Lost opportunity: increased economic growth, fueled by improvements in student performance, might have funded the nation's entire K-12 education budget by now - Feature

Education Next, Spring, 2003 by Eric A. Hanushek

THE CONCERNS ABOUT SCHOOL QUALITY EXPRESSED IN A Nation at Risk reflected declining trends in performance among U.S. students and their mediocre standing relative to students in other nations. America's failure to address these concerns has led to substantial losses for individuals and for society as a whole. The workers who failed to acquire essential skills can attest to the fact that their earnings have not kept up with those of the typical worker. And the aggregate effects are even more dramatic.

By some estimates, today's entire K-12 education budget could be funded by the "reform dividend" that might have been expected from improving math and science achievement in response to the calls of the 1983 report. To wit, improvements in the schools would have boosted U.S. economic growth, and the annual windfall by 2002 would have exceeded total K-12 spending for that year.

Quality Matters

Much of the research on the economic impact of education has properly concentrated on the role of school attainment--that is, the quantity of schooling. This focus is natural. The revolution in the United States during the 20th century was the universal provision of a basic education. Moreover, years of schooling are easily measured, and data on years attained, both over time and across individuals, are readily available.

Yet today's policy concerns revolve around issues of quality much more than of quantity. Completion rates for high school and college have been roughly constant for a quarter of a century in the United States, while the rest of the industrialized world has largely caught up on measures of school attainment. Risk was more concerned with the fact that U.S. students had fallen behind their peers in nations like Japan, the Netherlands, and France on international exams in math and science (see Figure 4, page 44, in Paul E. Peterson, "Ticket to Nowhere"). These concerns sparked the standards and accountability movement, which seeks to define what students should learn and tests to see whether they have mastered the material.

In good part because of the impact of the Risk report, it is now generally recognized that students' cognitive skills are a crucial dimension of education quality. But it has not, until recently, been clear just how important differences in cognitive skill are for the long-term well-being of a nation's economy. Fortunately, data are now available that allow one to estimate the connection between cognitive skill and the economy. The conclusions of this emerging body of research are clear: education quality, as measured by test scores, is positively related to the earnings of individuals, national productivity, and economic growth.

Individual Earnings

Just as most parents believe, economists have clearly shown that a student's achievement in school directly affects his or her earnings later in life, after allowing for differences in the quantity of schooling, experience in the labor force, and a variety of other factors that also influence earnings. Students who do well in school also tend to go on for further schooling, which provides an additional boost to their earnings. As is well known, the economic benefits of a college education have risen dramatically during the past quarter century, and substantial evidence shows that students with good grades or high scores on achievement tests tend to pursue more education.

These facts are part of the reason that so much attention has been paid to the schools as an agency of equal opportunity, ultimately helping to reduce inequities in the distribution of income. Long before the Risk report, the War on Poverty saw schools as key to reducing racial and other disparities in economic opportunity. Through schooling it was hoped that family poverty would not be transferred to the next generation: high-quality school investments would make up for deficits originating in the home.

Today, many believe that the continuing difference between the earnings of black and white workers is due in good part to differences in their educational achievement, as measured by tests of cognitive ability. These continuing differences are especially worrisome, given the fact that the importance of education for the acquisition of well-paying jobs continues to grow, increasing the disparities in income between those with college degrees and those with less than a high-school diploma. Only if skill levels can be enhanced within high schools will many of the more disadvantaged in society have access to the college education that is crucial in a society where high-level skills are fundamental to success.

Economic Growth

No less important is the overall relationship between the quality of the labor force, as measured by tests of cognitive skill, and economic growth. Economic growth rates determine how much improvement will occur in society's overall standard of living. Moreover, the education of each individual has the possibility of making others better off (in addition to the increased earnings the individual receives). For instance, a more educated society may have higher rates of invention; may make everyone more productive by virtue of the fact that firms are better able to introduce new, more sophisticated production methods; and may lead to the more rapid introduction of new technologies. These "externalities" that make everyone better off provide still another reason for raking measures that will enhance the quality--not just the quantity--of schooling.