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Finance

Robert M. Costrell, Josh McGee.

Our goal in this paper, presented at the 2020 Brookings Municipal Finance Conference, is to better understand teacher pension funding dynamics with a focus on sustainability and intergenerational equity.  The origin of this paper is our analysis of the funding policy recommended in a highly publicized paper first presented at the 2019 Brookings Municipal Finance Conference (Lenney, Lutz, and Sheiner, 2019a; 2019b).  That proposed policy aims to alleviate rising pension payments that crowd-out classroom expenditures and teacher salaries by abandoning the attempt to pay down pension debt.  While the problem of crowd-out is real, we show that, with uncertain investment returns, the recommended policy would carry significant risk of pension fund insolvency and a jump in contributions to the pay-go rate, which is much higher than current rates. We close by proposing a policy evaluation framework that better incorporates risk and the intertemporal tradeoffs between current contributions and likely future outcomes.  We illustrate throughout with data from the California Teachers Retirement System (CalSTRS).

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Sandra E. Black, Jeffrey T. Denning, Lisa J. Dettling, Sarena Goodman, Lesley J. Turner.

Growing reliance on student loans and repayment difficulties have raised concerns of a student debt crisis in the United States. However, little is known about the effects of student borrowing on human capital and long-run financial well-being. We use variation induced by recent expansions in federal loan limits, together with administrative schooling, earnings, and credit records, to identify the effects of increased student borrowing on credit-constrained students’ educational attainment, earnings, debt, and loan repayment. Increased student loan availability raises student debt and improves degree completion, later-life earnings, and student loan repayment while having no effect on homeownership or other types of debt.

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Monnica Chan, Zachary Mabel, Preeya Pandya Mbekeani.

Performance-based funding models for higher education, which tie state support for institutions to performance on student outcomes, have proliferated in recent decades. Some states have designed these policies to also address educational attainment gaps by including bonus payments for traditionally low-performing groups. Using a Synthetic Control Method research design, we examine the impact of these funding regimes on race-based completion gaps in Tennessee and Ohio. We find no evidence that performance-based funding narrowed race-based completion gaps. In fact, contrary to their intended purpose, we find that performance-based funding widened existing gaps in certificate completion in Tennessee. Across both states, the estimated impacts on associate degree outcomes are also directionally consistent with performance-based funding exacerbating racial inequities in associate degree attainment.

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Carlos X. Lastra-Anadón, Paul E. Peterson.
The efficiency-equity trade-offs in public service delivery may be influenced by the dependency of local governments on their own resources rather than inter-governmental grants. School districts in the United States are expected both to produce human capital efficiently and to provide educational opportunity equally. To ascertain school district trade-offs, we estimate effects of revenue source on student performances in math and reading. Achievement is estimated from 225,000 observations weighted to be district representative. Estimates are made with OLS, geographic discontinuity models exploiting differences at state borders, and 2SLS models that use changes in housing prices as an instrument. For every 10 percent increase in local revenue share, achievement increases by a sizeable 0.02 to 0.06 standard deviations. Gains for students from low socio-economic backgrounds are about half those from higher ones. Both voice and exit channels moderate the efficiency-equity trade-off. Implications for federalism and state policy are discussed.

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Jing Liu, Julie Cohen.

Valid and reliable measurements of teaching quality facilitate school-level decision-making and policies pertaining to teachers, but conventional classroom observations are costly, prone to rater bias, and hard to implement at scale. Using nearly 1,000 word-to-word transcriptions of 4th- and 5th-grade English language arts classes, we apply novel text-as-data methods to develop automated, objective measures of teaching to complement classroom observations. This approach is free of rater bias and enables the detection of three instructional factors that are well aligned with commonly used observation protocols: classroom management, interactive instruction, and teacher-centered instruction. The teacher-centered instruction factor is a consistent negative predictor of value-added scores, even after controlling for teachers’ average classroom observation scores. The interactive instruction factor predicts positive value-added scores.

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Kenneth A. Shores, Christopher A. Candelaria, Sarah E. Kabourek.

Sixty-seven school finance reforms (SFRs) in 27 states have taken place since 1990; however, there is little empirical evidence on the heterogeneity of SFR effects. We provide a comprehensive description of how individual reforms affected resource allocation to low- and high-income districts within states. We then examine whether characteristics of the SFR, such as the funding formula that was adopted, predict effect size heterogeneity. Taken together, this research aims to provide a rich description of variation in states' responses to SFRs, as well as explanation of this heterogeneity as it relates to contextual factors.

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Charles T. Clotfelter, Helen F. Ladd, Calen R. Clifton, Mavzuna Turaeva.

Using detailed administrative data for public schools, we document racial and ethnic segregation at the classroom level in North Carolina, a state that has experienced a sharp increase in Hispanic enrollment. We decompose classroom-level segregation in counties into within-school and between-school components. We find that the within-school component accounted for a sizable share of total segregation in middle schools and high schools. Recognizing its importance could temper the praise for school assignment policies that reduce racial disparities between schools but allow large disparities within them. More generally, we observe between the two components a complementary relationship, with one component tending to be large when the other one is small. Comparing the degree of segregation for the state’s two largest racial/ethnic minority groups, we find that White/Hispanic segregation was more severe than White/Black segregation, particularly within schools. Analyzed as separate administrative units, schools with large shares of Black students tended to have more White/Black segregation across classrooms than schools with smaller shares. Finally, we examine enrollment patterns by course and show that school segregation brings with it differences by race and ethnicity in the courses that students take, with White students more likely to be enrolled in advanced classes.

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Matthew P. Steinberg, Haisheng Yang.

Principals shape the academic setting of schools. Yet, there is limited evidence on whether principal professional development improves schooling outcomes. In 2008-09, Pennsylvania’s Inspired Leadership (PIL) induction program required that newly hired principals complete targeted in-service professional development tied to newly established state leadership standards within five years of employment. Using panel data on all Pennsylvania students, teachers, and principals, we employ difference-in-differences and event study strategies to estimate the impact of PIL induction on teacher and student outcomes. We find that PIL induction improved teacher effectiveness (in math) and student math achievement, and that the effects of PIL induction on teacher effectiveness were concentrated among the most economically and academically disadvantaged schools in Pennsylvania. Principal professional development had the greatest impact on teacher effectiveness when principals completed PIL induction during their first two years in the principalship. We also find evidence that teacher turnover declined in the years following the completion of PIL induction. We discuss the implications of our findings for principal induction efforts.

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Jason A. Grissom, Jennifer D. Timmer, Jennifer L. Nelson, Richard S.L. Blissett.

We investigate the male–female gap in principal compensation in state and national data: detailed longitudinal personnel records from the state of Missouri and repeated cross-sections from the nationally representative Schools and Staffing Survey (SASS). In both data sets, we estimate substantively important compensation gaps for school leaders. In Missouri, female principals make approximately $1,400 less annually than their male colleagues with similar characteristics leading the same school in different years. SASS analyses show that women make about $900 less than men nationally, on average. These gaps are only partially explained by sorting, career paths, and other labor supply-side mechanisms, suggesting that gender discrimination contributes to male–female pay differences in school leadership.

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Corey A. DeAngelis, Christian Barnard.

The effects of competition from public charter schools on district school budget decisions are theoretically ambiguous. Competitive pressures could increase desired budget autonomy since they give district school leaders more flexibility; however, competition could decrease desired budget autonomy if district school leaders are generally risk-averse or if they believe that central office staff are in better positions to make school-level budget decisions. Competitive pressures could also increase or decrease changes in school-level spending depending on school leaders’ beliefs about how to efficiently allocate resources.

We randomly assign surveys to district school leaders in Texas in the 2019-20 school year to determine the effects of anticipated competition from public charter schools on reported desire for budget autonomy and expectations about future school-level spending decisions. We find the first experimental evidence to suggest that anticipated charter school competition has large negative effects on school leaders’ reported spending on certain categories of support staff, and reduces, or has no effect on, the reported desire for more school-level budget autonomy. The negative effects on spending for support staff tend to be larger for school leaders with more experience.

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