An Economic Perspective on School Efficiency

To economists, the output of the educational process—namely, students’ achievement—is related directly to a

series of inputs. These inputs include the schools’ characteristics (including student demographics) and the

types of resources given to schools. These include real classroom resources (teacher education pre- and

in-service, teacher experience, teacher–pupil ratios, curricula and instructional materials); financial resources

(expenditures per pupil and educators’ salaries); and other resources (specific teacher characteristics and

skills, administrative costs, and facilities). Family socioeconomic status and community variables are also

essential educational inputs. All these factors have interactive and cumulative effects on student learning.

Realistically, public policy can affect the school-based input factors but not the personal or home-based input

factors. Outputs can be measured by proxies for students’ learning including standardized achievement test

scores, school attendance rates, and high school dropout and graduation rates. Economists use the

“educational production functions”—the relationship between inputs and outputs (through correlation or

multivariate analyses) or “cost-quality” studies—to speculate about why public school costs (inputs) keep rising

while student performance (outputs) does not.

From an economist’s perspective, an inefficient school or district is one that generates lower than

expected outcomes (outputs) with higher than expected expenditures (inputs). In the economists’ view,

inefficient schools lack the correct choice of input mix, given the price of inputs and value of outputs. As they

see it, no strong or systematic relationship appears to exist between school spending (for items such as

teacher salaries, teachers’ years of experience in the classroom, and class size47) and student

achievement/performance.48 By contrast, an efficient school or district is one that generates higher than

expected outcomes using lower than expected expenditures. A school or district is “cost efficient” if it can

produce the expected outcomes under given circumstances—including student population, school district size

and location, differences in competitive wages for teachers, and costs for health care, heating and cooling, and

transportation—at the minimum “cost.”