November 10, 2017

A long-term investment in education

How far-reaching are the impacts when schools spend more on students?

A paper in AEJ: Economic Policy says that the impact from boosting per pupil spending can be felt a decade later.

Illustration by Chris Fleisher

Connecticut schools were floundering amid massive spending cuts across the state, and West Hartford Mayor Shari Cantor worried about the consequences for local school children.

“We understand the state is in a fiscal crisis,” Cantor told the Wall Street Journal in October. But “we are going to hurt our young people if we don’t invest in them.”

She’s probably right to be concerned, and the impact of budget decisions may be more far-reaching than Cantor realizes.

A paper that appears in the November issue of the American Economic Journal: Economic Policy says that increasing per pupil spending can have long-run impacts on a child’s education and the chances they will enroll in and graduate from college.

Author Joshua Hyman found that spending an additional $1,000 (or 10 percent) per student in the fourth through seventh grades led to a 7 percent increase in college enrollment and an 11 percent increase in students earning a degree.

When states and districts think about setting their property tax rates or raising some extra money for their schools, they should remember that this paper and other papers are starting to point to the idea that money matters.

Joshua Hyman

Hyman said his paper offers important lessons for policymakers amid fierce debates over how education spending affects student outcomes.

“When states and districts think about setting their property tax rates or raising some extra money for their schools, they should remember that this paper and other papers are starting to point to the idea that money matters,” Hyman said in an interview with the AEA. “This shows that there are long-lasting impacts from these decisions.”

So far, the evidence has been mixed on whether funding increases actually improve student performance. Some studies have shown that boosts in education spending during childhood lead to more years of completed schooling and higher earnings as an adult. Others have found little if any impact.

Michigan’s 1994 school finance reform provided Hyman with a unique opportunity to track how a sudden change in funding would impact individual students over time. Other studies have tended to focus on short-term impacts or examined outcomes at the district level, which can be problematic because many students, especially those from disadvantaged backgrounds, frequently move from district to district.

The Michigan data — which he helped collect while pursuing his doctorate at the University of Michigan — included individual students that he was able to track beyond high school.

The paper offers important insights for policymakers at a time when fiscal constraints are forcing many states to cut funding. Indeed, per pupil spending varies dramatically across the United States, a variation that is driven by a lot of factors, such as cost of living.

Variations in School Funding 
Per pupil spending varies widely across the United States. For example, Alaska spent nearly three times the amount per student that Idaho did in 2013. Even more, spending decisions are trending in the opposite direction, with some states cutting funds to public schools while others are increasing. The map below shows how much each state spent per pupil in 2013. Hover over each state to see how spending compares to 2008 and the percent increase or decrease.


Still, spending differences also reflect the wide-ranging perspectives about how to use resources to improve student outcomes.

Hyman’s paper suggests that money does, in fact, have an effect. The Michigan finance reform was more cost effective at boosting college enrollment than efforts to decrease class size in Tennessee through that state’s “STAR” program, although less cost-effective than funding Head Start.

Policymakers shouldn’t assume, however, that they can throw money at schools and get the results they want. 

Some districts benefit more than others, Hyman said, and they may not be the ones that policymakers are most worried about. Students in wealthier urban and suburban districts had the biggest boost to college going. Meanwhile, spending increases had barely any impact on students in rural high-poverty districts.

That may relate to where districts are choosing to allocate their money. The Michigan school districts Hyman studied tended to give more funds to less needy schools.

“I do find this slightly perverse effect,” Hyman said. “Districts are not spending on the poorest schools in the district.”

The reasons for that disparity are unclear. Maybe the allocations are intended to balance other funding available only to lower income schools.

Those are choices that must be debated at school board meetings and statehouse budget discussions. No doubt, those conversations will be focused on the coming school year. The consequences, however, may last a decade.  

“Does Money Matter in the Long Run? Effects of School Spending on Educational Attainment” appears in the November issue of the American Economic Journal: Economic Policy.