It Pays to Improve School Quality: States That Boost Student Achievement Could Reap Large Economic Gains

LAST YEAR, Congress passed the Every Student Succeeds Act, supplanting No Child Left Behind and placing responsibility for public school improvement squarely upon each of the 50 states. With the federal government's role in school accountability sharply diminished, it now falls to state and local governments to take decisive action. Large economic benefits should accrue to states that take advantage of this new flexibility. When students learn more in school, they remain in the educational system longer and become more skilled and effective participants in the state's workforce. While some graduates will migrate to other parts of the country, a majority will join the labor market in their own states, thus contributing directly to their economic strength. Over the long run, each state stands to receive an extraordinary rate of return on successful efforts to improve school quality. Even though most education policy debates have focused on school quality and student achievement, most research on the economic impact of schooling has focused narrowly on the number of years students remain in the educational system. This metric is not an adequate measure of student achievement and thus not a reliable indicator of economic impacts: it hardly matters how long one sits at a school desk if one learns little while occupying that seat. Recently, mounting evidence has suggested that measures of individual cognitive skills that incorporate dimensions of test score performance provide much better indicators of economic outcomes while also aligning the research with the policy deliberations. The importance of including direct measures of achievement is especially apparent when looking at differences in economic growth across states. In this essay, we document the long term economic impact of a state's student achievement levels, which in turn permits us to calculate the economic returns from school improvement. First, we show that in the 40 years between 1970 and 2010, the spread among the states in their per capita gross domestic product (GDP) widened considerably. Next, we show that the level of student achievement is a strong predictor of the state's growth rate in GDP per capita over that time period, even after accounting for both the standard measure of school attainment and other economic factors. Finally, we project for each state the large positive impact that improvements in student achievement would have on a state's GDP  Any state political leader of vision would do well to make school quality a high priority. The Wealth of States States vary sharply in the size of their per capita GDP, that is, the total value of goods and services produced within a given year divided by the number of residents. In 2010, the wealthiest state, Delaware, enjoyed a per capita GDP that was twice that of the poorest state, Mississippi  Geographical and historical factors account for some of this variation among the states, but the discrepancies have grown over time. Importantly, the rate at which state GDPs have increased differs widely: for example, the per capita GDP of North Dakota, the most rapidly growing state between 1970 and 2010, increased annually at a rate of 3.0 percent, while Nevada's rate of increase was just 1.2 percent, the least of any state during this time period. The spread among the states has remained wide and grown in absolute terms over the past several decades. In 1970 the spread between the 10th and the 40th state in the distribution was about $5,000 per capita in 2005 dollars, but by 2010 it had increased to nearly $12,000 per capita. Knowledge Capital vs. School Attainment Economists have long used the term human capital to refer to the skills individuals possess that have economic value and that pay off in the labor market. But their nearubiquitous reliance on school attainment to measure individual skill differences has made years of schooling virtually synonymous with human capital.