Researchers Gain Insight Into Education’s Impact on Nations’ Productivity

By Debra Viadero — April 22, 2008 9 min read
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A key assumption underpinning the report of the National Commission on Excellence in Education back in 1983 was that America’s economic well-being was intimately tied to the quality of its schools. While that idea made sense, it was still largely unexamined by solid research.

So critics of A Nation at Risk and the viewpoint it embodied had a field day, years later, when the U.S. economy—seemingly oblivious to the warnings in the commission’s famous report—boomed in the face of growing global competition.

“If our students are so bad,” one Newsweek columnist asked in 1998, “why is the economy so good?”

Today, a mounting database of results from international studies has made it possible for researchers to start exploring the relationship between education and economic growth in much more systematic ways.

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No study has yet nailed down such a link. But many newer studies suggest that, while educational quality isn’t the only force driving national economic growth, it’s still an important one.

“What we discovered gives credence to the concerns of A Nation at Risk,” write economists Eric A. Hanushek, Dean T. Jamison, Eliot Jamison, and Ludger Woessman in the most recent of those studies, which appeared last month in Education Next, an opinion and research journal published by the Hoover Institution. “A highly skilled workforce can raise economic growth by about two-thirds of a percentage point a year.”

Most economists acknowledge, though, that economic growth stems from many factors, including the degree to which countries protect property rights, reward innovation, or open their borders to international trade. Where they disagree is over the extent to which education and all of those other factors matter in accounting for a nation’s economic success.

“At the individual level, there’s little question that education has a positive impact, on average,” said Alan B. Krueger, a professor of economics and public affairs at Princeton University. “It gets murkier at the national level, when you look across countries.”

GDP and Scores

In the new study in the March edition of Education Next, Mr. Hanushek and his colleagues base their conclusion on an analysis of results from 12 cross-national mathematics and science tests taken by 50 countries, including the United States, between 1964 and 2000.

Because the number of countries participating in the tests changed from one test administration to another, the researchers needed a common metric with which to compare student achievement across countries.

Since the United States took part in every one of those international tests, the researchers used the National Assessment of Educational Progress, a congressionally mandated program that has tested samplings of students in this country since 1969, to provide that common statistical link. The next step was to compare growth in test scores to growth in each country’s gross domestic product, or GDP.

What the researchers found was that countries with higher average test scores experienced more of a boost in GDP than did lower-performing nations.

“If one country’s test-score performance was .5 standard deviations higher than another country during the 1960s—a little less than the current difference in the scores between such top-performing countries as Finland and Hong Kong and the United States—the first country’s growth was one full percentage point higher annually over the following 40-year period than the second country’s growth rate,” the study says.

That’s a much bigger boost than previous studies identified from comparing economic growth among countries against their citizens’ average number of years of schooling, which is a more common yardstick for this sort of study.

Economic Benefits of Reform

If U.S. students had become best in the world in math and science by 2000, a decade after governors set that goal, the economic benefits to the nation would have likely equaled the cost of K-12 schooling by 2015, a study argues.


SOURCE: Education Next

“You get paid for what you know,” Mr. Hanushek, a senior fellow at the Hoover Institution, a think tank based at Stanford University, said in an interview. “It’s not just this vague concept that people ought to go to school more.”

The impact is also stronger, he found, for nations with “open economies”—that is, countries that are more open to trade or external influences and freer of government involvement in corporate activity.

The peer-reviewed study is not without its detractors, though. One of them, Gerald W. Bracey, an independent researcher, policy analyst, and writer based in Alexandria, Va., argues that standardized tests are a poor measure of educational quality. That’s because, he says, they fail to measure other human characteristics important to productivity that good schools can instill in students—qualities such as creativity, critical thinking, and perseverance, for example.

Mr. Bracey also raised concerns about the reliability of results from the earliest international studies, some of which were later found to suffer from sampling flaws.

Mr. Hanushek and his research partners are not the first to use international tests as a measure of educational quality in deciphering the relationship between schooling and economic growth.

The Literacy Link

In 2006, a team of researchers at the University of Ottawa, working with Canada’s top statistics agency, found a similar relationship between economic growth and rising test scores by analyzing data from 14 countries participating in the 1995 round of the Adult Literacy Study, a test of “real world” reading and quantitative literacy that’s taken by 16- to 65-year-olds around the globe.

The idea was to use the scores to estimate the workplace skills of cohorts of young people entering the labor force beginning in 1960. The study’s finding: A rise of 1 percent in a country’s average literacy score was linked over time to a 2.5 percent rise in per-capita GDP for that nation, said Serge Coulombe, the primary author.

But another study published the same year suggests that the statistical relationship between education and productivity also can be weakened by removing the so-called Asian Tigers—Hong Kong, Japan, Singapore, and South Korea—from calculations. (“Study Questions Role Math, Science Scores Play In Nations’ GDPs,” Dec. 13, 2006.)

Looking at economic-growth patterns between 1970 and 2000 for 38 nations, that study found the link between student achievement on cross-national science and math tests and productivity diminished, and in some cases disappeared, when the high-flying East Asian countries fell out of the mix. (Mr. Hanushek did a similar calculation with his own data and found that the impact of cognitive skills, albeit diminished, remained powerful.)

What’s more, education only seemed to matter for economic growth between 1970 and 1990, the period when those East Asian economies were in high gear; the relationship appeared to be weaker toward the end of the century, when their growth rates faltered.

“I don’t want to argue that there’s no relationship, but that it’s more nuanced,” said Francisco O. Ramirez, a professor of education and sociology at Stanford, and the main author of that American Journal of Education study. “It’s a long, long way between how a 12-year-old does on a math and science test and economic growth.”

A Nation at Risk was part of a well-established kind of rhetoric where we set ourselves up for school-bashing because we attribute too much to education,” Mr. Ramirez added.

Individual Impact

Estimates vary widely over the degree to which education matters in promoting economic growth.

In contrast to Mr. Ramirez’s finding of a greatly diminished impact, the Education Next study suggests that education accounts for three-quarters of the differences in productivity growth between nations. Princeton’s Mr. Krueger said his reading of studies in the field suggests that schooling explains one-quarter to one-half of cross-country economic-growth differences.

In comparison to analyses of national-level growth, studies looking at the returns on education for individuals show a more consistently positive trend. They estimate that people get a 10 percent increase in earnings, on average, for every additional year of schooling.

In their own work, for instance, Mr. Krueger and Princeton colleague Orley Ashenfelter interviewed nearly 500 identical twins in the 1990s, ultimately finding that the twin who put in more school time tended almost always to be the higher-wage earner later in life. That was also true, subsequent studies by Mr. Krueger and others revealed, even when the difference in schooling time amounted to just a few months.

“If you look at the evidence at the individual level, it’s overwhelming,” said Barry P. Bosworth, a senior fellow at the Brookings Institution, a Washington think tank. “I’m far more inclined to say that it can be aggregated up to gains for society as a whole. But they don’t let economists run controlled laboratory experiments, so it’s hard to know for sure.”

Global View

High school students from the United States placed 21st among those from the 32 countries in the Organization for Economic Cooperation and Development on the 2006 Program for International Student Assessment, or PISA, in mathematics.


SOURCE: Education Next

Mr. Krueger agreed. “I think education matters in the long run,” he added. “In the short run, it’s the business cycle that matters.”

Economists say the short-term significance of the business cycle explains the spurt of prosperity that the United States enjoyed in the 1990s, the downturn over the same period in Japan’s once-fast-growing economy, and the current slowing in the U.S. economy.

Also, the impact of additional years of schooling on individual earnings has “essentially doubled” since the 1980s, according to Mr. Bosworth. That’s the statistic behind the nationwide push to persuade more high school students to go on to college.

And it goes hand in hand with the concern, expressed 25 years ago in A Nation at Risk, that technology and global competition are fueling a worldwide demand for better-skilled workers.

But Richard Rothstein, a research associate at the Washington-based Economic Policy Institute, contends that mind-set is wrong: There is no surge in demand for college-educated workers. Instead, he says, the wage gap between college-educated workers and those with only a high school diploma has grown mainly because of the falling real wages of high school graduates.

“College graduates are, in fact, not in short supply. Indeed, some college graduates are now forced to take jobs requiring only high-school educations,” he writes in a new essay for Cato Unbound, an online forum by the Cato Institute, a Washington think tank.

The culprits behind the earnings slide, he said, are weakening unions and the falling real value of the minimum wage, which Congress recently increased for the first time in a decade.

“The singular obsession with schools [in A Nation at Risk] deflects political attention from policy failures in other realms,” he concludes. “There are many reasons to improve American schools, but declining achievement and international competition are not good arguments for doing so.”

If, on the other hand, Mr. Hanushek and his colleagues turn out to be right, education’s contribution to economic growth could be sizable.

To illustrate, the authors put forth in their new study this scenario: Suppose the United States had met the national “Goals 2000” objective calling for its students to be first in the world in science and mathematics by 2000, which would have meant raising student achievement on international tests by 50 points above the average for most developed nations.

The researchers calculate that the result—a 4.5 percent increase over 10 years in the nation’s GDP—“would be enough to cover the entire cost of education in 2015 and after.”

Special coverage marking the 25th anniversary of the landmark report A Nation at Risk is supported in part by a grant from the Eli and Edythe Broad Foundation.
A version of this article appeared in the April 23, 2008 edition of Education Week as Researchers Gain Insight Into Education’s Impact on Nations’ Productivity


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