...dismissal threats increased the voluntary attrition of low-performing teachers and improved the performance of those who decided to remain.
While the effects of teacher quality on student development, achievement, and later outcomes have been widely studied, there is no agreement on how to systematically drive improvements in the quality of teachers. Teacher salaries are traditionally based only on experience and credentials. However, these traits may not have consistent links to teacher quality. In a push toward "pay for performance," teacher compensation is increasingly measured by teacher performance evaluations, such as the IMPACT policy that was introduced in District of Columbia public schools in 2009. In Incentives, Selection, and Teacher Performance: Evidence from IMPACT (NBER Working Paper No. 19529), Thomas Dee and James Wyckoff examine the effects of the IMPACT program on the retention of high- and low-performing teachers and on the subsequent performance of teachers who were retained.
The IMPACT program established several explicit measures of teacher performance with a particular emphasis on structured classroom observations of teachers' instructional practices. Overall measured performance implied both large financial incentives for high-performing teachers as well as the threat of dismissal for persistently low-performing teachers.
The IMPACT program used thresholds to determine the effect of measured performance on both pay and dismissal, so the authors were able to compare the retention and performance outcomes among teachers whose prior-year performance scores placed them just below or just above the threshold values for receiving a permanent increase in base salary or a dismissal threat. They argue that teachers who score just above or just below such a threshold are quite similar and that the large disparities in the consequences of their scores provide an opportunity to study the incentive effects of the IMPACT program.
The results indicate that dismissal threats increased the voluntary attrition of low-performing teachers and improved the performance of those who decided to remain. Moreover, financial incentives further improved the performance of high-performing teachers. Interestingly, most of the action comes in the second year of the program, when it was clearer that the program was politically durable. In the second year, the dismissal threat increased the attrition of low-performing teachers by 11 percentage points, an increase of over 50 percent. The performance gains among remaining teachers were equivalent to moving a teacher from the 10th to the 15th percentile of the performance distribution.