The impact of subjective school ratings on principal compensation and turnover

Prior research has established that objective, test-score-based school accountability measures impact school leaders. Subjective evaluations, on the other hand, can provide a more nuanced assessment of school quality. This paper investigates the impact of subjective school inspection ratings on the salary and career outcomes of school principals. Ratings capture not just overall school quality, but also more granular aspects such as leadership quality, teaching and student achievement. Employing a difference-in-differences framework, we find that the overall school inspection rating has substantial impact on principals’ salaries and their rate of exit from public sector schooling. These effects are highly asymmetric: worse ratings have a substantially larger impact compared to rating improvements. Our findings suggest that competition is a key mechanism through which changes in school inspection ratings affect principals. Crucially, by leveraging detailed quality ratings, we show for the first time that the labor market can distinguish between signals concerning overall school quality and those specific to senior management quality.