Three components of the teacher shortage are the recruitment challenge, the retention problem, and the demand for teacher quality. Although the teacher shortage problem involves many factors, any solution must address salaries. Rural districts face a threefold disadvantage: teachers are not compensated as well as other rural professionals; rural states pay less than more populated states; and within states, rural teachers have lower salaries than their suburban and urban peers. The consequences of teacher shortages include hiring of under-prepared teachers, more out-of-field teaching assignments, larger classes, fewer advanced course options, less coordinated curriculum, less experienced teaching staff, and fragmented professional development. Educational quality and student learning are seriously compromised. Although improving teaching conditions involves more than increasing compensation, this is the one area that policy makers can directly change and may be the "tripping point" that encourages teachers to remain in rural districts. Since the No Child Left Behind Act requires that all children meet high standards and all teachers be highly qualified, then all districts must be able to offer salaries that will attract excellent candidates. Thus, the competitive market for highly qualified teachers will dictate salaries. In deciding the types of cost adjustments and financial incentives to make, policy makers need to realize that it often takes more money to attract and retain qualified teachers in poorer areas. Policy recommendations include providing equitable compensation for all rural teachers; providing additional incentives for hard-to-staff rural districts; increasing federal support of recruitment strategies; combining financial efforts with policies to improve teacher quality and retention; and supporting rural-specific research. (Contains 24 references.) (TD)