Timestamps:

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This is also how I would describe the recent Economics of Education Review paper by Dillon Fuchsman, Josh McGee, and Gema Zamarro.  The authors surveyed more than 5,000 teachers about their stated preferences. The 15-minute survey presented teachers with two hypothetical job offers. Would they prefer a higher salary or smaller class sizes? More pay today or more pay in retirement? In other words, “you can go with this, or you can go with that.”

The paper is a good reminder that our policy choices in education are all about tradeoffs and balancing preferences. Lately, we have often heard that teacher pay in Missouri is relatively low. We don’t hear about the tradeoffs that make it that way. For example, as I’ve written before, Missouri has a very low student-to-teacher ratio—11.3 students per teacher. If Missouri increased this ratio, it could increase teacher pay. As I wrote, “If Missouri were to match Illinois’ ratio of 14.3, Missouri teachers could realize a 26.5% increase in their salaries.”

As it turns out, teachers may prefer to be paid more and have higher class sizes. Fucshman, McGee, and Zamarro find more teachers would prefer to add three students to their class and get a higher salary (78% of respondents) than to have three fewer students and lower pay (65%).

The conversation in Missouri has almost exclusively been “We need to increase teacher pay.” A more robust conversation would consider this and other trade-offs we’ve built into our systems.

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I know what you’re thinking: “Wait a second, all of these people tell me that if we have school vouchers, they will drive wedges in our communities and lead to intolerance and social turmoil. From what I know from my kids’ trips to Amsterdam, the Netherlands is a . . . tolerant place.”

Even though school vouchers were initially proposed in the Netherlands so that different religious communities could essentially segregate themselves in response to centuries of strife between Catholics and Protestants, over time they have been part of a country that is growing less sectarian. While I have no direct proof, I would wager that decreasing the number of fights over what gets taught in school has helped folks get along better.

But in addition to facilitating social cohesion, the voucher system in the Netherlands has helped create a really solid education system. On the 2012 international PISA exam, the Netherlands ranked 4th in the world in math, 8th in science, and 10th in reading. It isn’t necessarily fair to compare the Netherlands with a country that is 20 times larger and substantially more diverse, but for reference, the United States ranked 27th, 20th, and 17th on those tests, respectively.

Specifically, access to private schooling has helped Dutch students. A 2013 study in Education Economics used some nifty statistical footwork (an instrumental variables analysis to account for the selection bias that would otherwise make comparisons between private school and non–private school students inappropriate) to reveal strong positive effects for students using the voucher program to attend private schools. The effects were anywhere between 0.2 and 0.3 standard deviations, which would move a student at the mean of the standard bell curve of student performance up 10 or so percentile points (from a 50 to a 60).

Given these large effects, it shouldn’t be surprising that in a system where two thirds of the schools are private, we see strong academic performance. What’s more, according to the National Center on Education Statistics, Dutch schools spend on average $1,500 less per student per year than American schools do.

The Netherlands is more than canals and bicycles. It is a multi-ethnic and pluralistic society with an education system with parental choice at its heart. While it would be impossible (and even if possible, unwise) to try and import the Dutch education system to America, it does shed light on key concerns that Americans have with a system driven by school choice. Far from underperformance and balkanization, we see tolerance and success—two things we can always use more of around these parts.

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Only one-third of respondents indicated they would select the regular public school system. Thirty-nine percent indicated they would select a private school, making it the most common response. Another 21 percent indicated they would choose to homeschool their children or send them to a public charter school.

These responses stand in stark contrast to reality – nearly nine out of 10 students in Missouri attend public schools. Why this mismatch between preferences and actual choices? Cost and access.

Public charter schools are only located in Saint Louis and Kansas City and are limited on where they can expand. Private schools cost additional money. As anyone with a cursory knowledge of basic economics knows, demand decreases when cost rises. In other words, many parents are more likely to choose a free public school than they are to pay for a private school – regardless of preference.

But public schools do not have to be the only option for parents. Currently, 24 states and Washington, D.C., have school choice programs. Kansas became the most recent state to adopt a private school choice program with the creation of a tax credit scholarship program.

There is a clear desire for expanded educational options in Missouri. Yet, there is entrenched opposition to school choice from education establishment groups. These groups claim to oppose choice because they want to protect students. It seems obvious, they actually oppose school choice because they want to protect their advantage over the costly private competition. That is why economist Milton Friedman once said:

There is no doubt what the key obstacle is to the introduction of market competition into schooling: the perceived self-interest of the educational bureaucracy.

Opposition to school choice stands in the face of clear support among Missouri voters (including rural voters) and in the face of evidence that school choice works.

Paul DiPerna, the research director at the Friedman Foundation, and I discuss the new poll on this segment of Choice Media’s Reform School.

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The authors do not present specific figures for Missouri, but note that across the country, health care expenses contribute to a significant portion of a teacher’s compensation. According to the study, “in 2004, health insurance costs tacked 11.4 percent onto teacher earnings; in 2012, they added 15.5 percent.”

The money spent on teacher health benefits is approximately $560 per pupil per year. If we assume that we spend $560 per student in Missouri, that would be nearly 6 percent of our total operating expenditures on health care benefits for teachers.

So what accounts for the higher health care expenditures on teachers? Costrell and Dean note that teachers’ unions and collective bargaining are driving factors toward “higher total premiums, higher employer costs, and lower employee contributions in both the public and private sector.”

Now, there is nothing wrong with providing teachers good health benefits, but we could improve options for teachers and decrease costs by shifting some of the teacher compensation from the school district to the teacher. Namely, this would align incentives to keep costs down, give school districts greater flexibility, and provide teachers with options.

As Missouri school districts face tight budgets, they must begin to look at ways to not just trim costs but to also improve efficiency. Health care benefits are a good place to start.

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Countries where more people choose to invest in private schools may have other attributes, such as higher income levels or a greater commitment to education, that lead to better achievement. If this is the case, any positive correlation between private schooling and student achievement could reflect a country’s income or educational commitment rather than any beneficial effects of competition. Or it may be the case that low-quality public schools increase the demand for private schooling. If so, then it could seem that competition lowered public school quality when in fact the causal connection could be in the opposite direction.

To solve for this, West and Woessmann exploit a technique that economists call an instrumental variables approach. Essentially, they found a new variable — the size of a country’s Catholic population in 1900 — which is a useful predictor for the current share of schools that are private. Because the new variable is a good predictor of the variable they are really interested in (share of schools that are private), but is presumably not influenced by higher income levels or greater commitment to education, using this new variable is more useful for determining causality.

Their results (emphasis added):

Our results indicate that the share of schools that are privately operated has an economically and statistically significant positive effect on student achievement in mathematics, science, and reading, even after controlling for the current levels of Catholics and for the share of funding that privately operated schools receive from the government. Larger historical Catholic shares that translate into a ten percentage point larger private school sector today increase average student achievement on the math test by 9% of an international standard deviation. Science and reading achievement increase by roughly 5% of a standard deviation. These patterns are evident despite the fact that the contemporary share of Catholics in each country is negatively related to student achievement, suggesting that distinctive cultural features of traditionally Catholic countries are unlikely to be driving these results. Importantly, much of the positive effect of private school shares accrues to students in public schools, suggesting that the overall effect is not simply due to privately operated schools being more effective, but rather it reflects benefits of competition.

It’s not clear how applicable these results are to private school competition within only the United States or within individual states such as Missouri. However, if the same pattern holds for educational institutions in Missouri, then policies that encourage private school competition, like vouchers or tuition tax credits, will have spillover benefits for public school students as well — not just the recipients of educational aid.

By the way, those readers who are now beginning to suspect that I spend most of my free time perusing the economics of education literature would be correct in that suspicion.

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Hoxby is the Scott and Donya Bommer Professor of Economics at Stanford University, a senior fellow of the Hoover Institution, the director of the Economics of Education Program at the National Bureau of Economic Research, and Senior Fellow of the Stanford Institute for Economic Policy Research.

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Here’s the abstract:

In Project STAR, 11,571 students in Tennessee and their teachers were randomly assigned to different classrooms within their schools from kindergarten to third grade. This paper evaluates the long-term impacts of STAR using administrative records. We obtain five results. First, kindergarten test scores are highly correlated with outcomes such as earnings at age 27, college attendance, home ownership, and retirement savings. Second, students in small classes are significantly more likely to attend college, attend a higher-ranked college, and perform better on a variety of other outcomes. Class size does not have a significant effect on earnings at age 27, but this effect is imprecisely estimated. Third, students who had a more experienced teacher in kindergarten have higher earnings. Fourth, an analysis of variance reveals significant kindergarten class effects on earnings. Higher kindergarten class quality – as measured by classmates’ end-of-class test scores – increases earnings, college attendance rates, and other outcomes. Finally, the effects of kindergarten class quality fade out on test scores in later grades but gains in non-cognitive measures persist. We conclude that early childhood education has substantial long-term impacts, potentially through non-cognitive channels. Our analysis suggests that improving the quality of schools in disadvantaged areas may reduce poverty and raise earnings and tax revenue in the long run.

For those who don’t want to read the whole paper, the research is also available as a PDF of Power Point slides.

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