U.S. Productivity Soars in Business, Slumps in Education

Published September 1, 2004

Productivity in the U.S. economy soared an impressive 60 percent over the past three decades in terms of output per hour, but productivity in U.S. public schools fell by 42 percent over the same period in terms of reading achievement per dollar spent, according to Harvard University economist Caroline M. Hoxby.

In 1970, output per hour in the U.S. economy was 70.6, according to the U.S. Department of Labor’s Bureau of Labor Statistics (BLS). By 1998, productivity gains had boosted that figure to 112.3, an increase of 59.1 percent. In a recent essay titled “A Better Way: Productivity and Reorganization in the American Economy,” the Federal Reserve Bank of Dallas explains how competition encourages companies to adopt new technologies in order to increase efficiency and lower costs.

According to the Federal Reserve report, output per person today is about 25 times higher than it was at the nation’s founding in 1776. At that time, more than 90 percent of the population worked in agriculture. Today, with the benefit of improved seeds, chemical fertilizers, irrigation, and machines to mechanize the planting and harvesting of crops, only 3 percent of the nation’s workforce earns a paycheck from agriculture. Computer technology, cell phones, teleconferencing, spreadsheet programs, and the Internet are driving far-reaching productivity gains among today’s industrial and commercial enterprises.


Hoxby analyzed productivity changes in U.S. public schools in a 2001 study titled “School Choice and School Productivity,” using student test scores on the National Assessment of Educational Progress (NAEP). When she calculated NAEP points per thousand real dollars spent per pupil, she found educational productivity fell by approximately 42 percent between 1970-71 and 1998-99 for NAEP reading scores.

If today’s public education dollars were spent at the productivity level of the early 1970s, the achievement level of today’s public school students would be dramatically higher, according to Hoxby.

“In fact, the average 17-year-old would have a score that fewer than 5 percent of American 17-year-olds currently attain,” she noted. “The mean American student would be classified by the NAEP as an ‘advanced’ student.”

If today’s public schools produced the same reading scores as the early 1970s at the productivity level of the early 1970s, then today’s education spending would be 42 percent lower, according to estimates by School Reform News. With the U.S. Department of Education reporting $501.3 billion spent on public education in 2003-04, a 42 percent savings would total more than $200 billion a year.

George A. Clowes is managing editor of School Reform News. His email address is [email protected].

For more information …

Caroline M. Hoxby’s February 2001 paper, “School Choice and School Productivity (or Could School Choice be a Tide that Lifts All Boats?)” is available online as NBER Working Paper No. 8873 from the National Bureau of Economic Research at http://www.nber.org/digest/aug02/w8873.html.

The 2003 Annual Report of the Federal Reserve Bank of Dallas, “A Better Way: Productivity and Reorganization in the American Economy,” issued May 13, 2004, is available online at http://www.dallasfed.org/fed/annual/2003/ar03.pdf.