Education & the Economy Research Paper Starter

Education & the Economy

The majority of education and economy experts believe that their fields are intrinsically linked. That is, a stable economy depends on a skilled, educated populace, and quality education institutions depend on funding and support from individuals living in a prospering economy. A survey of the history of education and the economy shows the close link between an educational institution and its surrounding community. Speculations on the future of the nation's economy and its education institutions are also reviewed as are comparisons between the U.S. and other nations. Education will prepare students for employment in the "new economy," however failure to prepare may have devastating consequences. Some alternative viewpoints argue that government entities may actually be fostering poor quality education systems for their own economic gains.

Keywords Digital Divide; Economic Development; Human Resources; Market Economy; New Economy; No Child Left Behind (NCLB); Public School; Standardized Test; Workforce

Politics, Government,


For those who live in the United States, education is seemingly a free commodity for persons age five to eighteen. Much like the water that comes from the taps, bridges that connect two separate land masses, or the paved roads that enable transportation, public education is something people take for granted and assume will always be there. Despite its ubiquitous nature, education is not free. Citizens pay for administrators and teachers' salaries, classrooms and school halls, computers and textbooks, and other components of their schools through taxes. In this way, the previous generation funds the education of the current one, which is usually monitored or controlled by politics, public opinion, and voting (Glomm & Ravikumar, 1992, p. 818).

Historical Perspectives

After World War II, the United States, working with such international organizations as the United Nations, sought to build its education systems in order to create and secure solid, prospering economies for its citizenry. The United States, like most other developed nations, began funding public education institutions grades K-12 and requiring all persons of a certain age to attend these institutions. Such efforts enabled more advancement among the socioeconomic classes and gave everyone, regardless of their income, a chance to better their position in life. K-12 education provides better income and employment opportunities for the individual and also fosters a solid economic environment for communities and the country overall. Decidedly, high priority was given to economic development and funding education was seen as key (Resnik, 2006, p.176).

In the 1960s, economists of education started seeing publicly funded education as an investment or a commodity much the same way one would invest in the open market. Economists such as Friedrich Edding began measuring public education in terms of return on investment, costs, human capital, and residual factors (Resnik, 2006, p. 181). Economists such as Adam Smith, John Stuart Mill, Alfred Marshall, and others closely tied education to capital. Neoclassical economist Marshall believed education was a national investment and said that "public education unleashed reserves of talent latent in the population" (p. 182). Seeking to correlate numbers and data to education and the economy, Theodore Schultz and Gary S. Becker developed the theory of human capital which built quantitative indicators of human resource development. Using these tools, economists were able to determine that high quality human capital was closely linked to strong economic development (p. 182). In other words, talented, skilled, educated people built and sustained robust economies.

Public versus Private Education

Though the federal government partially provides funding to all public schools, K-12 public education is largely funded by its own district and state. As such, the wealth of a school district usually mirrors the wealth of its surroundings. In this way, affluent neighborhoods tend to fund schools with superior facilities such as modern computer, library, and science labs. These districts typically can pay better wages to teachers thereby attracting educators with more experience and better reputations. Districts in financially strapped communities may lack the resources to provide such funding for their schools. As a result these schools are more likely to lack such modern facilities and are less likely to be able to recruit and retain quality teachers. Teacher to student ratio tends to be higher in poorly funded schools, which has been shown to negatively impact student learning (Glomm & Ravikumar, 1992, p. 820).

Conversely, private schools do not rely on public funding and are therefore dependent on the donations of parents, relatives, or community leaders to operate. It is a long-held belief by many in the U.S. that private schools offer better educational opportunities when compared to their public school counterparts. In a 1992 study Glomm & Ravikumar compared the two domains and found that in fact private education is typically superior to public education, provided that the income of those who support the private school continues to remain high. Private schools can often afford current technologies and resources and often can afford to pay higher salaries in order to recruit better educators (p. 832). This evidence shows the reciprocal relationship between quality education and a strong economy. In other words, those have funds and who are the beneficiaries of a thriving economy can pay for quality education that will in turn foster its continued economic prosperity. For better or worse, public education does serve to lessen the impact of income differential for the individual student. In other words, all students within the same public school district, regardless of their individual family income, are able to achieve the same goals (p. 832).

State by State Differences

Since public schools both at the K-12 level and at the college level are so heavily dependent on the state for funding and support, it should surprise no one that each state differs vastly in regard to such spending. Along these lines, the state's legislature and other elected government officials play a significant role in allocating funds to public schools. In giving a speech to state legislators, David Wyss, Standard & Poor's chief economist, said, "States with the highest percentage of college graduates boast the highest personal incomes and lowest unemployment rates" (Weinberg et al., 2005). While such messages may reinforce the importance of education, state legislatures often have many valuable public entities and groups competing for the same limited budget. Considering these factors as well as political influences, legislators are often pushed to cut spending in one or more areas. Because quality public schools are so closely linked with their surrounding economies, many legislatures recognize the importance of making sure their schools receive adequate funding. Yet because the payoff for an educational investment is not seen immediately, public school funding is sometimes reduced due to more pressing concerns (Weinberg et al., 2005).

Looking Forward

In the post World War II era, the United States thrived and prospered; the country was an economic powerhouse that seemed unstoppable in terms of growth and sustainability. In the early 1990s, a shift occurred where Asian countries such as Japan, South Korea, Thailand, and others saw huge development that outshined U.S. and European growth. People then started making comparisons between the U.S. and Asian nations and the stark contrasts between educational attainments began to gain attention. Where the U.S. once dominated, its education systems were now lukewarm. With economic security more dependent on a skilled, educated labor force than ever before, what kind of picture is being painted of the nation's future? Since having a strong economy depends on having an educated, capable workforce, many are concerned that the standard of living may actually worsen. Hanushek (2002), a senior fellow at the progressive Hoover Institution, says, "The evidence suggests that the American K–12 education system is falling behind those of other developed nations. As a result, it is unclear whether we will be able to count on the education system to fuel future U.S. economic growth" (p. 12). Of particular concern are U.S. students' test scores in areas of mathematics and science, which show to be average or even below average when compared to other countries. Since these skills are of the utmost importance in the 21st century economy, Hanushek suggests that the U.S. may have to partially rely on an international workforce to fill such high-skill jobs if its K-12 schools do not take drastic steps to reform and improve student learning (Hanushek, 2002, p.16).

According to the National Center for Education Statistics, results from the 2012 Program for International Student Assessment (PISA), American students continue to perform academically below students of other industrialized nations. On the 2012 PISA, U.S. 15-year-olds scored below 27 other countries/education systems, with only 9% of U.S. students performing at the highest level of proficiency; by way of comparison, the OECD (Organisation for Economic Co-operation and Development), 55 percent of students from Shanghai scored at the highest level, as did 13 percent of students from all OECD countries combined. The average mathematics score for American students was 481, below the OECD average of 494, and below that of students in 29 other systems. In science, only 7% of U.S. students scored at the highest level of proficiency, not statistically different from the OECD average of 8%, but below that of 17 other countries. The average science score for U.S. students was 497, also not statistically different fro the OECD average of 501, but below that of students in 22 other systems, including Shanghai, whose students received the highest average score of 580. In reign, 8% of U.S. students scored at the highest proficiency level, not statistically different from the OECD average, but below students in 14 education systems, including the highest scorer Shanghai (25%). The average score for U.S. students was 498, not statistically different from the OECD average of 496, but below 19 education systems, including the highest scorer, Shanghai (570).

Further Insights

Education for the New Economy

In preparing for the "new economy," which is based on globalization, service sector growth, and technological innovation, Hall (2007) sought to discover which states or regions were best prepared to educate, train, and retain a workforce capable of thriving in this new market. In order...

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