This memo was drafted in March 2019 for informational purposes for the City of Philadelphia Department of Commerce. It does not in any way represent the Department of Commerce’s opinion or policy on this matter.
Executive Summary
- Relatively modest gains in educational quality lead to significant economic multiplier effects in the long-run – a modest improvement yields an additional $1 trillion in GDP over the status quo scenario.
- Student achievement is found to be closely linked with teacher quality, but other factors such as a healthy and productive environment are prerequisite.
- Reforms to education policy take time to implement, with benefits deferred for at least 10 years in terms of school quality improvement.
- Improvements in the labor force and broader economy peak after 50 years (10 years of reform followed by 40 years of retirement/replacement rate), however benefits are compounded over time as the average education level rises.
- Educational improvement is an incredibly powerful driver of economic output, but due to the deferred nature of results, cannot be the only driver of growth for a modern economy.
Does educational improvement lead to better economic outcomes?
Relatively modest gains in educational quality lead to significant multiplier effects in the long-run. It has been estimated that 13% of the growth rate of U.S. national income between 1929 and 1982 was caused by increases in the level of education obtained by U.S. residents. A commonly accepted baseline for expected GDP growth, under current education policy, is projected to be 1.5% per year by the Congressional Budget Office.
By improving Pennsylvania’s position within national rankings by only ¼ of a standard deviation over ten years, Pennsylvania and Philadelphia could see massive impact on the growth of the economy. This improvement would be the equivalent of going from the last ranked state (50th) in the country to 41st in the rankings, or from 8th best state to becoming the top ranked state (based on 2015 data). As a point of reference, Pennsylvania is 15th in terms of 8th Grade Mathematics in the 2017 rankings (via NAEP). This improvement was chosen by the authors of the study we reviewed as the authors observed at least 14 states that made a similar sized improvement over the last two decades.
Making this modest improvement over a ten-year period in Pennsylvania would improve our expected annual growth rate from 1.5% to 5.6%. Based on Pennsylvania’s 2017 GDP of $531.1 billion, that 5.6% annual increase means adding just shy of $30 billion to the economy in an average post-reform year. When added together over the career of a student cohort (in this case estimated at 80 years), the return on this modest improvement is 2.6 times state GDP, or over $1 trillion more than the current education policy scenario.
One way to accelerate the compound benefit over time is starting with early interventions such as Pre-K programs. A study from the Pennsylvania Department of Education showed investments in quality pre-k programming return approximately $7 for every taxpayer dollar invested. And when the benefits of increased tax revenue are combined with reduced welfare spending, investment in quality pre-kindergarten programs return up to $17 for every dollar spent. Additionally, helping students be more productive early in their education will lead to compounded benefits over the life of their cohort. As shown in Figure 2 below, there is exponential return on earlier investment as improvements compound over time.
What is the timeline for impact measurement of education policy reform?
Education policy reform is not instantaneous. One study projected improvements over a ten-year period, assuming linear growth among students that yielded the full benefit at the end of year ten. Another suggested that improving the quality of the average teacher is best achieved through hiring and retention or dismissal policies, as in-service trainings and other interventions have not been as effective. They provided an analysis assuming a 7% turnover rate combined with the average new teacher hire averaging performance in the 56th percentile, which led to significant improvement after 20 years of implementation. If the turnover rate is increased to 14% through changes in policy or perception of the profession, significant student improvement can be obtained in ten years.
This improvement is different from the improvement in the labor force, which can only improve as less educated workers retire and more educated workers begin their careers. Estimating a 2.5% retirement and replacement rate for more educated students, implying the ultimate quality of the labor force is achieved over 50 years (10 years of reform followed by 40 years of retirements).
How might we measure, and improve, school quality?
For the purposes of this memo, when quality is referenced, it is specifically defined as scores on standardized tests in mathematics and science administered by IEA (International Association for the Evaluation of Educational Achievement), an international cooperative of national research institutions, government research agencies, scholars and analysts working to evaluate, understand and improve education worldwide. Research using this data and including factors such as school resources and externalities (parental involvement, for example), showed significant differences in economic impact.
There is a lack of any consistent or systemic effect of resources on student achievement or school quality. That is not to say resources are irrelevant. In many urban school districts, such as Philadelphia, resource levels and quality of environment can vary drastically from school to school. If dangerous and unhealthy conditions exist, improvement will be hampered regardless of quality or quantity of other inputs. In these cases, whether by increasing resources or simply reallocating existing spending, addressing these issues should come first. On the other hand, there clearly are situations where small classes or added resources have an impact. It is just that no good description of when and where these situations occur is available.
By many accounts, the quality of teachers is the key element to improving student performance. But the research evidence also suggests that many of the policies aimed at improving performance that have been pursued around the world have not been very productive. This issue can be compounded by the issues mentioned above relating to school quality. If teachers are lacking the very basic resources and safe, healthy work environments expected in any career, they will likely be less effective and/or consider leaving the school, district, or even the profession should issues persist.
According to Eric Hanushek, who has done extensive research in this area, the most feasible approach to improve teacher quality is to experiment with alternative incentive schemes. These might involve new contracts and approaches to teacher compensation, introduction of parental choice across schools, merit awards for schools, etc. The unifying theme is that each should be designed to improve student achievement directly. For example, merit awards to teachers would be directly linked to objective information about student performance. While this may be very challenging to implement in the short-term, many cities have taken up the mantel and are moving towards invaluable reform (Hanushek, et al Economic Outcomes).
What have other cities done to reform their schools? Is there a model for Philadelphia to emulate?
Boston, Chicago, Cincinnati, Minneapolis, and New York City are all examples of districts that have adopted rigorous content and performance standards and have aligned the curricula, instruction, and other aspects of their systems to those standards. They have used data, including comprehensive student information management systems, to guide their decisions and have emphasized professional development for teachers and principals. They have relied on frequent formative assessments. They have also developed a culture of learning and collaboration among teachers. But districts have taken very different routes even to making these sorts of changes—and these differences reflect marked differences in their circumstances.
Urban school districts, which frequently have high concentrations of students at risk for school failure, are at the forefront in the challenge of defining and ensuring equity, and many have also been pioneers in school reform. Low levels of achievement, struggles to recruit and retain both effective teachers and administrators, and the needs of families in high-poverty neighborhoods are among the challenges that face these districts. In short, the literature on district reform suggests that a district can be a strong agent for reform and that districts that have achieved improvements share several attributes:
- a systemwide approach in which policies and practices are aligned;
- strong support and professional development for both teachers and administrators;
- clearly defined expectations for students and teachers, combined with a strong emphasis on improvement; and
- reliance on data to support instructional decisions and for accountability.
Conclusion / Recommendations
Improving school quality will lead to significant economic impact on the city of Philadelphia. Specifically, this type of growth would be inclusive, assuming consistent policy applied to the School District of Philadelphia. Educational advance can contribute directly and indirectly to economic growth. In direct cases, by increasing the human capital and thus the productivity of the workforce. In the indirect, by increasing the rate of innovation and adoption of new technologies. Both are central to Philadelphia’s future as a world-class city.
When considering the deferred benefit timeline, education alone cannot drive our economy. Philadelphia must continue to spur business activity through proven policy measures until the multiplier of education is reached. Philadelphia would also benefit from the continued attraction of talented individuals and firms from outside the city and region.
Sources:
Golden, Claudia, and Lawrence Katz. “The Legacy of U.S. Educational Leadership: Notes on Distribution and Economic Growth in the Twentieth Century.” Scholar.harvard.edu, National Bureau of Economic Research, 2018.
Hanushek, Eric A. Economic Outcomes and School Quality. International Institute for Educational Planning, 2005.
Hanushek, Eric, et al. “Economic Gains for U.S. States from Educational Reform.” NATIONAL BUREAU OF ECONOMIC RESEARCH, 2015, doi:10.3386/w21770.
Hanushek, E. A., & Kimko, D.D. (2000). Schooling, labor force quality, and the growth of nations. American Economic Review, 90(5), 1184-1208.
Hungerford, Thomas L, and Robert W Wassmer. K-12 Education in the U.S. Economy. National Education Association, 2004, pp. 1–48, K-12 Education in the U.S. Economy.
Mitra, Dana. Pennsylvania’s Best Investment: The Social and Economic Benefits of Public Education. Education Law Center, 2011, pp. 3–31, Pennsylvania’s Best Investment: The Social and Economic Benefits of Public Education.
NAEP. “NAEP Report Cards – Home.” The Nation’s Report Card, 2017, http://www.nationsreportcard.gov/.
National Academies Press. A Plan for Evaluating the District of Columbia’s Public Schools: From Impressions to Evidence. National Academies Press, 2011.
Joe Buckshon 