The Debate is Over: Money Matters in Education

For decades politicians and researchers have argued about whether money makes a difference in education. The funding increases recommended by the Gonski review of school funding brought these arguments to the fore again.

Opponents of Gonski claimed that spending more money on public schools will not improve student results. For example, the National Commission of Audit report said that there is “no clear, consistent correlation….between increased funding and school outcomes”. However, such claims are based on a highly selective reading of the research evidence.

The most commonly cited study for claims that spending more on schools does not improve student results is a review of research studies by Professor Eric Hanushek from Stanford University. His 1986 paper is still one of the most widely cited papers on the economics of education.

What is largely ignored, however, is that Hanushek’s finding was refuted by two re-analyses of his review. One re-analysis by academics from the University of Chicago criticised the methodology he used to synthesize results across studies as having “low statistical power” which made his conclusion “particularly suspect”.

This re-analysis adopted a more powerful analytic method and found that the vast majority of studies with statistically significant effects show a robust positive relationship between expenditure per student and student achievement. It concluded: “…we find that money does matter after all”.

Another re-analysis by Alan Krueger, Professor of Economics at Princeton University and later Chairman of President Obama’s Council of Economic Advisers, criticised Hanushek’s methodology as placing a disproportionate weight on a small number of studies that used small samples and mis-specified statistical models. He also concluded that money matters.

In a later synthesis of some 60 studies, the Chicago University researchers confirmed their previous finding that increases in expenditure has a significant positive impact on student achievement. Other extensive reviews of the academic literature have also found a positive relationship between funding and school outcomes.

Many more recent studies have reached the same conclusion. They include studies on several US states, including repeated studies of school finance reform in Michigan and Massachusetts, and several UK studies.

The effect is small in some studies while in others it is larger; in some the effect is larger in primary schools than secondary schools; in some additional funding appears to matter more for some students than others; and in others some forms of expenditure have a greater effect than others.

There have also been a number of cross-country studies on the relationship between school funding and international test scores. These have produced mixed results with some finding that increased funding leads to improvements in student results and others finding a weak relationship. However, even Professor Hanushek says that cross-country studies have to be interpreted cautiously because of the highly aggregated data and the likelihood of unobserved country differences which may affect the findings.

There is even more evidence that money matters in reducing education disadvantage. Many studies in the UK, the US and Europe have found that increased school funding for disadvantaged students leads to better school results. Findings from the OECD’s PISA studies show that the most successful education systems target resources to disadvantaged students.

Even studies that found a weak impact of funding increases on general student outcomes have found much larger effects on the outcomes of disadvantaged students. Some show that the effect for disadvantaged students is two to four times that for other students.

Clearly, those who claim that increasing expenditure on schools makes no difference to student results have not fully read the research, but rely on a few, selective and misleading studies. One of the most comprehensive recent analyses of the relationship between school resources and outcomes concluded:

“The conclusion that money doesn’t matter is not correct, and fiscal conservatives and opponents of fiscal equalization should not take comfort from the complexities of an improved approach to school resources.”

However, while money matters in education it is also generally acknowledged that how it is spent is just as important. For example, the Deputy Director for Education at the OECD, Andreas Schleicher, recently said: “How resources are allocated is just as important as the amount of resources available”.

Rather than continue to debate whether money makes a difference, the focus should be on better understanding the ways in which money and other school resources can be brought to bear most effectively to improve results for disadvantaged students. There is a wealth of evidence to draw on, particularly from the database established by the OECD.

But, this discussion is being held back by Federal Government’s refusal to deliver the full Gonski. The debate about whether money matters in education has been adjudicated. The evidence clearly shows that Gonski got it right – increasing funding for the most disadvantaged students is the way to promote higher and more equitable educational outcomes.

Trevor Cobbold

This article was published in The Age on 28 July.

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