Economic issues surrounding the U.S. education system

Economic issues surrounding the U.S. education system

The department of education in the U.S. estimated that primary, secondary and higher education expenditure in 2008 amounted more than $700 billion, which is about almost 7% of the United States gross domestic product.  About 56 per cent of this amount has been dedicated to public elementary and secondary schools expenditures.  The percentage of the total state and local government revenue devoted to kindergarten to 12th grade education has remained fairly constant, and this is the largest percentage spent on any category. This has given homeowners, parents and the business community a reason to recognize the economic importance of providing this education.

Based on this significant amount of state revenue being spent on primary and secondary education, it is necessary to have a better understanding of the economics returns expected to be generated from these expenditures and what measurable returns are these expenditures to the government. The current economic status in the United States is in such a situation that there is recession, subsequent weak recovery and increased public spending (Boozer and Cecilia, 2011). Some states have acted to correct the situation by raising taxes while others have cut on their expenditures, including in many cases the expenditures for locally provided elementally and secondary education by about 9.1% automatic across-the-board cut, representing the largest ever cut. These cuts will be particularly disruptive to most schools as some of them will take effect in January 2013 – in the middle of 2012-2013 school years. In addition, most states appear less willing to raise taxes than ever. This will result in more schools experiencing a reduction in state aid in the coming fiscal years, and the important question being in regard to the production of quality kindergarten to 12th grade education service is, especially to states that have restrictions on the rate at which local property tax revenues that school districts collect can rise for example in Michigan, California and Massachusetts (Boozer and Cecilia, 2011). A reduction per student expenditure was the only available alternative.

This being the situation, there is most likely to be a significant rise in the number of failing schools and students receiving inadequate education. Furthermore, local districts schools are in the weakest fiscal conditions to deliver a quality public education. Today, there number of school drop-outs especially in high schools is something to worry about, since a high school graduation is basic for college admission (Altonji and Dunn, 2010). In fact if the numbers of today’s college graduation holds as steady as they have been, by the year 2018 the United States will be short of at least three million college educated workers for the projected jobs that will require at least college education.

The United States had the world’s highest number of high school and college graduations in the 1970s. This has changed as today the United States has dropped to being 21st in high school completion and 15th in college completion. Many countries have surpassed United States in the quality of primary and secondary education. Only 70 per cent of ninth graders today will get their high school diplomas according to the organization for economic and cooperation development (Bureau of Economic Analysis, 2010).

The United States Centre for education statistics (NCES) reported school drop-out rates to range between 4 to 6.7 per cent from 2004 to 2010 with year to year fluctuations (Altonji and Dunn, 2010). Major factors associated with this dropout rates are; student and family factors such as gender, racial and ethnic minority status, poor performance and low self-esteem, substance abuse and pregnancy. School factors; schools in which students have limited opportunity for academic success have high dropout rates. The failure of students to find positive social relationship with teachers who care and support them in academic endeavors is another reason. This has been found to have resulted from the imbalance between the academic demands of the school and the resources that are available for the students to meet those demands, thus students end up failing and being frustrated for instance if retained in a grade and end up dropping out.

The high school dropout rates today come with a cost to the entire country’s economy. The high unemployment rate, increase in crime rate subsequent cost of imprisonment, low income contribution to the economy due to the low productivity of these dropouts among others. The funding cuts to public schools have adverse effects in the long run compared to raising the taxes to cater for better quality kindergarten to 12th grade education for the children. The cost to produce a graduate has a return of about $1.45 to$3.55 for every dollar of investment depending on the education strategy (Bureau of Economic Analysis, 2010). Each graduate confers a net benefit to the taxpayer of about $127,000 over the graduate’s lifetime. This could benefit the public by about $90 million each year if the dropout rates are reduced by half.


Proven educational strategies to increase high school completion such as provision of high quality pre-school will provide returns to the taxpayer that are as much as three and a half times their cost. Wise investing of public resources to reduce the number of school dropouts must be a central in the strategy to raise a long-run economic growth, to reduce inequality and return fiscal health to federal, local and state governments.




Altonji, Joseph G., and Dunn, Thomas A. (2010). “Using Siblings to Estimate the Effect of School Quality on Wages.” Review of Economics and Statistics, 78(4): 665-71.

Boozer, M., and Cecilia R. (2011). “IntraschoolVariation in Class Size: Patterns and Implications.”Journal of Urban Economics, 50: 163-189.

Bureau of Economic Analysis. (2010). National Economic Accounts: 2011 Comprehensive Revision of the National Income and Product Accounts. Washington, DC: U.S Department of Commerce. Retrieved November 29, 2012, from

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