The Economic Pay-Off from Public Education

On a trip back to Toronto this week I attended the launch of a new report commissioned by the Ontario Secondary School Teachers’ Federation, and written by Aimee McArthur-Gupta from the Conference Board of Canada. The report presents some estimates of the economic, fiscal and social benefits of public education programs.

The full report is here. It is a useful resource for all those campaigning against conservative cutbacks to school budgets (such as those in Ontario, Alberta, and Saskatchewan). It’s also an interesting example of economists attempting to put “numbers” on channels of causation which we all knew were important, but which are hard to measure.

The report has two major analytical sections. The first uses the Conference Board’s input-output model to simulate the immediate spin-off economic effects of public education spending. Education is a major driver of economic growth and job-creation — yet conservatives insist on treating it solely as a “cost” or “drain,” something to be minimized rather than optimized. The Conference Board suggests public education (K-12) accounts for 3.2% of provincial GDP, and 290,000 direct and indirect jobs.

The report then simulated the effects of a 1% increase in provincial spending on education (worth $291 million). It produces a multiplied impact on final GDP (with a final multiplier effect of 1.3). Almost one-third of the incremental expense is returned to government in tax revenues (about 40% of that flowing direct to the provincial level). Wages and salaries (direct and indirect) grow by $275 million, and a total of 4234 additional jobs are created (in schools and administration, in the supply chain, and in downstream consumer goods and services provision).

If anything, I would suggest these estimates of immediate spillover impacts are conservative. Other macroeconomic models have identified even stronger multiplier effects from spending on relatively labour-intensive public services like education.

The second analytical section of the report is more novel: it attempts to identify and quantify some of the major long-run social and fiscal effects of education spending. It points out that high school completion rates have improved dramatically in Ontario over the last 15 years. In 2004 only 68% of Ontario students finished high school. It is important to keep in mind that was at the end of the last 8-year period in office of Ontario’s Conservatives — these ones led by Mike Harris. Their term was marked by austerity, education cuts, attacks on the autonomy of local school boards, and historic job action by teachers resisting those cuts.

By 2017, after years of sustained growth in education funding, Ontario’s high school completion rate soared to 86%. The Conference Board report reviews extensive published evidence indicating a link between funding levels and school attainment. It is clear that the improvement in Ontario achievement is linked to the increase in school funding after the Harris Conservatives lost power.

The Conference Board report then considers just a few of the fiscal and social benefits of better school attainment. It identifies three main channels: reduced social assistance expenses, reduced health care costs, and reduced criminal justice costs. In every case, strong correlations are visible in published literature between higher education and better health, income, and criminality results. The report estimates that if high school completion were to drop back down only partially as a result of funding cuts (in their scenario it falls to 83%), additional public fiscal costs would be incurred in just those three areas totaling $3.8 billion over the next 20 years.

I give the Conference Board an “A” for effort in their effort to quantify these effects, but in reality I think the true impacts on government’s fiscal line of education cutbacks will actually be considerably larger than this. One immediate impact, of course, is the fact that people who do not finish high school generate far lower incomes over their lifetimes than those who do. The Conference Board considers the impacts of lower income on these 3 key dimensions of social well-being, but there are many others — including the fact that revenues flowing back to government in income taxes and GST revenues will be suppressed as a result of lower incomes.

In summary, I find the Conference Board report to be a valid, cautious, and credible first step in exploring the broader economic and social consequences of education funding (or, in the case of Doug Ford’s chaotic government, its absence). I think the true spillover impacts on both immediate economic activity and long-run economic and social well-being are likely to be considerably larger than what this report has suggested. Nevertheless, it makes an important contribution to the discussion in Ontario (and elsewhere) about why it is so crucial to preserve and expand investments in quality, accessible public education.

Good luck to the OSSTF and other advocates for public education in their continuing efforts to defeat the Ford government’s austerity. The dismay that is being expressed in communities around Ontario at the prospect of much larger class sizes, cancelled option and specialist classes, and ultimately school closures is exacting a well-deserved toll on this government — which has become the most unpopular in Ontario’s history, after just a year in office. Momentum is on our side, and this initiative will be important and helpful as the movement to defend public education grows.