Competition and Transparency in Public Sector Recruitment

Until 2011, the appointment of school principals in Chile was largely left to the discretion of local politicians. A 2011 reform changed things by requiring a competitive and transparent process leading to a candidate shortlist. A recent study assesses the impact of this reform.

Methodologically, the study takes several methodological steps. First, it estimates the contribution of a school principal to student achievement by estimating a two-way fixed effects specification (Abowd, Kramarz, and Margolis 1999, or simply AKM). The idea is to take advantage of the movement of teachers and students across schools to measure how much of the students’ course value added corresponds to principals, as opposed to teachers or to school-specific effects. (The authors are careful to confirm that changes in test scores are not due to manipulation following the appointment of a new principal, and that self-selection — such as students following a specific principal as the latter changes schools — does not play an important role.)

The authors refer to the principal’s contribution as the principal’s effectiveness. They show that a 1 standard deviation increase in principal effectiveness raises students’ course grades by 0.27 standard deviations. How do principals matter? The authors report that more effective principals have: (i) a larger fraction of their teaching staff agreeing with positive statements about them, (ii) fewer parental complaints about bullying and denying enrollment, and (iii) lower rates of teacher turnover, especially among high-value-added teachers.

Having created a measure of principal effectiveness, the authors then use a difference-in-differences approach to compare the change in principal effectiveness arising from new appointments in public schools under the reformed selection system to that arising from new appointments at private schools. In other words, they use private schools as the control group. 

A summary of the results from the diff-in-diff regression can be found in the next picture. The horizontal axis measures years since the reform was implemented. The vertical axis measures differences in effectiveness between public and private school principal effectiveness.

The authors find that, following the 2011 reform, public schools attracted more effective managers: a 0.06 standard deviation increase. This in turn led to  course grade gains of 0.016 (0.27 × 0.06) standard deviations per year. The authors also document that schools with more effective principals increased their likelihood of firing poorly evaluated teachers and experienced positive impacts on students’ test scores, yearly attendance, and college admission scores.

Pablo Muñoz and Mounu Prem

Managers’ Productivity and Recruitment in the Public Sector

American Economic Journal: Economic Policy 16 (2024), pp.  223–253