More Evidence That Better School Results Increases Economic Growth

A study published by the US National Bureau of Economic Research this week shows that bringing all students up to a basic level of education increases work force skills and economic growth. It adds to the substantial weight of international and Australian evidence that increasing student achievement increases economic growth.

The study analysed the economic implications of improved educational achievement and estimated how economic development would be altered by school improvement in individual US states. It estimated that if all US students achieve a basic education within ten years this would increase GDP in 2095 by 14.6 per cent and increase long-run economic growth by 0.24 per cent a year. GDP in 2095 would be 1.8 times higher than in 2015.

The study also investigated the economic effect of several other scenarios. For example, bringing the average achievement of US students up to the level of Finland within ten years would increase GDP by 42.6 per cent in 2095 and long-term economic growth by 0.62 per cent a year.

It concludes that:

….there is a huge economic incentive for each state to improve its schools. Improved schools lead naturally to higher skilled workforces, and the impact of skills of the workforce is clear and strong. [p.26]

The strong implication is that “the future economic well-being of the U.S. depends on improvement of the American schools…” [p.27].

The study adopted the definition of ‘basic skill level’ used for the National Assessment of Education Progress tests which is “partial mastery of prerequisite knowledge and skills that are fundamental for proficient work at each grade”. In 2011, 27 percent of students in the US were below the basic level. Ensuring that all students achieve the basic skill level within ten years is consistent with the historical improvements made in many US states.

The study also found that the estimated gains in GDP would on average pay for all of school education across the states and yield extra returns that could both deal with any current fiscal problems of the states and make the citizens better off.

While estimating the gains from increased student achievement over 80 years seems a long time, the study notes change in education achievement takes time and the impacts of improvements on workforce skills takes a considerable time to be realised. Improving the performance of today’s students does not lead to an improved labour force until these students have left school and entered into employment and until more skilled workers become a significant portion of the labour force. Under the assumptions used in the study, the labour force does not fully reach its ultimate quality for 50 years (10 years to achieve the improvement in education achievement followed by 40 years of retirements).

The results of the study are consistent with those of cross-country studies that also show that improvements in student achievement have strong effects on economic growth. There is also strong evidence of causality between achievement and increases in growth. The study notes that  “…the combined evidence consistently points to the conclusion that differences in cognitive skills lead to significant differences in economic growth” [p.9].

Studies show similar large effects of increased student achievement on economic growth in Australia. An OECD report published earlier this year showed that bringing all students in Australia up to the basic skill level in mathematics and science by 2030 would increase GDP in 2095 by 10 per cent and long-run economic growth by 0.18 per cent a year. GDP in 2095 would be 1.2 times higher than in 2015.

At present, 18 per cent of Australian students do not achieve basic skill levels. Bringing all students up to this level would require an average increase of only nine points on the OECD’s PISA tests for mathematics and science. Such an improvement is entirely feasible as Australia’s mathematics results declined by 20 points between 2003 and 2012 and its science results declined by seven points between 2006 and 2012.

The OECD report also showed that increasing Australia’s mathematics and science results by 25 PISA points by 2030 would increase current GDP by 29 per cent by 2095 and long-term economic growth by 0.49 per cent a year. GDP in 2095 would be 3.35 times higher than in 2015.

Several Australian studies have also shown that increasing years of schooling is significantly associated with higher average annual growth rates in GDP. For example, a 2010 study by the Australian Bureau of Statistics found that the increase school participation by 15–18 year olds between 1986 and 2006 increased GDP by 15-23 per cent. The Productivity Commission has estimated that an increase in the average level of schooling of the workforce by one-quarter of a year would increase productivity by about 1.2 per cent. Earlier studies found that an extra year of schooling contributed between 0.3 and 0.8 percentage points to annual long run economic growth in Australia.

The new US study adds to the extensive international and Australian evidence that better school results in the form of higher student achievement and increases in the average years of schooling has a significant economic impact. It increases workforce skills, productivity and economic growth. Investing in school education has a big economic return.

Given that Australia’s international test results in mathematics and science have fallen in recent years and the compelling evidence of the economic benefits of more investment in education, it is somewhat bewildering that the Turnbull Government’s innovation statement released on Monday virtually ignores school education.

The statement says that ensuring students have the skills to equip them for the workforce of the 21st century is critical to maximising Australia’s productivity, and ensuring economic and social well-being in an increasingly STEM-based and digital economy. However, it proposes spending a miserly extra $100 million on school education over five years from 2016-17, comprising $48 million on prizes and competitions in science and mathematics and $51 million on digital literacy programs.

The proposed increase is farcical. It amounts to only $20 million a year or $54 per student a year. It represents only one per cent of the increase in Gonski funding planned by the Gillard/Rudd governments over the three years from 2016-17 to 2018-19. It will do little to reverse Australia’s declining maths and science results.

Trevor Cobbold

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