HKUST IEMS Working Papers No. 2015-09
We provide the first evidence that promotion incentives can influence effort of employees in the public sector by studying China’s system of annual evaluations and promotions for teachers. Theoretical predictions from a tournament model of promotion incentives are tested using panel data on primary and middle school teachers in western China. Consistent with theory, we find that promotions are associated with significant wage increases, that higher wage increases are associated with higher effort, that teachers increase effort in the years leading up to promotion eligibility but reduce effort if they are repeatedly passed over for promotion, and that increasing the number of competitors reduces the relative performance of those at the extremes of the skill distribution. Evaluation scores are positively associated with time spent on teaching and with student test scores, diminishing concerns that evaluations are manipulated.
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