Saturday, April 19, 2008

More on School Expenditures Over Time

This is a follow-up to my last post where I posted a graph that surprised me. As a percentage of GDP, per-pupil expenditures have remained flat over time -- other than during WWII a little under a dollar per billion dollars of GDP per student. The first comment (by the author of the post that prompted my post) asked why we should expect to spending on education to rise over time compared to GDP. I gave a terse response in my follow-up comment, but I'd like to take more time to flesh that out.

To oversimplify economic theory, many goods can be counted as either necessities or luxuries and people (and countries) are expected to increase their spending on luxury items as income increases while simultaneously decreasing their spending on necessities relative to their income. So, for example, somebody making a million dollars per year is expected to spend a smaller portion of their budget on food and shelter than is somebody making twenty thousand dollars per year. At the same time, the wealthier person is expected to spend a greater share of their budget on wine or boats or vacation homes. They're able to do this because they have more "discretionary income" -- money beyond what's needed to pay for the bare necessities of life.

Countries work in a similar fashion. There are certain things that even the poorest country must spend money on (e.g. a basic system of defense or a basic network of roads) and some things that wealthy countries can afford to devote a larger share of income towards as their discretionary income increases (e.g. science research or museums).

So, whether you believe that education spending should increase, decrease, or remain the same relative to GDP depends on how you view education spending. If you think that it's a bare necessity, then you would expect it to decrease over time as we gain more money. If you view it as more of a luxury good, then you'd expect spending to increase over time as discretionary income increases. If you view it as somewhere in between, then you might expect spending to stay relatively flat over time.

I said at the beginning of the post that I was surprised when I saw that it was flat. I was surprised because I was under the distinct impression that countries tended to spend a larger share of GDP on education as they become wealthier. I guess further investigation is needed to find out whether I was wrong or if the US is an outlier.

Update: Actually, when I corrected the graph, it appears as though spending per pupil compared to GDP per capita has been falling rather than flat


Anonymous said...

I said at the beginning of the post that I was surprised when I saw that it was flat. I was surprised because I was under the distinct impression that countries tended to spend a larger share of GDP on education as they become wealthier.

I'd be interested to see international statistics on that. Clearly nations spend more on education as they get wealthier, but I wouldn't be at all surprised if the spending rose less fast than overall wealth, at least basic literacy was fairly widespread.

DesertSurfer said...

This is definitely some interesting information. My only question is if this data is strictly FEDERAL spending as a part of GDP or does it also include state spending.

I am actually one of those radical people who would like to seriously look into getting rid of the US Dept. of Education as the Founders (I believe rightly so) looked at education as being a STATE/LOCAL issue.

GREAT post and blog!!

Corey Bunje Bower said...

Rachel - I'm looking into it, but I'm in the middle of finals week so it might take a while

teacher - the data, as I understand it, is all education spending by all governments. It's definitely not just federal education spending, since that's only a tiny fraction of total expenditures and the figure for the final year is about 10K per pupil. That said, I think I have to make some adjustments to this chart, but it might take me a little while.

Corey Bunje Bower said...

oh, and thank you!

Roger Sweeny said...

I too am surprised there is not some upward trend. So I'm curious just exactly what is in your denominator.

Does it include everything you would have to budget for if you were to start a school? Does it include building cost (either building new or renting)? Does it include teacher retirement costs, or just present pay?

Is it 1-12? K-12? K-12 plus college? K-12 plus college and post-graduate? K-12 plus college and post-graduate and other educational expenditures (beauty school, Head Start, etc.)?

Roger Sweeny said...

Oops! That should be "in your numerator."

Corey Bunje Bower said...

As far as I can tell it supposed to represent the total budget of all K-12 schools in the United States divided by the number of students.

This needs some re-analysis though, which I should be able to get around to soon.

Roger Sweeny said...

I suppose it all depends on what questions you are asking of the data, but several of those questions would require including (at least) college and post-graduate spending as part of "spending on education."

Also, one thing I have noticed is that many colleges now offer remedial courses and remedial programs. In effect, just about every community college (and a lot of four-year colleges) say, "We don't care how little skills and knowledge you left high school with. We have programs to get you up to speed." Should those expenditures be counted as K-12?

Anonymous said...

Actually edu spending as % of gdp has gone up.
so if total spending goes up and per student spending stays the same? then the increase in students must be greater than the spending increase. Are more people getting an education now than in the past, in relative and absolute terms, probably. this paper shows that in the early 1900s only half the pop had an 8th grad edu.

Corey Bunje Bower said...

Anonymous: You'll notice two differences between my chart and the link you posted:

1.) My chart starts at 1980, while yours goes back over 100 years. The chart you posted shows government spending at about 6% of GDP in both 1970 and 2010 with some ups and downs in between.

2.) Your chart is government spending on all education (including college) as percentage of GDP. My chart is the ratio of per-pupil expenditures on K-12 schooling to GDP per capita.

What the two charts show a.) isn't that different, and b.) certainly could both be correct simultaneously.