IMPROVING AMERICA'S SCHOOLS

The Role of Incentives

Edited by

Eric A. Hanushek and Dale W. Jorgenson

Board on Science, Technology, and Economic Policy

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.
1996



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--> IMPROVING AMERICA'S SCHOOLS The Role of Incentives Edited by Eric A. Hanushek and Dale W. Jorgenson Board on Science, Technology, and Economic Policy National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1996

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--> NATIONAL ACADEMY PRESS 2101 Constitution Ave., N.W. Washington, DC 20418 NOTICE: The conference from which the papers in this publication were drawn was approved by the Governing Board of the National Research Council, whose members come from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the board responsible for the project were chosen for their special competences and with regard for appropriate balance. This publication was supported by the Kellogg Endowment of the National Academy of Sciences and the Institute of Medicine and by the Alfred P. Sloan Foundation. Library of Congress Cataloging-in-Publication Data Improving America's schools : the role of incentives / edited by Eric A. Hanushek and Dale W. Jorgenson. p. cm. Includes bibliographical references and index. ISBN 0-309-05436-2 (alk. paper) 1. School management and organization—United States. 2. Educational change—United States. 3. School improvement programs—United States. I. Hanushek, Eric Alan, 1943- . II. Jorgenson, Dale Weldeau, 1993- . LB2805.I434 1996 371.2\00973—dc21 96-44606 CIP Cover: The emblem appearing on the cover of this publication is an illustration of the bronze medallion in the floor of the Great Hall in the National Academy of Sciences building in Washington, D.C. the medallion is the wellhead placed in the floor when the spectroscopic case over which the Foucault pendulum swings is lowered below floor level. The design is based on a map of the solar system published in 1661 by Andreas Cellarius Palatinus. The array of the planets is the Copernican system as known to Galileo. Copyright 1996 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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--> BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY Chairman A. Michael Spence Dean, Graduate School of Business Stanford University John A. Armstrong Amherst, Massachusetts James F. Gibbons Dean, School of Engineering Stanford University George N. Hatsopoulos President and CEO Thermo Electron Corporation Karen N. Horn Chairman and CEO Bank One Cleveland Dale Jorgenson Frederic Eaton Abbe Professor of Economics Harvard University Ralph Landau Consulting Professor Economics Stanford University James T. Lynn Advisor Lazard Freres Burton J. McMurtry General Partner Technology Venture Investors Ruben Mettler Chairman and CEO (retired) TRW, Inc. Mark B. Myers Senior Vice President Xerox Corporation Donald E. Peterson Chairman and CEO (retired) Ford Motor Company James M. Poterba Professor of Economics Massachusetts Institute of Technology George M. Whitesides Professor of Chemistry Harvard University Staff Stephen A. Merrill Executive Director Charles W. Wessner Program Director Lena L. Steele Administrative Assistant George Georgountzos Program Associate

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--> The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. On the authority of the charter granted to it by Congress in 1863, the Academy has a working mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. William A. Wulf is interim president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is the president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The council is administered jointly by both academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and interim vice chairman, respectively, of the National Research Council.

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--> Contents     Preface   vii 1   Introduction Dale W. Jorgenson   1 2   Research-Based School Reform: The Clinton Administration's Agenda Marshall S. Smith, Brett W. Scoll, and Jeffrey Link   9 3   Outcomes, Costs, and Incentives in Schools Eric A. Hanushek   29 4   Changes in the Structure of Wages Brooks Pin   53 5   The Effects of School-Based Management Plans Anita A. Summers and Amy W. Johnson   75 6   Management Decentralization and Performance-Based Incentives: Theoretical Considerations for Schools Jane Hannaway   97 7   Signaling, Incentives, and School Organization in France, the Netherlands, Britain, and the United States John H. Bishop   111

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--> 8   Public School Partnerships: Community, Family, and School Factors in Determining Child Outcomes Rebecca Maynard with Meredith Kelsey   147 9   Using Student Assessments for Educational Accountability Daniel Koretz   171 10   Value-Added Indicators of School Performance Robert H. Meyer   197 11   Economics of School Reform for At-Risk Students Henry M. Levin   225 12   Staffing the Nation's Schools with Skilled Teachers Richard J. Murnane   241     Index   259

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--> Preface With the exception of the Introduction, the papers in this volume were presented at a conference, "Improving the Performance of America's Schools: Economic Choices," held at the National Academy of Sciences in Washington, D.C., on October 12 and 13, 1994, with the support of the Kellogg Endowment Fund of the National Academy of Sciences and the Institute of Medicine and the Alfred P. Sloan Foundation. This conference was organized under the auspices of the Board on Science, Technology, and Economic Policy (STEP) of the National Research Council, by a committee that I chaired and that included Eric A. Hanushek, professor of economics and public policy at Rochester University, and Stephen A. Merrill, executive director of the board. The STEP board was established in 1991 as a long-delayed response to a decision by the National Academy of Sciences to admit economists as members almost three decades ago. The principal objective of the new board was to harness the interests and abilities of economists, industrial technologists, and scientists in advising policymakers on issues of science, technology, and economic policy. The first report of the STEP Board, Investing for Productivity and Prosperity, was published in June 1994. It called for policies that foster investment in the nation's future economic capacity. The main focus of the report was the taxation of income from capital. The principal recommendation was to shift the base for taxation from income to consumption. This recommendation and the rationale presented in the board's report proved to be important harbingers of the recent revival of interest in consumption-based tax reform. The conference on "Improving the Performance of America's Schools: Economic Choices" was the STEP board's second effort to articulate policies to

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--> enhance investment in human capital, in the economic jargon now fashionable among policymakers. The point of departure for the conference was the nearly contemporaneous publication of a report by a group of 13 economists, the Panel on the Economics of Education Reform (PEER), supported by the Pew Charitable Trusts and headed by Eric Hanushek. The intention of the PEER group's report, Making Schools Work: Improving Performance and Controlling Costs,1 was to initiate a serious intellectual debate over education policy by supplying a new, and previously absent, economic dimension. The chapters in this publication explore several aspects of that dimension, including the relationship of education to future earnings, the effects of school organization and management, school and community influences on student outcomes, measuring student achievement and school performance, and recruiting and retaining skilled teachers. Dale W. Jorgenson Cambridge, Massachusetts 1   Eric A. Hanushek et al., 1994, Making Schools Work: Improving Performance and Controlling Costs, The Brookings Institution, Washington, D.C., 1994.

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Improving America's Schools

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