This paper addresses a popular debate on teacher pay in a developing country context, namely whether teachers are under-paid or over-paid. Using national level household survey data from Bangladesh, we find that teachers are significantly under-paid in comparison to non-teachers who possess similar human capital and other observed characteristics. A decomposition exercise of the teacher non-teacher wage gap reveals that the teacher non-teacher salary difference is driven mostly by differential returns to observed characteristics and not by differences in the endowment of those characteristics. Our results suggest that there is some equity justification for allowing an “across-the-board” increase in teacher pay particularly for female, rural and aided school teachers in Bangladesh.
Key Words: Teacher salaries, wage-gap decomposition.