Employee evaluation and skill investments: Evidence from public school teachers

When employees expect evaluation and performance incentives will continue (or begin) in the future, the potential future rewards create an incentive to invest in relevant skills today. Because skills benefit job performance, the effects of evaluation can persist after the rewards end or even anticipate the start of rewards. I provide empirical evidence of these dynamics from a quasi-experiment in Tennessee schools. New performance measures improve teachers’ value-added contributions to student achievement. But improvements are twice as large when the teacher also expects future rewards linked to future scores. Value-added remains at the now higher level after performance incentives end.