Constrained optimisation? Teacher salaries, school resources and student achievement

Should schools increase teachers' salaries to improve pupil attainment? We study the potential implications of an individual school offering higher teacher salaries from within a fixed budget by exploiting a natural experiment that forces some schools within a local area to pay teachers according to higher salary scales, but does not offer any extra funding. We show schools follow this regulation and pay their teachers more. The characteristics of teachers are largely unaffected, but teachers at high pay schools are less likely to be absent. Teacher and assistant numbers are largely unchanged. Instead, schools balance their budgets by making sizeable reductions in other expenditures, particularly spending on equipment and services, amounting to around 4% of non-instructional spending. There is no evidence of any overall effect on pupil attainment, however. It is likely that positive effect of the natural experiment through teachers is almost exactly countered by the negative effects of reductions in other expenditure.