Teacher behavior under performance pay incentives

•Data comes from the 2003 and 2007 waves of the SASS.•Teachers work fewer hours per week under team-based performance pay.•Performance pay decreases participation in unpaid cooperative school activities.•Male teachers respond more positively to performance pay than female teachers.•When performance pay is restricted to individuals, work effort increases.

Over the last decade many districts implemented performance pay incentives to reward teachers for improving student achievement. Economic theory suggests that these programs could alter teacher work effort, cooperation, and retention. Because teachers can choose to work in a performance pay district that has characteristics correlated with teacher behavior, I use the distance between a teacher's undergraduate institution and the nearest performance pay district as an instrumental variable. Using data from the 2003 and 2007 waves of the Schools and Staffing Survey, I find that teachers respond to performance pay incentives by working fewer hours per week. Performance pay also decreases participation in unpaid cooperative school activities, while there is suggestive evidence that teacher turnover decreases. The treatment effects are heterogeneous; male teachers respond more positively than female teachers. In Florida, which restricts state performance pay funding to individual teachers, I find that work effort and teacher turnover increase.