Improving Education

This week I want to talk about my Economics of Education class. Derek Neal, a distinguished researcher in the Economics Department at UChicago, teaches the class. The class has been supremely interesting and has been structured as follows (in Professor Neal’s words): why schools are shitty, why attempts at making them less shitty have been unsuccessful, and how to actually make them less shitty. I’m going to tell you about Professor Neal’s idea to actually make schools less shitty – which is (unsurprisingly) actually a really, really great idea.

Public schools are generally structured in the following way: teachers are hired, paid a salary, and that salary increases as they spend more years teaching – older, more experienced teachers are valued in this system, and also teachers who go to get a Masters in Education (a degree that Professor Neal regards as a complete farce) are given a salary raise. Attempts to improve this structure such as NCLB (No Child Left Behind) and various other programs that institute performance–based pay have improved average student achievement but have actually not been ideal in terms of incentivizing teachers to give sufficient attention to each of their students. These programs make schools set proficiency standards, and teachers are paid based on how many of their students reached the standards. This incentivized teachers to completely ignore students who either 1. had no hope of reaching the standards and 2. had little risk of falling below the standard.

Professor Neal proposes what he calls relative performance pay that would solve these misaligned incentives. In this structure, students are categorized based on their initial proficiency levels. Teachers of these students are then given performance pay based on how many of their students performed better than other students that started at the same initial level. Thus, rather than teachers competing against an arbitrary proficiency standard, they are competing against each other. And student 1 who starts the year at a rock-bottom proficiency level is just as important to the teacher (pay incentives-wise) as student 2 who starts the year in the top percentile of proficiency. The purpose of this competition is not to find out who the winners and losers are, but to induce the right kind of effort from every teacher towards every student in their classroom. As long as the teachers believe they are in a fair competition, they will give the optimal level of effort and incentives will be aligned.

Be sure to understand that I have condensed an enormous amount of literature and detailed research on these topics into less than 500 words, so obviously the picture I have presented is largely incomplete. Nonetheless, the general themes discussed here are at the heart of the cutting edge of education economics research.