How to Make Merit Pay Work

National Review, July 24, 2012

Conservatives have a wide range of solid suggestions for education reform (to which liberals are increasingly warming), including school choice, merit pay, and tenure reform, which are undeniably appealing on principle, and usually have some good empirical support, too. But it’s especially encouraging when there’s gold-standard evidence of how a particular reform can succeed, and a new study provides just that for merit pay, for which the existing empirical support had been somewhat weak.

Roland Fryer of Harvard, Steven Levitt and John List of Chicago, and Sally Sadoff of UC San Diego have released a paper in which a randomized-control trial finds very strong support for incentivizing teachers based on their students’ test scores, in a particular way, by exploiting the behavioral economic effect of “loss aversion”: Rather than just offering extra merit pay, they would claw back some of the extra compensation if performances were unimpressive.