Teacher shortages and the business cycle

The ability of the public sector to recruit skilled workers is important for the quality of public sector services. Centralized and rigid pay systems in the public sector might reduce labour supply and lead to shortages of qualified personnel in areas and periods with strong outside labour markets. This paper shows that teacher shortages measured by the share of teachers without approved education are strongly procyclical in Norway. Using a large panel of Norwegian local governments for 1981–2002 and exploiting the rigid wage system, we find a sizeable negative relationship between teacher shortages and the regional unemployment rate.