Better Schools, Better Economies

What would happen to the GDP if states started investing more heavily in education?

Mike Groll / Reuters

The benefits of a better education are most often discussed in terms of personal gain: higher wages, greater economic mobility, and generally, a better life. But not all the benefits are private: Local economies flourish when there are more skilled and productive workers.

That’s the conclusion of the economists Eric A. Hanushek of Stanford, and Ludger Woessmann and Jens Ruhose of the University of Munich, whose new paper from the National Bureau of Economic Research takes a look at the financial return for states who invest in improving the quality of K-12 education. They find that the payoff can be significant.

In order to figure out the economic impact of improving primary and secondary education, the economists look at the relationship between school quality (in the form of academic achievement and test scores) and human capital, which is the economic measure of workers’ total abilities, skill sets, and work quality. They argue that other measures, such as average years of schooling and educational attainment, are inadequate, largely because such assessments don’t take into account the quality of schools and thus are blind to the actual quality of skills and competencies learned there.

Using data from other countries and from the National Assessment of Educational Progress, the authors built a model that predicts the economic effects of improving education. According to their model, if all students in the U.S. could be brought up to basic mastery as defined by NAEP, the U.S. GDP would increase by $32 trillion, or 14.6 percent. A more aggressive approach that brings all students up to the average test scores of the highest-achieving states could boost GDP by $76 trillion over the next several decades. The authors note that in 2010, spending on K-12 education by states and localities amounted to only about 4 percent of the total GDP, suggesting that the economic growth afforded by improvements in education would certainly outweigh the cost.

Of course, in some places getting students to even that basic level will be an enormous—and costly—challenge. In states like Mississippi, Alabama, Louisiana, New Mexico, Hawaii, and California, where test scores are the lowest, the cost will be high, but so is the potential economic growth. Bringing all students up to the basic-mastery level would mean quadrupling the GDP of those states.

The researchers acknowledge that proving cause and effect when it comes to education reform and economic productivity can be difficult, and that in turn can make reform a hard sell. And politics aside, reform is a tricky endeavor that requires governments, families, and educators to agree upon change to the educational system, and then prioritize them.  The changes Hanushek, Woessmann, and Ruhose are talking about aren’t out of reach. Their baseline scenario, the one that involves pushing all students toward average achievement, requires test scores to improve only one-quarter of a standard deviation in a decade—progress that’s in line with the performance trajectories of nearly 30 percent of states. And while education reform is often a state-by-state decision, the ease of mobility for students and workers, and interdependence of states and their economies on each other, means that improving schools shouldn’t just be a local issue, it should be a national one.