This paper finds a link between the trends in K-12 spending and student success in Missouri after the Great Recession. I find that, for city schools only, changes in English Language Arts and Math proficiency rates for third graders were negatively related to changes in the number of students per teacher. According to my estimates, an increase in the average number of students per teacher in city schools accounted for almost all of the drop in the schools’ average ELA proficiency, and all of the drop in their average Math proficiency. Thus, the evidence indicates that the cuts in spending on teachers in the aftermath of the Great Recession affected student outcomes in city schools, but did little to affect student outcomes in schools in other locales.

While compensation accounts for roughly 90 percent of K-12 instructional costs, there is little evidence of efficient or strategic design in these systems. Rigid salary schedules reward factors generally unrelated to effectiveness, induce field shortages, and encourage inequitable allocation of professional staff. Deferred compensation systems impose sharp penalties on mobility, promote early retirement and generate large unfunded liabilities. Serious attempts to bring greater efficiencies to K-12 spending and raising teacher quality must confront the dysfunctional compensation system.

Between 1970 and 2007, Missouri’s growth in income per capita was 41st in the nation. This dismal outcome is largely a function of its educational system. Its schools have not been competitive, either among the U.S. states or internationally. Lifting the quality of schools will by the historical evidence presented here produce large long-run gains for Missouri’s economy. Even though many youth have in the past migrated to other parts of the country, the strength of the Missouri economy will continue to rest mainly on those current students who will become the backbone of the future labor force. Improving the quality of schools is a difficult task that demands policy attention. Simply increasing funding for schools, one oft-proposed solution, is unlikely to lead to increased academic performance unless more attention is given to how money is spent. The key to improvement lies in the quality of the teachers and leaders in the schools. Salaries and incentives for these personnel have not been directly related to student performance. If improvements are to be realized, existing incentives must be changed.

This study investigates the relationship between education and several economic and social outcomes. On the economic side we consider the link between education and income. We also look at how education is related to health choices and social cohesion. Our basic question is: “What is the relationship between educational decisions made in the past and economic and social outcomes today?” Answers to this question reflect not only personal educational choices, but also shed light on the policy issue of why it is important to improve educational attainment.

We investigate whether differences in economic growth across states are in part explainable by differences in educational attainment. To summarize the results, we find that states with a larger percentage of high school degree holders tend to be states that experienced faster rates of economic growth in subsequent years. When we consider the relation between the real aim of education—an increase in individuals’ cognitive ability—and economic growth, we find an even stronger positive relationship. States with higher scores on the NAEP tests also tend to be the states with higher growth rates in real GDP. The evidence thus suggests that the greater the level of educational attainment for a state’s population, the greater are the chances that they will as a group, be more economically successful.