Boosting Educational Attainment and Adult Earnings: Does School Spending Matter after All?

This study addresses limitations in a study conducted by James Coleman in 1966, which analyzed aspects of educational equality in the United States--including the relationship between school spending and student outcomes--as well as other studies covering the same topic that stemmed from Coleman's Report. Coleman found that variation in school resources (as measured by per-­pupil spending and student-­to­-teacher ratios) was "unrelated" to variation in student achievement on standardized tests. Two key limitations of previous studies make it difficult to draw firm conclusions from their results: (1) Test scores are imperfect measures of learning and may be only weakly linked to important long-term outcomes such as adult earnings; and (2) Most national studies simply examine correlations between observed changes in school spending and changes in student outcomes. This study overcomes the limitations of previous studies by focusing on the effect of school spending on such long­-run outcomes as educational attainment and earnings rather than on test scores, and by focusing on the effects of "exogenous" shocks to school spending--shocks that should be unrelated to family and neighborhood characteristics or the characteristics of any particular district or school. The exogenous shocks used in this study are the passage of court-­mandated school-finance reforms (SFRs). Findings provide compelling evidence that: (1) money does matter; (2) additional school resources can meaningfully improve long-­run outcomes for students; and (3) increased spending induced by SFRs positively affects educational attainment and economic outcomes for low-­income children. While only small effects are found for children from nonpoor families, a 10 percent increase in per­-pupil spending each year for all 12 years of public school for low-income children is associated with roughly 0.5 additional years of completed education, 9.6 percent higher wages, and a 6.1 percentage­-point reduction in the annual incidence of adult poverty. Results highlight how improved access to school resources can profoundly shape the life outcomes of economically disadvantaged children and thereby reduce the intergenerational transmission of poverty. To be most effective, spending increases should be coupled with systems that help ensure spending is allocated toward the most productive uses.