In recent years, the debate on the impact of financial resources in education has been petering out. Studies showing that more money for schools has had a discernable effect on student academic outcomes, particularly for students from lower-income families, keep accumulating. As this finding has become clearer, Stanford scholars Danielle Handel and Eric Hanushek return to the fray with a chapter highlighting the variation in effects of school spending to be published in the forthcoming volume of the Handbook of the Economics of Education. Hanushek is, of course, the scholar most associated with skepticism about the effects of increased school spending. Hanushek’s and Handel’s new meta-analysis engages the growing—and increasingly sophisticated—school finance literature and offers an interpretation of its results.
In the paper, they identify forty-three of these new, stronger studies of the impacts of schools spending and standardize their inputs and outputs to compare the effects of a 10 percent increase in spending on test scores and high school graduation rates. This standardization process reveals patterns that are obscured when comparing studies with different scales, but most importantly it enables their meta-analysis methodology for examining these studies in aggregate.
Upon examining the standardized results, the authors find generally positive effects of spending increases on both test scores and high school graduation. Out of the sixteen U.S.-based studies with test scores as the outcome, fourteen showed a positive effect of more spending, with nine being statistically significant. For high school graduation, all eighteen studies showed positive effects, with fourteen being statistically significant. Importantly—and in contrast with the older, methodologically-weaker literature on this topic—the authors did not find any negative and statistically significant results of increased spending.
However, the effects of spending on student outcomes varied greatly across the studies, and some showed no effect. Handel and Hanushek say that this suggests that factors other than simply increasing school spending are at play.
To explore that point further, they go on to examine specific inputs that money may be used for. Unlike their findings related to school spending, they found positive, negative, and many statistically insignificant results for class size and no positive effects at all for increased teacher education. Conversely, they found positive effects for teacher experience and small positive effects for performance pay programs for teachers.
The authors interpret these results to conclude that spending more money isn’t enough to guarantee better results; what matters is how money is spent, not how much. Yet the implicit assumption that the estimates of the effects of school spending increases should be highly similar across very different contexts is questionable: Most researchers would consider finding many “statistically significant” positive effects and no such negative effects to be strong evidence of a real effect of spending. This is particularly true when the studies in question are of the strongest class of research design.
Although their interpretation of the results focuses on the varying magnitude of spending impacts, they unfortunately neglect to analyze a well-known heterogeneity of impacts in school spending. Previous research has shown that increased spending typically has the greatest impact when targeted to students from low-income families. For example, one paper cited by Handel and Hanushek finds no statistically significant impact of funding when looking at the overall results (i.e., including all students), but also finds higher test scores and graduation rates for students from less affluent backgrounds. Although the authors acknowledge this difference in effects for various student populations in their review of the literature, it seems like a missed opportunity that they do not themselves conduct this type of analysis.
By finding overwhelming positive effects from increased school funding on student outcomes, this new meta-analysis helps validate that America’s historical school funding gaps exacerbated educational inequities. Now that school funding has risen dramatically and been largely equalized—or even made progressive—we face a new set of challenges. Of obvious importance is how to prioritize school spending, especially as pandemic-era infusions dissipate in coming years. Handel and Hanushek show convincingly that some inputs, such as marginal reductions in class size, are almost certainly not worth their (in this case, tremendous) cost. And even if the “money doesn’t matter” coffin now has more than enough nails, a larger question will live long into the future: How much progressivity is necessary to make up for historical shortfalls and to ensure that students from all backgrounds fulfill their potential?
SOURCE: Danielle V. Handel and Eric A. Hanushek, “U.S. School Finance: Resources and Outcomes,” Handbook of the Economics of Education, Volume 7, forthcoming November 2023.
