The USA doesn’t pay public school teachers enough

Bayer, Patrick J. and Blair, Peter Q.. and Whaley, Kenneth, Does the United States Spend Enough on Public Schools?. Available at SSRN: https://ssrn.com/abstract=5116289 or http://dx.doi.org/10.2139/ssrn.5116289

Abstract: The United States ranks low among peer countries on the ratio of teacher spending to per capita GDP. Is this (in)efficient? Using a spatial equilibrium model we show that spending on schools is efficient if an increase in school spending funded through local taxes would leave house prices unchanged. By exploiting plausibly exogenous shocks to both school spending and taxes, paired with 25 years of national data on local house prices, we find that an exogenous tax-funded increase in school spending would significantly raise house prices. These findings provide causal evidence that teacher spending in the U.S. is inefficiently low.

From the introduction:

Teacher salaries in the U.S. routinely rank near the bottom worldwide as a fraction of GDP per capita. In fact, the US is among a small share of countries in which teachers are paid less than the average GDP per capita (Sandefur, 2018). Such international comparisons and the dueling empirical results on the impact of school spending on student outcomes naturally raise the question of whether the U.S. spends enough on its public school teachers and, more generally, on its public schools (Hanushek, 1989, 2003; Jackson et al., 2016).

Economists naturally approach questions about the optimal provision of publicly provided goods like education through the lens of the Samuelson equation (Samuelson 1954). According to the Samuelson equation, a public good is efficiently provided when its marginal cost equals the sum of the marginal benefits of those who enjoy it. Due to the inherent difficulty in inferring the marginal benefits for the millions of members of society, public goods provision stands as a classic example of a potential market failure in economics — presenting a challenge for policymakers who decide how much to spend on schools and teachers (Poterba, 1996). In fact, in the U.S., public opinion on increasing school spending and increasing teacher salaries is particularly divided. Among survey respondents who are informed about the level of school spending and teacher salaries in their state, the partisan gap is 31 percentage points: 62% of Democrats versus 31% of Republicans believe that school spending should be increased (Houston et al., 2022). Likewise, while 70% of informed Democrats believe that teacher salaries should be increased, only 46% of informed Republicans share that view (Houston et al., 2022).

At its heart, answering the question of whether the current level of public school spending in the United States is optimal/efficient requires a way of measuring and aggregating the marginal benefits and cost of school spending. The primary goal of this paper is to theoretically define and empirically implement a test for the efficiency of public school spending in the U.S. that is based on a credible research design.

H/t Tyler Cowen.