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Does money matter?

Isabel V. Sawhill

The age-old debate about whether money matters for educational outcomes is sure to be debated in the 2016 Campaign.  Gov. Scott Walker has cut aid to local schools evidently believing that school budgets are bloated.  In the meantime, many Democrats are said to be too close to the teachers’ unions and too interested in throwing money at the problem.  What should we believe?     

The latest research suggests that money does matter.  Of course, it matters how and where it is spent and it needs to be combined with accountability for results.  But the whole notion that we can reduce spending on education and do no harm or that new resources don’t have the potential to improve both the level and the distribution of student outcomes is just plain wrong.  

Skepticism about the impact of education spending on outcomes was initially fueled by the Coleman report in 1966 and was heightened by a much-cited review by Eric Hanushek in 1986 suggesting that in a large number of studies there was no consistent evidence of a relationship between expenditures per pupil and student performance.

In a rebuttal of this thesis and a more up-to-date review, Rutgers professor Bruce Baker notes that Hanushek never said that money didn’t matter; he simply showed that the evidence didn’t all point in one consistent direction.  Moreover, subsequent studies with better data and more robust methodologies have tended to show that money does indeed matter.  Some studies, for example, focus on state-initiated reforms in aid formulas and look at the effects of changes in spending on student achievement.  This approach avoids the problem of assuming that any correlation between existing levels of funding and school success are causal when, in reality, they more likely reflect other confounding factors. For example, if federal or state aid to education is targeted on schools in high-poverty areas, this will tend to suggest that resource levels don’t matter or may even reduce student performance when it is really the poor performance that leads to the extra funding. 

The most recent study that attempts to deal with this methodological problem is by C. Kirabo Jackson of Northwestern University, Rucker C. Johnson of Berkeley, and their colleague Claudia Persico.  They find that increased school spending improves student outcomes, especially for low-income students.  For example,  increasing per-pupil spending by 10 percent in the K-12 years increases the probability of high school graduation by roughly 10 percentage points for low-income children and by 2.5 percentage points for higher-income children.  The positive effects appear to be the result of a reduction in class size, a higher ratio of adults to students, increases in instructional time, and increases in teacher salaries that help to attract and retain higher quality teachers.

Teacher salaries are, in my view, a huge issue.  Schools are now competing for talent with other sectors in a way that wasn’t true in a world where well-educated women had few professional opportunities.  Until more people accept the need to raise teacher salaries significantly, schools are not likely to improve.  To be sure, salaries need to be linked to performance and better measures of teacher performance should be developed.  But the main reason that money matters in education is because teachers matter, and attracting and retaining the best talent has to be a priority.

Editor’s Note: This post originally appeared on Real Clear Markets.

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