School reform is good economics

John Hood Columnist

Although the debate about education policy is robust, complicated, and sometimes vitriolic, there is actually broad agreement about the bottom line: if our students were better prepared for college, careers, and the responsibilities of citizenship, North Carolina would reap tremendous benefits.

Liberals and conservatives disagree about means, not about the ultimate ends — and often, even our disagreements on the means of school improvement are more about priorities and details, not about basic concepts. I know these policy debates will continue for years to come. I welcome them.

In the meantime, however, it’s worth devoting more attention to those ultimate ends. What would it mean for North Carolinians as a whole if our education system vastly improved? Indeed, what does “vast improvement” look like?

In the latest edition of the journal EducationNext, three scholars reported the findings of a study they recently conducted of student performance and economic growth across all 50 states. Eric Hanushek of Stanford University, Jens Ruhose of Leibnitz University, and Ludger Woessmann of the University of Munich constructed a model to estimate the long-term effects of raising performance to specified benchmarks.

Their model found that differences in student performance — measured both by test scores and by years of schooling completed — can account for between a fifth and a third of the differences in state economic performance. Most other empirical studies show comparable results. To be more specific, of the 221 studies published in academic journals on this issue over the past 25 years, about 60 percent have found a statistically significant correlation between average educational attainment or student achievement and state economic growth.

Some politicians, activists, and interest groups draw the wrong conclusions about this body of work, however. They assert that because the level of education and skill in the labor force is associated with economic growth, more government spending on education and training will lead to more economic growth. That doesn’t logically follow, and isn’t confirmed by empirical research. Over the past 25 years, there have been some 119 academic studies probing potential relationships between state education spending and subsequent economic growth. Only 32 percent found a positive correlation.

In other words, the successful formation of human capital, through education and training, is critical to the success of any modern economy. It’s at least as important as other forms of capital formation, such as building new plants, upgrading software, or repairing roads and bridges. But its value isn’t determined by how much is spent, at least not within the variations that are typical across the states.

What Hanushek, Ruhose, and Woessmann have done is to quantify what kind of return each state can expect to receive from education reform. This is not an argument about short-term effects, by the way. There is no practical way for better education for a first-grader today to translate into significantly higher economic growth within a few years, or even a decade. In the long run, however, the effects could be quite substantial.

Here’s what it looks like for North Carolina. If we improved the performance of our students to that of the highest-achieving state in our region, that would translate into an increase in gross domestic product of nearly $600 billion by 2095 — a 9 percent gain in real terms. If we improved the performance of our students to that of the highest-achieving state in the country, our GDP would rise by $2.1 trillion above the baseline, or 34 percent.

And what if we focused on low-performing students rather than average scores? If North Carolina raised all of our students to at least a “basic” level of competence in reading and math, the study found, our economy would be nearly $800 billion larger by 2095 than the baseline, an increase of 12 percent.

Achieving the required gains in student performance to yield such results would require hard, innovative work on all fronts — from state and local policymakers to the students themselves, their parents, educators, and other service providers. But the work would pay off handsomely. Let’s proceed.

John Locke Foundation chairman John Hood is the author of Catalyst: Jim Martin and the Rise of North Carolina Republicans.

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