This paper investigates the effects of higher teacher pay for secondary school teachers on their teacher retention decision and enrollment in additional schooling. We exploit variation in teacher pay induced by the introduction of a new remuneration policy. This policy provided schools in an urbanized region with extra funds to place a larger share of teachers in a higher salary scale. We exploit this policy in an IV-setup to estimate the effects of higher teacher pay on our outcomes. The main finding is that we find no effects of higher teacher pay on the probability to stay in the teaching profession. The policy however succeeded in keeping a slightly larger share of teachers in the targeted region. In addition, our findings suggest that the policy increased teachers’ enrollment in bachelor or master degree programs from 2.3% to 3.2%. This finding is consistent with the setup of the policy in which one of the criteria for placement in a higher salary scale is that teachers would obtain extra qualifications or
gain extra expertise.

Coauthors: S. Gerritsen, S. Kuijpers.

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