Economic Snapshot | Retirement

Greater effort needed on school spending

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for May 1, 2002.

Greater effort needed on school spending
A great deal of effort has been put into education reform in recent years. Unfortunately, these efforts haven’t translated into greater spending on education in most states.

Economists define spending effort as the portion of income that is spent on a particular government program. In the case of education, economic theory suggests that education spending should be roughly proportional to income since education is an investment that partially determines future income levels.

Labor economists have found in recent years that the so-called “return” on investments in education has been increasing. In other words, receiving one more year of education (or higher quality education) now produces greater gains in future income. One would expect, then, that the level of spending effort should have increased in the 1990s. However, the figure below shows that the portion of GDP spent on K-12 education in the United States has actually declined slightly in recent years.

Trends in U.S. education spending effort, 1963-99

The state with the lowest spending effort is Tennessee, at 2.4% of state economic output. This is roughly half of what Vermont – the highest effort state at 4.7% – spends on education. Tennessee would have to spend twice as much on K-12 education if it were to have the same spending effort as Vermont.

In addition to Tennessee, the other states with the lowest education spending effort are Delaware, North Carolina, Nevada, Colorado, Hawaii, Massachusetts, and California. The states with the highest effort are West Virginia, Vermont, Maine, Montana, Michigan, Wisconsin, Alaska, Indiana, New Jersey, and Wyoming.

This week’s Snapshot by EPI economist Doug Harris.

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