mi ne why they matter. Do empl oyers pay thei r hi ghl y educated
workers more because of the ski l l s they have l earned, or do the
more educated earn more because educati onal attai nment provi des
other si gnal s to an empl oyer about them, such as thei r persever-
ance or l evel of moti vati on? The questi on i s very di ffi cul t to resol ve
empi ri cal l y, si nce i t i s di ffi cul t to measure acqui red ski l l as di sti nct
from educati onal attai nment. For i nstance, we i nfer the extent of
a physi ci an’s trai ni ng not by di rectl y measuri ng hi s or her medi cal
knowl edge but by observi ng hi s or her educati onal credenti al s.
I t i s l i kel y that some porti on of the observed payoff to school i ng
i s due to both the ‘‘ski l l s’’ and the ‘‘sorti ng’’ expl anati ons. However,
i t appears that technol ogi cal change has i ncreased the val ue of
some ski l l s more than others. Even i f sorti ng accounts for some
porti on of the val ue of educati on, hi gher l evel probl em-sol vi ng ski l l s
have al most certai nl y i ncreased i n val ue wi th the avai l abi l i ty of
computers. Furthermore, i t woul d be di ffi cul t to attri bute the l arge
i ncrease i n the payoff to school i ng, even among those who have
been i n the l abor market for decades, to an i ncrease i n the val ue
of educati on as a si gnal . Greater success i n produci ng these ski l l s
not onl y woul d rai se the earni ngs of those benefi ti ng, but al so
woul d contri bute to economi c growth. Moreover, when i t comes to
i mprovi ng the earni ngs prospects of the di sadvantaged, whether i t
i s the ski l l l earned or the credenti al acqui red that opens the door,
such i nvestments i mprove the prospects of those who may l ack the
resources to i nvest i n themsel ves and reduce the perpetuati on of
Si nce the publ i cati on of Equality of Educational Opportunity
(commonl y known as the Col eman Report) i n 1966, researchers
have struggl ed wi th the questi on of whether i ncreased expendi ture
on school s i mproves student performance. The debate i s often qui te
contenti ous because of the l arge di fferences i n expendi ture per
pupi l between ri ch and poor school di stri cts. For exampl e, duri ng
the 1992–93 school year, New Jersey spent more than $9,400 per
pupi l i n publ i c el ementary and secondary school s, whi l e Al abama
and Mi ssi ssi ppi spent l ess than $3,900. Regi onal di fferences i n the
cost of l i vi ng can expl ai n onl y a smal l part of such vari ati on. Fur-
thermore, gi ven the i mportance of l ocal fi nanci ng of publ i c edu-
cati on, expendi ture per pupi l can di ffer by a factor of two or three
even between di stri cts i n the same State.
Typi cal l y, anal ysts compare average test scores i n hi gh-spendi ng
and l ow-spendi ng di stri cts to l earn about the effect of addi ti onal re-
sources on scores. Not surpri si ngl y, the hi gh-spendi ng di stri cts
have hi gher average scores. However, si nce hi gh-spendi ng di stri cts
al so tend to have hi gher average fami l y i ncome and parental edu-
cati on, the di fferences i n student performance may be caused not
by di fferences i n the l evel of spendi ng but by di fferences i n fami l y
resources. When anal ysts compare test scores i n hi gh- and l ow-
spendi ng di stri cts wi th si mi l ar fami l y i ncomes and parental edu-
cati on, the resul ts are often consi dered provocati ve: di stri cts that
spend more are often found not to have hi gher test scores.
However, addi ti onal resources coul d have other benefi ci al i m-
pacts. The standardi zed tests used i n much of the research may not
rel i abl y measure the ki nds of i mprovements that parents or pol i cy-
makers woul d expect school s to produce wi th addi ti onal resources.
The benefi ts of new courses i n Ameri can hi story, geometry, or cal -
cul us or i mproved l earni ng opportuni ti es for the di sabl ed— val uabl e
as they may be— woul d not be captured by such measures.
Consi stent wi th thi s hypothesi s, studi es of the l ong-term i mpacts
of school expendi ture on earni ngs and educati onal attai nment— i n
contrast to those that focus on test scores— yi el d more opti mi sti c
evi dence that publ i c i nvestment i n el ementary and secondary
school i ng does generate benefi ts l ater i n students’ l i ves. For i n-
stance, better pai d and better educated teachers and smal l er cl ass-
room si ze have been associ ated wi th greater educati onal attai n-
ment and hi gher payoffs to educati on l ater i n l i fe, even i f they have
not had l arge effects on the parti cul ar test scores used. One recent
study concl uded that the payoff was not onl y posi ti ve but fi nan-
ci al l y l ucrati ve: a 10 percent i ncrease i n expendi tures from ki nder-
garten through 12th grade woul d produce addi ti onal l i feti me earn-
i ngs val ued at 1.2 ti mes the addi ti onal cost (i n present val ue
terms). Admi ttedl y, studi es of thi s ki nd remai n few, and some au-
thors have reported l ess posi ti ve resul ts, but some evi dence sug-
gests that past i ncreases i n spendi ng on educati on di d bear frui t,
even i f the resul ts di d not regi ster on the parti cul ar tests used.
But the debate over such fi ndi ngs often mi sses a more rel evant
questi on: rather than conti nue to debate how much of a di fference
addi ti onal resources have made i n the past, we shoul d be aski ng
how programs and i ncenti ves coul d be structured today to ensure
even greater benefi ts from resources i nvested now and i n the fu-
ture. I t i s di ffi cul t to bel i eve that a knowl edgeabl e school pri nci pal
coul d not fi nd a way to use addi ti onal resources to i mprove student
l earni ng, as l ong as the i ncenti ves i n the envi ronment rewarded
such gai ns. The task of pol i cymakers shoul d be to create an envi -
ronment i n whi ch i ncenti ves di ctate that resources be i nvested
profi tabl y.
On thi s questi on, Federal , State, and l ocal governments are al -
ready a step ahead of the academi c debate. Many of the edu-
cati onal reforms bei ng pursued today seek to produce more decen-
tral i zati on and greater accountabi l i ty, both of whi ch are desi gned
to create an envi ronment i n whi ch resources are used more effi -
ci entl y. The charter school movement i s a good exampl e. Mi nnesota
was the fi rst State to pass a l aw al l owi ng for charter school s i n
1991. Si nce then 19 other States have enacted l aws permi tti ng the
devel opment of charter school s. A charter school i s usual l y the
brai nchi l d of a commi tted group of teachers or set of parents who
want the fl exi bi l i ty to try a di fferent approach. Typi cal l y, they
appl y to the l ocal school board or the State department of edu-
cati on for a charter al l owi ng them to open a new school wi th publ i c
fundi ng. Si nce charter school s are publ i c school s, they do not
charge tui ti on. Such charters typi cal l y wai ve many of the regu-
l atory requi rements i mposed on other publ i c school s for 3 to 5
years, at whi ch ti me they are subject to revi ew.
Charter school s enhance accountabi l i ty i n two ways. Fi rst, char-
ter contracts often speci fy benchmarks for performance, such as
scores on speci fi c State assessments. I n exchange for the freedom
to i nnovate, charter school organi zers are expected to produce re-
sul ts. Some contracts are more speci fi c i n spel l i ng out such per-
formance expectati ons than others. As States devel op better assess-
ment tool s under the Goal s 2000: Educate Ameri ca Act (descri bed
bel ow), these performance expectati ons can be more expl i ci tl y stat-
ed. Second, the presence of charter school s i s i ntended to encourage
i nnovati on by nearby publ i c and pri vate school s, through the dem-
onstrati on of successful educati onal strategi es and through the
threat of l ost enrol l ment.
The Department of Educati on has hel ped to nurture the charter
school movement by provi di ng seed money for the establ i shment of
charter school s. I n the 1995 fi scal year, the Federal Government
provi ded nearl y $6 mi l l i on i n grants to hel p cover startup costs for
charter school s. The Admi ni strati on hopes to i ncrease thi s commi t-
ment si gni fi cantl y over the next few years.
But the establ i shment of charter school s represents onl y one way
i n whi ch States and l ocal school di stri cts are seeki ng to provi de
better i ncenti ves for school s and teachers. School report cards, per-
formance bonuses for school s, magnet school s, and other forms of
publ i c school choi ce are al so bei ng tested.
Publ i cl y funded vouchers for use at pri vate school s are another,
more radi cal approach. But vouchers have several probl ems. Thei r
advocates fai l to recogni ze the many ways i n whi ch educati on for
chi l dren di ffers from conventi onal goods. The pri mary ri sk of
vouchers i s that they may produce a dramati c i ncrease i n soci al
strati fi cati on. The cost i n terms of the resul ti ng damage to soci al
mobi l i ty and soci al cohesi on coul d exceed any benefi t i n terms of
better school performance. Because they are publ i c school s depend-
ent upon publ i c support, charter school s can be more careful l y
pl anned to serve al l chi l dren’s i nterests by l ocati ng them i n urban
areas, by i nsi sti ng on open admi ssi ons pol i ci es, by hol di ng them di -
rectl y accountabl e for resul ts, and— when oversubscri bed— by re-
qui ri ng them to establ i sh l otteri es for admi ssi on. Charter school s
provi de a framework for an i mproved educati onal system, wi th par-
ents and teachers worki ng together to devel op new and creati ve so-
l uti ons to the chal l enges they face, and demandi ng accountabi l i ty
of al l parti ci pants i n the educati onal process.
Some approaches to accountabi l i ty are better sui ted to some en-
vi ronments than others. For i nstance, school report cards are better
i ndi cators of school performance when mobi l i ty between school s i s
l ow and when one can control for di fferences i n student character-
i sti cs. Charter school s and magnet school s provi de better i ncenti ves
when the qual i ty of l ocal transportati on i s good and parents are en-
gaged and wel l i nformed. Sti l l another approach, whi ch several Eu-
ropean countri es empl oy, rai ses the stakes for students, through
more wi despread use of achi evement tests as a cri teri on for hi gh
school graduati on and col l ege admi ssi on, or even by empl oyers i n
thei r hi ri ng deci si ons (Box 7–3). Gi ven the di versi ty of ci r-
cumstances around the country, i t i s appropri ate that each State
and school di stri ct pursue i ts own strategy for encouragi ng more
decentral i zati on and accountabi l i ty. The next secti on di scusses the
vari ous ways i n whi ch the Federal Government has chosen to com-
pl ement these efforts.
The envi ronment faci ng provi ders of educati on and trai ni ng i s
changi ng. Today parents and taxpayers i ncreasi ngl y expect resul ts
from thei r i nvestments. I n partnershi p wi th State and l ocal pol i cy-
makers, Federal pol i cy i s hel pi ng to create thi s new envi ronment
i n several ways: by provi di ng seed money to States devel opi ng con-
tent standards i n core subject areas, by supporti ng States i n the
devel opment of assessment tool s for measuri ng progress, by hel pi ng
States to i nvest i n thei r teachers, and by supporti ng the establ i sh-
ment of charter school s. But i n addi ti on to these efforts the Federal
Government serves many other rol es i n our educati on and trai ni ng
system, such as guaranteei ng student l oans, channel i ng resources
to l ow-i ncome school s and school di stri cts, hel pi ng di sadvantaged
chi l dren prepare to enter ki ndergarten, and hel pi ng States devel op
new pathways from school to the worl d of work. As menti oned at
the outset of thi s chapter, the Federal Government has pl ayed a
vi tal rol e i n educati on si nce before the Consti tuti on was si gned.
There are at l east fi ve reasons why.

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