Do teachers’ wages matter for proficiency? Evidence from a funding reform in Brazil

In the Brazilian public education system, teachers ’ wages are determined by the state or municipality legislation and are unrelated to performance. A first examination of our data set reveals that wages are unrelated to the proficiency of public schools pupils in test scores, conditional on other teachers ’ observed characteristics, whereas a positive correlation exists in the private sector. This could be due to the fact that wages do not matter for proficiency in the public sector or that there is a spurious correlation between wages and proficiency. In this paper we use the 1998 reform in the funding of fundamental education in Brazil (FUNDEF) to identify the effects of teachers ’ wages on the proficiency of public school pupils. This reform established a floor on the percentage of public spending in teachers ’ wages out of total resources of 60 % and redistributed resources among states and municipalities, depending on the size of each system. The evidence suggests that FUNDEF raised the relative wages of public school teachers and that this effect improved the proficiency of public school students. Further experiments suggest that this effect was due to the attraction of better new teachers