Education isoquants

Draw a graph. On the Y axis, put "smaller classes"; on the X axis, "teacher quality". It's not hard to imagine standard isoquants in that space where you can produce a fixed amount of educational output either by having worse teachers in smaller classes or better teachers in larger classes. I know neither the slope of the isoquants nor the slope of the isocost curve that would run between them, but Andrew Leigh reckons Australia pushed itself onto a lower isoquant by shifting from larger classes with better teachers to smaller classes with worse teachers.

The other challenge is to boost the performance of Australia’s educational institutions, particularly our schools. In research with Chris Ryan, we found that Australian literacy and numeracy scores had failed to improve from 1964 to 2003.[24] Since then, Australia’s scores on the international PISA test have fallen. At the same time, the academic aptitude of new teachers – relative to their classmates – has declined.[25] One possible reason for this is that Australia chose to focus on reducing class sizes rather than attracting the best teachers. Over the past quarter-century, class sizes have been cut by about 10 percent, while teacher salaries relative to other professional salaries have also been cut by about 10 percent. [emphasis added]

New Zealand's National Party proposes moving towards the larger class - better teachers combination; they're trying to draw in better teachers with merit pay. Says Leigh:

I have a particular interest in performance pay, having given a keynote address at an economics of education conference in Munich, in which I summarised what we know about the economics and politics of merit pay.[26] From that, I concluded that anyone who says that merit pay ‘always works’ or ‘never works’ hasn’t spent enough time engaging with the literature. There are clearly merit pay models that are successful, and those that are unsuccessful. The challenge is to build the evidence base to the point where we can confidently tell the difference.

Here's hoping New Zealand's implementation winds up being on the successful side. Bill Kaye-Blake notes, probably rightly, that the amount of money available as merit pay will have to be reasonably large.

Update: Note that Andrew Leigh, quoted above, is not only a top-notch economist, he's also an Australian Labor MP. It's well worth reading his whole article on merit pay.