Equalizing School Spending Boosts Lifelong Income 

If a family’s annual income is among the lowest 20% in the country, what are the odds that their child’s earnings will rank among the highest 20%? The answer depends, at least in part, on where they live.

Researchers have found that regional differences contribute to whether a person will achieve prosperity later in life. A child born into a family in the bottom quintile of the income distribution in Utah has a 14% chance of reaching the top 20%; in Tennessee, the number is only 7%. A new paper by Barbara Biasi, an assistant professor of economics at Yale SOM, shows that closing the gap in education spending between rich and poor school districts could make a substantial difference in economic mobility for poor children.

Read the study: “School Finance Equalization Increases Intergenerational Mobility: Evidence from a Simulated-Instruments Approach”

Biasi—a first-generation college student herself—says there’s no doubt that improvements in education matter to a person’s success later in life. “There’s a lot of evidence that different aspects of public schools have a massive effect on students—not just in terms of education, but also in terms of health and earnings,” she says.

Spending on education can vary dramatically from district to district within a state, since a large portion of school funding comes from local taxes. Wealthier towns, generally, have bigger per-student school budgets. Over the last few decades, a number of states have made efforts to equalize spending across districts, with varying levels of success.

Biasi’s study examined 13 school finance reform policies that were passed in 20 U.S. states between 1986 and 2004. She assessed how much each reform effort equalized per-student spending between high- and low-income districts. She then followed the students affected by each reform effort. She found that in those states where reform efforts led to greater equalization, the degree of intergenerational income mobility of students in the lowest quintile increased.

According to Biasi’s study, “A one-standard deviation reduction in [inequality of school funding] leads to a 5.6 percentile increase in mobility for children with parental income in the 10th percentile, a 5.2 percentile increase for children from the 25th percentile, and a 3.5 percentile increase for children from the 90th percentile.”

Biasi analyzed the differences between various states’ reform efforts and the effects on student cohorts that passed through school just before and just after reform efforts, as well as other factors such as changes in housing prices, incomes, and overall levels of education funding to confirm that the effects she found truly came from the equalization in education spending.

“These findings confirm the importance of equalization in school resources across richer and poorer districts for equality of children’s economic opportunities,” she writes.

Biasi’s work bolsters previous research on the particular importance of early-childhood education. She found that equalization of school resources had the largest effect on intergenerational mobility if the reform took place while the students were in elementary school rather than middle school or high school.

Biasi also considered whether equalization is even more beneficial for districts with high income inequality and income segregation. In an area with greater income inequality between school districts, she points out, poor students will be at a greater disadvantage, even if the average spending is the same as in an area with less income equality. She tested the effects of equalization of school resources in areas with above-average and below-average income equality and found that equalization has a larger effect in areas with high income inequality. Specifically, she found a 6.2, 5.8, and 4.4 percentile increase in mobility for children with parents in the 10th, 25th, and 90th percentile, respectively, compared to a 4.6, 4.2, and 2.4 percentile increases in areas with low income inequality.

Similarly, greater income segregation may magnify the effects of unequal school spending, since low-income students are concentrated in areas with lower spending. Biasi examined the results of equalization in areas with above-average and below-average income segregation and found a slightly larger increase in mobility in the former group compared with the latter.

What is the mechanism by which equalization increases mobility? One way may be by paying for more teachers. Biasi found that reform increased the teacher-student ratio by 11% in low-income districts. Equalization also appeared to increase the probability that a pupil would attend college; in contrast to the overall results, when the reform was most powerful in early education, the effect on college enrollment was higher if the reform took place while the student was in high school. “Intuitively, however, high school is the moment of a student’s career that immediately precedes college,” she writes; “this might explain why equalization in school resources at this particular point in time appears to be important for college access.”

Biasi emphasizes that school funding is only one of many factors that can affect intergenerational mobility, but it is one that can be directly affected by a change in policy.

“The results shed some light on the long-term outcomes of providing adequate funding for education,” she says. “While reforms probably cannot close all the differences in mobility across school districts, it’s useful to know they can have an impact: My findings provide another piece of evidence that how we distribute resources across children matters a great deal to their success later in life.”