Study Shows Beneficial Effects of Increased Expenditure on Pre-School and Schools

A new study published by the prestigious US National Bureau of Economic Research has found that increased expenditure on disadvantaged pre-schoolers and disadvantaged schools improves school results and life outcomes. It shows strong synergies between increased expenditure on pre-school programs and school education. While spending of either type improved academic outcomes to some degree, access to both resulted in a dynamic complementarity that offered far greater long- term benefits. The findings suggest that early investments in the education of disadvantaged children that are followed by sustained educational investments over time can effectively break the cycle of poverty.

The study found that increases in expenditure on Head Start, a large US pre-school program for children from families below the poverty line, and increases in expenditure on public schools each individually increased years in education and earnings, and reduced the likelihood of both poverty and being imprisoned in adulthood for low income students. The benefits of Head Start expenditure were larger when followed by access to better-funded public schools, and the increases in school expenditure were more efficacious for low income children who were exposed to higher levels of Head Start spending during their pre-school years.

The study found that increasing expenditure on Head Start by $1,000 (about a 25% increase) per low income four-year-old increases years in education by 0.096 years, increases adult wages by 1.9%, and reduces the likelihood of adult incarceration by 0.75 percentage points for a low income exposed to an average level of school expenditure.

It also found that a 10% increase in expenditure per student in public schools has similar positive effects for low income students in terms of years in education, educational attainment, adult wages, and incarceration when the students were exposed to an average level of Head Start spending. A 10% increase in expenditure increases years in education by 0.24 years, increases the likelihood of high school graduation by 5.9 percentage points, increases wages by 9.3% and reduces incarceration by 12 percentage points.

In contrast to the large effects for poor children, increasing Head Start spending has very small, insignificant effects on non-poor children exposed to average levels of school spending. This indicates that there are no spillover effects of Head Start spending on non-poor children. The increase in school expenditure on non-poor students of 10% increases years of education by 0.2 percentage points and earnings by 11.7%.

In sum, increases in Head Start spending improve the adult outcomes of poor children and have no effect on the outcomes of non-poor children. In contrast, increases in K12 spending improve the adult outcomes of both poor and non-poor children. [p.27]

The study also investigated the effects of interaction between spending increases on Head Start and public schools. It found that, at the 75th percentile of the school spending distribution, a $1,000 increase in Head Start expenditure increases the years in education by 0.22 years, increases the likelihood of high school graduation by 4.7 percentage points, increases wages by 5.6%, and reduces the likelihood of incarceration by 2.2 percentage points (after accounting for the direct effect of higher levels of school spending). The dynamic complementarities are such that the effects of increases in Head Start spending are more than twice as large at schools where expenditure is at the 75th percentile of the spending distribution than at the 25th percentile.

Among low-income children exposed to Head Start spending at the 75th percentile of the spending distribution, the 10% increase in spending on public schools increases years in education by 0.35 years, increases the likelihood of high school graduation by 8.5 percentage points, increases earnings by 13%, and reduces the likelihood of incarceration by 15 percentage points. The marginal effect of the same increase in school spending is almost twice as large when Head Start spending is at the 75th percentile than at the 25th percentile.

The positive interaction effects between Head Start and school expenditure are robust across several statistical models. However, they are only present among children from low-income families. The effects of increased school expenditure have similar positive effects for poor and non-poor students but the effects of Head Start expenditure are very different (as expected, given the nature of the program).

The study also found that its estimated effects are not confounded by dynamic complementarities with other policies, that is, the impact of funding increases on Head Start and public school is unrelated to other childhood, family, community, or policy changes.

The study concludes that the key policy implication of its findings is that investments made in, and sustained throughout, stages of education (pre-school; elementary/middle school; high school) generate greater returns than separate, isolated, short-lived reforms not sustained beyond the year in which they are implemented.

The findings point to the critical role early-life investments can play in narrowing long-run gaps in well-being, but they also highlight the importance of sustained investments in the skills of disadvantaged youth. [p.38]

The new study adds to a wealth of research evidence showing that increased funding targeted at disadvantaged schools improves education results. It is the sixth major study in the last 18 months to show this. Many previous studies made the same conclusion.

Disadvantaged students in Australia continue to lag the learning achievement of their advantaged peers by about three years. Australia has failed to make any progress in reducing this gap because funding increases over the past 15 years or more have strongly favoured private schools even though over 80% of disadvantaged students are enrolled in public schools.

The fallacy in the argument that increased funding in Australia has not delivered better results is that those funding increases have gone to more advantaged schools rather than disadvantaged schools. Funding per student adjusted for inflation for private schools has increased since 2009 but funding per student in public schools, which enrol over 80% of disadvantaged students, has been cut. No wonder we are not seeing the benefits of the increased funding – it has been misdirected to those least in need.

The Turnbull Government’s Gonski 2.0 funding plan will deliver larger funding increases to private schools over the next decade. The majority of private schools will be over-funded while public schools will be under-funded.

The new NBER study shows that Australia must overturn Gonski 2.0 if we are to make progress in improving school results for disadvantaged students and reduce the massive inequality in school outcomes. We need a new Gonski PLUS funding model that delivers large funding increases for disadvantaged students and schools.

Trevor Cobbold

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