Better School Outcomes Aren’t Free

Education is one of the largest categories of state and local government spending, making it essential for policymakers to understand how funding levels affect educational outcomes. Locally, Chicago Public Schools (CPS) face a budget shortage of $480 million, which could have a devastating effect. The school district is hoping that the State of Illinois will provide this missing money and, therefore, does not appear to have an alternative plan.

There is an intuitive belief that more money leads to better schools—more funds can be spent on higher quality teachers, instructional technology such as SmartBoards in the classroom, and special needs services, for example. And, there is new empirical evidence that the power of money to change schooling outcomes may be even larger than initially thought. A new analysis from C. Kirabo Jackson, Rucker C. Johnson, and Claudia Persico demonstrates that funding increases make a huge difference in schooling outcomes, especially for low-income students.

Jackson and his colleagues analyzed how discontinuous, government spending mandates affected educational and income-related outcomes over 40 years. The authors utilized census data and long-run attainment measures from the Panel Study of Income Dynamics for students in districts that saw major changes in per-pupil funding levels. This provides a sample of 15,353 individuals who were born between 1955 and 1985, and would have completed high school by 2011. Their sample included students from all 50 states and 1,409 school districts.

To test the effects of educational spending mandates, the researchers exploited naturally occurring control and experimental groups by designating a “treated cohort,” made up of students who were attending school when court mandated reforms were passed, and an “untreated cohort,” made up of older children who were not affected by these reforms. Because the “untreated cohort” came from the same district as the treated cohort, this analysis assumes that the students were not very different on dimensions besides being affected by the spending mandates. The study finds that, for wealthier students, funding changes do not have much influence on their current educational performance, later educational attainment, or economic outcomes, such as later earnings. However, for low-income students, funding levels can make a big difference. The authors find that, when school financing increases by 25 percent for a student’s entire education, low-income students graduate college at the same rate as their high-income peers—reducing the “educational attainment gap” to zero. Underscoring this finding, the model shows that, for low-income children, a 10 percent increase in per-pupil spending is associated with an increase in schooling of 0.43 years, 9.5 percent higher adult earnings, and a 6.8 percentage point reduction in adult poverty.

This study represents an analytical departure from the way in which educational spending and its effects are typically studied. Previous analyses primarily focus on measuring a student’s test scores, and budgeted spending on their education, in relation to their adult incomes. However, the relationship between test scores and adult earnings is often weak. This study instead focuses on longer-term outcomes such as overall educational attainment—whether a student graduates from or attends college—and their adult earnings.

This evidence about the power of funding increases to reduce the achievement gap is especially important in Chicago. In 2014, Chicago ranked eighth in income inequality among 50 major US cities. As students protest the budget crisis and the teachers’ union considers a strike, important decisions must be made. This study reveals how the funding levels chosen by policymakers today will affect low-income students’ lives for decades to come.

Article Source: Jackson, C. Kirabo, Rucker C. Johnson, and Claudia Persico. “The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms.” Quarterly Journal of Economics, 2015.

Featured Photo: cc/(US Department of Education)