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0.1 standard deviation isn't significant. So for the most part it doesn't work. Personally I think it is fairly obvious why. No one does a bad job on purpose so if you aren't doing well then you are just not capable. This can be caused by being incompetent or you don't have the power/tools/money necessary to get the job done. Offering a small bonus doesn't really change either one.

Sure there may be some motivational issues, but they would have to be systemic for this sort of ploy to work.

You may have misread the quote. It's more than a 0.1 standard deviation:

"At the end of two years of the program, students in incentive schools performed significantly better than those in comparison schools by 0.28 and 0.16 standard deviations (SD) in math and language tests respectively...."

That's 0.28 for math and 0.16 for language. I'd say that's pretty significant - especially for a large sample size. In this case presumably because of the sample size it's more than being about "power/tools/money".

From wikipedia: In science, researchers commonly report the standard deviation of experimental data, and only effects that fall far outside the range of standard deviation are considered statistically significant—normal random error or variation in the measurements is in this way distinguished from causal variation.

Thus the results are not statistically significant aka with in normal random error etc. So when did 0.3 of not significant become significant.

My skills in stats aren't quite current but this was from a large sample size - covering 500 schools and more than 55,000 students.

From the wikipedia article on statistical significance (http://en.wikipedia.org/wiki/Statistical_significance): "Given a sufficiently large sample, extremely small and non-notable differences can be found to be statistically significant, and statistical significance says nothing about the practical significance of a difference."

This isn't even "extremely small". From the report: "The mean treatment effect of 0.22 SD is equal to 9 percentile points at the median of a normal distribution. We find a minimum average treatment effect of 0.1 SD at every percentile of baseline test scores, suggesting broad-based gains in test scores as a result of the incentive program."

One of the problems is that in education performance is equaled to students test results so as result teachers would have an incentive to be just "test-oriented".
How can you improve something if you cannot measure it? How do you know that you actually improved something?

Maybe tests can be improved - but it is currently the only reliable way in which the performance of students can be measured.

We find no evidence of any adverse consequences as a result of the incentive programs. Incentive schools do significantly better on both mechanical components of the test (designed to reflect rote learning) and conceptual components of the test (designed to capture deeper understanding of the material),suggesting that the gains in test scores represent an actual increase in learning outcomes. Students in incentive schools do significantly better not only in math and language (for which there were incentives), but also in science and social studies (for which there were no incentives), suggesting positive spillover effects....
It was only a 2 year study and the first year had no positive results.

A teacher motivated by incentives receives their motivation externally. Motivation in such a form is never sustainable I don't believe. Over time, I would expect the motivation teachers receive from incentives would decrease over time.

Even if it works only for years 1-5 of a teacher's career, it would still be useful. If we combine an incentive plan with a plan to keep most teachers in this window (i.e., get rid of teachers after year 6), it could be fantastically useful.

Though I must admit, I don't really buy your thesis that incentives only work short term. If they did, you'd expect entrepreneurs to be unmotivated beyond the short term, for example.

i.e., get rid of teachers after year 6: Is it your opinion that teachers learn nothing in the course of doing their job?
It is my opinion that teachers learn nothing useful after 2 years. One source (among many others):

http://notebook.lausd.net/pls/ptl/docs/PAGE/CA_LAUSD/FLDR_OR...

So I suppose that a more careful cost-benefit analysis needs to be made.

Let's suppose that the results of that study are accurate and generalizable, so that (1) teachers with at most two years of experience are dramatically worse than ones with three or more, but that beyond that there's no advantage to having more. And let's suppose that although the study talks about "less than three years experience" and is written as if there's no such thing as a teacher with less than one year of experience, what they actually mean is "first two years", "next two years", etc.

So. You are proposing to throw teachers out after six years of teaching. Then, assuming every teacher stays the full six years, 1/3 of all teachers will be in that low-experience category that teaches so much less effectively. At present, according to the study you cited, the figure is more like 1/5. It seems that your proposal will result in 65% more pupils being taught by teachers who do not do a good job.

This is not the only reason why your suggestion seems to me unlikely to be a good one, but it seems a pretty compelling reason.

Why would entrepreneurs lose their motivation? Entrepreneurs are working for themselves, not for some chunk of change someone else will give them if they perform as well as some random person wants them to.

If we get rid of teachers after 6 years, what would that teacher do? How would this work exactly?

Entrepreneurs work harder because they believe it will get them more money. But if you dislike that example, consider traders, lawyers or salespeople (all of whom work for "some chunk of change someone else will give them"). Do incentives fail with those professions after a few years?

As for "what will teachers do" after 6 years, they can either continue to perform well or find a new job (just like a trader or salesman). The purpose of school is education, not jobs for liberal arts grads.

My main point is that an entrepreneur has complete control over everything they do and therefore complete control over how much money they make (or as much control you can possibly have over something like starting a business), while a teacher simply receives a bonus when their students test well. For the average person, I can't expect that a bonus is forever-motivating (not to say entrepreneurs are always motivated). I agree that teachers may perform better with bonuses, but that's obviously not how it SHOULD be.

"they can either continue to perform well or find a new job" How to measure?

Exactly my thought. Hence the situation the US is in now - teachers don't get paid for performance, but school districts do and they force all kinds of behavior on teachers, namely teach how to pass THE-CURRENT-IMPORTANT-TEST.
I think pay for performance matters to a certain stage. When you can meet your basic necessities, you look for other ways to be more content with life. You want to have more control over things, give back to your community, do something you are passionate about, etc.
"increasing student test scores"

Yes, paying teachers more for higher test scores is a very good way of increasing test scores - this was found in california schools years ago. It had an opposite effect on students actual learning though.

Read TFA; they thought of that.
Their way of accounting for it was to label certain parts of the test "conceptual" and look at performance on those parts as evidence of real learning. However that's still part of the test. Given two students whose understanding is the same, the one who is better prepared for the other parts of the test will have more time for the "conceptual" section and therefore will likely perform better there as well.

That is assuming the unlikely proposition that preparing for the test doesn't directly prepare you for the conceptual portion of the test. I say unlikely because test makers have been trying to make such tests (eg the SAT) for decades, and test preparation companies (eg Kaplan) have been demonstrating that you can prepare for them after all.

You can't escape the circularity. If you're measuring performance with a test, then you can't really distinguish preparation for the test from actual performance. In this study they had much stronger results in their second year, than their first. Which strongly suggests that teachers did a better job of preparing for the test after teachers saw the tests that would be used.

They also accounted for it by studying performance on science and social studies tests. Both improved. However, it would be useful to follow up with a differently structured test to see how much comes from test prep.

Incidentally, bringing up the SAT is a red herring. The SAT was originally meant to measure g/intelligence/"aptitude". It did this by measuring a body of knowledge which is not explicitly taught in school, giving questions like wheel : car -> pick one of [leg: horse, egg : chicken, computer : TV]. Obviously, you can improve performance by explicitly teaching that knowledge (e.g., memorizing analogies).

A subject test does not suffer from this problem, since it is designed to measure subject knowledge rather than aptitude. You can improve performance on a multiplication test by memorizing multiplication tables, but so what? Multiplication performance is what you are trying to measure, it's not a proxy for something else.

This says nothing about how this would work in the U.S. Cultural differences can not be discounted. Are there any studies about U.S. efforts to implement pay for performance in schools?
The title clearly mentions "teachers in India".
Wow... do we have such an epically failed understanding of economics that "behavior incented by money increases" merits a headline? Seriously?

Now whether they're incenting the right things (test scores) is debatable, but why is this newsworthy?

Actually, the question of "What incentives motivate teachers to teach well?" is extremely debatable, and the real question underlying your "behavior incented by money increases" comment.

At the moment, it's effectively impossible to fire teachers after two or three years, no matter how poorly they do: see, for example, http://www.newyorker.com/reporting/2009/08/31/090831fa_fact_... .

I think see your point in the first sentence, in that money alone (once you've achieved a basic livelihood) is a questionable motivator of job quality. The article, however, is not necessarily talking about "teaching well," it was fundamentally about improving test scores.

I was mostly taking issue with the headline's (and article's) apparent surprise that offering money for higher X caused X to increase. Not sure why an experiment was needed to establish this.

Also, your rubber room article is horrifying, but I don't really see the relevance... except that the reward mechanism has been completely divorced from performance of any kind.