Every State's Economic Future Lies with School Reform

Key Points

A key element of any successful economy, whether a nation or a state, is the quality of its workforce.
The economic gains to each state from improving its schools are enormous and justify significant changes in state policies.
Simply increasing funding for schools, one oft-proposed solution, is unlikely to lead to increased academic performance unless more attention is given to how money is spent. If improvements are to be realized, existing incentives for teachers and leaders must be changed instead.

Introduction

Education has long been thought of as an important component of any economic development strategy. Because of the central role of workers’ skills in local economies, people have always looked to schools to promote development. This attention is without doubt correctly placed, at least if proper attention is paid to quality issues.

Recent research highlights two dimensions to this discussion. First, there has been growing and correct appreciation of “high-quality” education. It is possible to push up graduation rates if there is no regard for graduates’ skills and achievements, but if workers’ skills are not appropriate for the modern economy, this solution will not be sufficient for economic development. Second, the relative quality of workers is an important element in explaining state income differences and determining future economic growth rates.

We know that workers’ cognitive skills are a dominant factor in international differences in income and long-run growth.¹ Importantly, recent extensions of this to economic outcomes across states shows the same dependence on a highly skilled workforce.²

One of the further implications of this research into the economic circumstances of states is that there is a clear metric for development: the measured achievement of workers, which in turn reflects the performance of schools. A corollary of this is that states should place their policy emphasis on improving schools. Even states that have historically faced a high rate of outmigration of skilled people can parochially benefit economically from improved schools because sufficient numbers of their own students will remain.

The route to this improvement will of course be difficult, but we also know that it is possible. Many past efforts have failed, but some states have done noticeably better than others and provide a guide to improvement. For example, we know that simply spending more on schools without changing policies and incentives has not been a successful strategy. How educational funds are spent proves to be more important than how much is spent.

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Notes

Eric A. Hanushek and Ludger Woessmann, The Knowledge Capital of Nations: Education and the Economics of Growth (Cambridge, MA: MIT Press, 2015).
Eric A. Hanushek, Jens Ruhose, and Ludger Woessmann, “It Pays to Improve School Quality: States That Boost Student Achievement Could Reap Large Economic Gains,” Education Next 16, no. 3 (Summer 2016): 16–24; Eric A. Hanushek, Jens Ruhose, and Ludger Woessmann, “Economic Gains from Educational Reform by US States,” Journal of Human Capital 11, no. 4 (Winter 2017): 447–86; and Eric A. Hanushek, Jens Ruhose, and Ludger Woessmann, “Knowledge Capital and Aggregate Income Differences: Development Accounting for U.S. States,” American Economic Journal: Macroeconomics 9, no. 4 (October 2017): 184–224.