how local school competition affects teacher wages at markets where wages are set via individual wage bargaining. Using regional variation in private school entry generated by a Swedish reform which allowed private schools to enter freely and a comprehensive matched employer employee data covering all high school teachers in Sweden over 16 years, I analyze the effects of competition on wages as well as labor flows. The results suggest that competition translates into higher wages, also for teachers in public schools. While the average increases are modest new teachers gain 2 percent and high ability teachers in math and science receive 4 percent higher wages in the most competitive areas compared to areas without any competition from private schools. Several robustness checks support a causal interpretation of the results which together highlight the potential gains from school competition through a more differentiated wage setting of teachers.

Keywords: private school competition; teacher wages; monopsony power

JEL-codes: J24; J31; J42

44 pages, June 7, 2010

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