Investing in education—Investing in our future

Invest more in education—it is good for the economy. A seemingly simple and logical statement, and arguably difficult to refute. However, in the political landscape of Ontario, we are subjected sound bites from all sides of the political spectrum. Thoughtful, substantiated and factual discourse has eroded as populist rhetoric has grown to become the way to do political business in Ontario, and in many other jurisdictions.

To move the dialogue away from simple unsupported assertions toward a discussion about facts and authentic data, the Ontario Secondary School Teachers’ Federation (OSSTF/FEESO) asked the Conference Board of Canada to look at the numbers and answer a simple question—When you invest public money into education, is it good for the economy? High quality, quantitative research would help answer this question, and not a continuance of empty rhetoric.

The result was a research report produced by Conference Board entitled The Economic Case for Investing in Education, which was released to the public on June 19, 2019 at an Empire Club of Canada event in Toronto.

The report’s methods key findings—that investing in education leads to overall economic growth and reduces public spending in key areas—represent a departure from most research on the relationship between education and the economy. Most research—and certainly the current government—tends to focus on education’s role in giving individuals access to higher earnings and better job opportunities. These are important considerations, but they are also private, individualized measures. Focusing on the link between education and employment reduces public education to a mere tool of the economy and makes it seem as though the education system is only important to current students and their families.

While it is doubtlessly important that students find meaningful and fulfilling careers, OSSTF/FEESO commissioned this study to find out whether educational investments impact more than just students and their families. In other words, the key question was: are there public benefits—benefits everyone shares in—that come from education investments? By providing an independent economic analysis, The Economic Case for Investing in Education confirms what supporters of public education instinctively know: education is indeed for everyone.

To investigate the public benefits of investing in education, the Conference Board researchers looked at two general economic areas. In the first part of the report, the authors investigate the impact of education spending on the overall economy. In the second, they link research on educational outcomes to spending in other policy areas. It’s important to keep the findings of each part separate. The report doesn’t say that the 1 per cent increase described in the first part would necessarily lead to the improved outcomes and reduced spending in the second part. They are separate analyses. Nonetheless, they are both compelling and while either part makes a strong case for increasing educational investments, in combination they leave no doubt.

Let’s look at the report in more detail
When economists look at the economic impact of any injection of money into the economy—from corporate investments to Pride Parades to government spending—they look at three kinds of effects: the direct impact of the investment in terms of employees’ wages in the sector; the indirect impact that comes from purchasing goods and services the sector needs (for example, desks, school supplies, real estate, and school buildings); and, finally, what economists call ‘induced’ impacts, which are the new jobs, business opportunities and additional tax revenue that are created when employees in the sector spend their wages. Using sophisticated models, economists then use the direct, indirect and induced impacts to estimate overall economic growth, changes in wages and changes in government revenues that result from introducing new money into the economy, again, either through private investments or through public expenditures.

The education system is a particularly important sector for this type of analysis because K–12 education is already responsible for 291,000 jobs (either directly or indirectly) and accounts for 3.2 per cent of the overall size of the economy. In The Economic Case for Investing in Education, the authors looked at what would happen if the government increased its investment in education by 1 per cent. Based on the 2018–2019 expenditure of $29.1 billion in education, a 1 per cent increase would be $291 million. The results are remarkable.

First off, the authors found that a 1 per cent investment would create increased economic activity worth $371 million. The economy would grow by more than the original investment! This growth would include 4,234 jobs and $275 million in additional wages and salaries. Keep in mind that these new jobs and increased salaries would be across the economy, not just for educational workers. Naturally, when jobs and salaries increase, so do tax revenues. The Conference Board estimates that total tax revenue would increase by $94 million, including $36 million in provincial taxes and $54 million in federal taxes. That means that nearly one third of the initial $291 million would be returned to various levels of government to support additional investments.

In short, for every $1 invested in education, there would be a $1.30 worth of economic growth. Unfortunately, the opposite is also true. As the government takes money out of the education system, they are also cramping our province’s economic growth. For every dollar the education system loses, the economy contracts by $1.30.

However, the general economic impact of investing in education is only half of the story.

As noted earlier, higher levels of education attainment are understood to lead things like higher salaries and less precarious employment. We can add to those private benefits things like better health outcomes and lower likelihood of involvement in criminal activity. The Economic Case for Investing in Education argues that these private benefits actually translate into social benefits because they reduce government expenditures in key areas.

To make the case, the authors review research that demonstrates the connections between investment in education and educational attainment, educational attainment and lower reliance on health care and social assistance programs and, finally, educational attainment and lower likelihood of involvement in the critical justice system. As a general proxy for educational attainment, the authors used Ontario’s graduation rate. This is particularly useful in the current Ontario context because the 15 per cent increase in graduation rates that we have seen since the Mike Harris days are under direct threat. As the government increases secondary class size averages, boards are already starting to cut key support staff. Larger classes and reduced supports are a potentially devastating combination and will make it more difficult for many students to keep on the path to graduation.

Using graduation rates as an indicator of improved education outcomes, the authors then set up three scenarios to allow comparisons. In the first scenario, they assumed no improvement in the current 86.2 per cent graduation rate. In the second, they assumed an investment in education that would increase Ontario’s graduation rate to 90.0 per cent. This would bring Ontario into line with Nova Scotia, which currently boasts the highest graduation rate among the provinces. Finally, they calculated the opposite, namely the effect of cuts that reduce Ontario’s graduation rate to
82.6 per cent.

Based on the connection between graduation rates and financial, health and criminal justice outcomes the authors establish through their literature review, the authors then estimate how the changes in graduation rates in each of their three scenarios would affect spending on health care, social assistance, and the criminal justice system.

Here again, the findings are remarkable. Overall, boosting graduation rates to 90 per cent would result in an annual savings of $2,767 for each additional high school graduate across the three areas. That works out to $16.4 million per year and over 20 years would save the government coffers roughly $3.5 billion. The report breaks down these costs by policy area. In health care, the province would save $6.4 million annually ($1.4 billion over 20 years), $5.1 million would be saved annually on social assistance ($1.1 billion over 20 years) and $4.9 million would be saved annually in the criminal justice system ($1.0 billion over 20 years).

By contrast, if government policies lead to the lower graduation rates analyzed in the third scenario, public would likely spend an additional $3,128 per year on each additional high school non-completer. This works out to approximately $18 million in extra costs per year and over 20 years would accumulate to an additional $3.8 billion. Over 20 years, that would be an additional $1.4 billion each on health care and social assistance as well as an extra $1.0 billion on criminal justice.

Unfortunately, how much to spend to achieve a 90 per cent graduation rate as well as how to spend it (i.e., on smaller classes, professional development or technology) were beyond the scope of the report. There is considerable debate in the education literature on these issues already, but The Economic Case for Investing in Education shows the fiscal benefits that governments will get from making that investment.

The numbers and conclusions speak for themselves. Investing in education is good for the economy, and conversely cutting education spending has an equally negative effect. The Ontario Progressive Conservative government cannot deny the findings of this report. As the government embarks on a journey of cutting education funding, it also risks disrupting Ontario’s economy and costing us more.

We can only hope that politicians who hold the levers of power will pay attention to well researched facts to formulate public policy rather take the path that is guided by populist sound bites and unsubstantiated half-truths.