Does Money Matter after All?

Considerable prior research has failed to find a consistent relationship between school spending and student performance, making skepticism about such a relationship the conventional wisdom. Given that skepticism, new studies that purport to find a systematic relationship between school spending and student performance get disproportionate attention.

There is in fact great demand for results linking funding with favorable outcomes. Knowing that a strong relationship existed would mean that policy makers outside of the schools – legislatures, governors, and courts – only have to concern themselves with how much money was provided to schools and not with how money was used. And, meeting our education challenges by providing more money appears from history to be easier than pursuing more fundamental changes in schools.

Kirabo Jackson, Rucker C. Johnson, and Claudia Persico offer a new study suggesting that a clear money-performance relationship exists if you just look in the right place. Their overarching conclusion is that “methods matter.” Their discovery of a money-performance relationship is attributed to analyzing the effects of spending that emanates from court decisions (exogenous variation in spending), tracing the effect of this spending to long run outcomes (completed schooling and wages), and focusing on the right subgroup (disadvantaged students).

From a methodological viewpoint, details are important here. How court decisions are dated given long and repeated legal involvement in many states; how the spending reaction to court decisions is measured; whether the court decisions are unrelated to the character of schools before court involvement; and how court-mandated spending differs from other increased spending are a few of the details. Nevertheless, while these are important methodological issues, it is more useful to focus on the substance of their findings.

Jackson, Johnson, and Persico reach the following conclusions about the impact of a 10 percent increase in spending for all 12 years of schooling: 1) It would increase years of schooling by 0.44 years for poor children and by an insignificant 0.075 years for non-poor children, implying that a spending increase of 22.7 percent would eliminate the average education gap; 2) It would increase high school graduation rates by 11.6 percentage points for poor children and 6 percentage points for non-poor children; 3) It would increase subsequent family incomes by 16.4 percent for poor children and zero for non-poor children; 4) It would reduce subsequent adult poverty rates by 6.8 percentage points for poor children and zero for non-poor children.

Their analysis covers schooling experiences for the period 1970-2010. Thus, it is useful to connect these estimates to actual funding patterns over the period. Between 1970 and 1990, real expenditure per pupil increased not by 10 percent but by over 84 percent. By 2000, this comparison with 1970 topped 100 percent, and it reached almost 150 percent by 2010. No amount of adjustment for special education, LEP, or what have you will make these extraordinary increases in school funding go away.

If a ten percent increase yields the results calculated by Jackson, Johnson, and Persico, shouldn’t we have found all gaps gone (and even reversed) by now due to the actual funding increases? And, even with small effects on the non-poor, shouldn’t we have seen fairly dramatic improvements in overall educational and labor market outcomes? In reality, in the face of dramatic past increases in school funding, the gaps in attainment, high school graduation, and family poverty have remained significant, largely resisting any major improvement. And, the stagnating labor market performance for broad swaths of the population has captured considerable recent public and scholarly attention.

What could reconcile these apparent inconsistencies? Here are some possibilities:

There might be sharply diminishing returns to spending so that their estimates apply most clearly in 1970 when spending (in 2011-12 $’s) was just $4,500 as opposed to 2010 when spending was $11,000. Thus, by implication, spending today might be expected to have a much smaller impact than they estimate.

Only spending induced by the courts might have the large impacts they identify, with spending not related to judicial rulings having a negligible impact. The likelihood of this is a little questionable since, with a few exceptions such as NJ and WY, the courts have done little to look into how any legislature responds in terms of specific spending programs. But, if true, normal spending increases by state legislatures and by local taxpayers would not be expected to have any impact on outcomes.

The estimates of Jackson, Johnson, and Persico might simply be very wrong.

Maybe there are other ways to reconcile the Jackson, Johnson, and Persico estimates with the aggregate data on spending and outcomes. But in the end they themselves state what is now commonly accepted: How money is spent matters. Indeed, by simple consideration of their evidence, how money is spent is more important than how much is spent.

Of course, it is always important to recognize that none of this discussion suggests that money never matters. Or that money cannot matter. It just says that the outcomes observed over the past half century – no matter how massaged – do not suggest that just throwing money at schools is likely to be a policy that solves the significant U.S. schooling problems seen in the levels and distribution of outcomes. We really cannot get around the necessity of focusing on how money is spent on schools.