Education’s Key Role in Economic Growth

In the previous post, How to Increase Economic Output by $112 Trillion!, I shared Eric Hanushek estimates on the impact of good teaching on aggregate economic growth in the U.S. This post focuses on Hanushek et al. research on the relationship of test scores and years of educational attainment with economic growth.

The following graph summarizes the relationship between test scores and years of educational attainment with economic growth.

Explaining economic growth with educational variablesBoth variables — test scores and years of education — are positively related to economic growth in 50 countries but it is clear that higher levels of cognitive skill, as measured by the performance of students on math and science tests, play a more significant role in explaining international differences in economic growth than years of schooling.

Hanushek et al. proceed to estimate the effect of a successful effort to raise cognitive skills of U.S. students by 50 points, matching student outcomes in world leader countries. (This was the same admirable goal George H. W. Bush and the nation’s Governors set in 1989 for the year 2000.) If the U.S. had reached the desired goal Hanushek and his colleagues estimate GDP would be 4.5 percent greater in 2015 than in the absence of any such gains. It happens the 4.5 percent gain in GDP is equal to the total amount of money the U.S. currently spends on K-12 education. Hanushek concludes:

“In other words, had that money effectively raised cognitive skills by the 50 test points that would have brought the United States close to world leadership, the economic returns to the country would probably have been enough to cover the entire cost of education in 2015 and after.”

We  learned earlier that tax cuts don’t spur economic growth or produce significant job creation, but educational investments producing results apparently would cover the investment cost and more. The question remains: what societal and educational reform changes are necessary to produce increases in cognitive skills matching students in world leader countries?

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