Purpose – The purpose of this paper is to consider how the level and structure of teacher salaries affect student outcomes and the possibility of improving student achievement in the USA. Design/methodology/approach – The analysis integrates an underlying economic model of the role of salaries in the teacher labor market with existing empirical results. Findings – Much of the current policy discussion about teacher salaries is very unclear about how student outcomes will be affected by changing policies. The US is at a “bad equilibrium” where it cannot increase salaries for effective teachers without increasing salaries for ineffective teachers and thus it is stuck with a teaching corps that is harming both students and the future economic performance of the country. Dealing with problems of the productivity of schools must involve altering the structure of the single salary schedule for teachers. Research limitations/implications – The discussion focusses exclusively on the US schooling system, although there are obvious parallels to systems in other countries. Practical implications – The paper provides an overarching model of how the structure of salaries for teachers has broad implications of school outcomes. Social implications – Improved long-run economic outcomes depend crucially on reforms that involve rewarding the most effective teachers but not the least effective. Originality/value – The integrated approach to the consideration of teacher salaries provides a way of assessing the discordant policy discussions related to teacher salaries. Keywords Human capital, Economic outcomes, Merit pay, Teacher evaluations, Teacher salaries Paper type General review