Students are led to their classroom by a teacher. (Photo by Michael Loccisano/Getty Images)
This year’s budget debates have focused heavily on the future of education funding.
Early in the budget cycle, Ohio House Speaker Matt Huffman came out strong for K-12 budget cuts, saying the current education budget in Ohio is “unsustainable.” The governor’s budget has come under some fire from education advocates for shifting resources away from public schools.
Some in the public have debated whether education funding creates benefits for students or whether it is just wasted by administrative spending in school districts. A couple of years ago, a working paper tackling this question was circulating through academic circles.
Finally published last year in the American Economic Journal, this study was a comprehensive meta-analysis of impacts of school spending on student outcomes. They found when school spending increases by $1,000 per pupil for four years, test scores increase by 0.0316 standard deviations and college matriculation increases by 2.8 percentage points.
Okay, so school spending does help students test better and go to college more often. But is this worth it? This is a question my firm asked in 2023. We conducted a cost-benefit analysis to see whether this increased spending would pay off for the state as a whole.
The general model looks like this: if a student is at a school with more resources, they will have higher test scores and a higher chance to go to college. Both of these will lead to higher future wages for that student. These wages and the reduced social spending on that student in the future due to higher wages will both increase the size of the state economy. If schools have less resources, students will test worse, go to college less, make less over their lifetime, and the public will spend more money supporting them with social spending down the road.
To analyze what Ohio would look like under different scenarios, we compared Ohio’s current spending (about $14,000 per pupil at the time) to a decrease in per-pupil spending that would put Ohio at about Indiana’s per-pupil spending (about $10,000 per pupil). We also compared an increase to per-pupil spending at Pennsylvania levels (about $16,000 per pupil).
Overall, we found that increased school spending paid off for the state. Conservative simulations of increases in per-pupil spending to Pennsylvania levels put wage and social savings benefits of spending increases outweighing the costs of spending by $23 billion. On the other hand, reducing spending to Indiana levels led to decreases in wages and social spending outweighing savings from the program by at least $30 billion.
Overall, the analysis is clear: from a long-term perspective, increases in school spending within standard limits of what we have seen in the United States lead to economic benefits that outweigh costs. Decreases in school spending lead to economic development costs that outweigh savings benefits. We studied these over a range of discount rates, too, finding that even very short-sighted policymakers should not favor spending cuts if they care at all about future economic development.
To put it short, school spending is an investment. And according to the evidence we have available, it is an investment that will pay off for Ohio.
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