Increased school funding brings large improvements for low income students in high school graduation rates and educational attainment, wages, family income, and reductions in adult poverty according to a study published by the US National Bureau of Economic Research. It also found that these effects were dependent on how the increased funding was spent.
The study found that a ten per cent increase in per-student spending each year for all 12 years of public school extends the schooling of low income students by nearly half a year. It increases their adult earnings by nearly ten per cent and family income by 16 per cent. The annual incidence of adult poverty is also reduced by seven per cent. These benefits, it said, “are large enough to justify the increased spending under most reasonable benefit-cost calculations” [p. 40].
In addition, it found that a 23 per cent increase funding would be sufficiently large to eliminate the attainment gaps between students from low- and high-income families.
The study concluded that its results provide compelling evidence that money does matter in education:
The results…. highlight how improved access to school resources can profoundly shape the life outcomes of economically disadvantaged children, and thereby significantly reduce the intergenerational transmission of poverty. [p. 39]
This conclusion is in sharp contrast to the assertions of the Federal Minister for Education and the Audit Commission that increased funding for schools does not improve outcomes. The provision of adequate funding is a necessary condition for improving student outcomes and reducing the intergenerational transmission of poverty.
The study also investigated how different types of education spending affect school and subsequent adult outcomes. It found that the spending increases were associated with a reduction in the student-to-teacher ratio, longer school years, and increased teacher salaries. This suggests, it says, that reductions in class size, increases in instructional time and improvements in teacher quality improve student outcomes.
….the results suggest that the positive effects are driven, at least in part, by some combination of reductions in class size, having more adults per student in schools, increases in instructional time, and increases in teacher salary that may have helped to attract and retain a more highly qualified teaching workforce. [p. 39]
It therefore concluded that how extra funding is used is also important:
….we find that how the money is spent may be important. As such, to be most effective it is likely that spending increases should be coupled with systems that help ensure spending is allocated toward the most productive uses. [p. 41]
The study investigated the effects of changes in per student expenditure following legislated school finance reforms during the 1970s and 1980s by tracking the long-run educational and economic outcomes of over 15,000 children into adulthood up to 2010. It compared spending increases and student outcomes in school districts before and after school finance reforms with those in states that did not implement reforms.
The relationship was only apparent for children from poor families. The study found little to no effects of increased school spending on school outcomes for children from non-poor families or on their adult earnings.
The Federal Government has walked away from full implementation of the Gonski funding increases. Its justification is that increasing school funding does not increase student results. The new study shows that this is mistaken. Increased funding is fundamental to improving school outcomes for disadvantaged students.
C. Kirabo Jackson, Rucker C. Johnson, Claudia Persico, The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms. Working Paper No. 20847, National Bureau of Economic Research, Chicago.