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Tuesday, March 7, 2017

The Economic Benefits of School Choice

The debate over school choice often focuses on principled arguments, such as individual and parental freedom, religious rights, etc. These are important arguments and they should be considered first and foremost in the school-choice debate. However, that does not mean that the economic issues are to be ignored - on the contrary. Given the economic crisis here in Wyoming, we must take into account the economic aspects of any kind of government-spending reforms. If we can combine principled arguments for school choice with good fiscal and macroeconomic arguments, then obviously we have a winning recipe.

The fact of the matter is that school choice could be an economic boom for Wyoming.
It could be a $450-million industry creating thousands of new private-sector jobs. 

There are two steps to the economic benefits of educational freedom: the macroeconomic effects of new businesses - for-profit or not-for-profit - opening up around the state; and the positive, long-term benefits on youth entrepreneurship that is associated with school choice.

The last point is almost never brought up in the context of school choice, yet there is convincing research showing that kids who have had the freedom of school choice are 25 percent more likely to start businesses and choose an entrepreneurial career, than kids in non-choice school systems. This means, plain and simple, that if we had a school-choice system in Wyoming, we would not only see more businesses emerge and grow in our state, but we would also retain a larger share of every class that graduates high school. Governor Mead has expressed an interest in seeing both things happen; he now has yet another reason to come out in favor of school choice.

The more immediate macroeconomic benefits of school choice are associated with the establishment of new businesses around the state. It does not really matter what form of association the new schools choose: if they are not-for-profit organizations, foundations, LLCs or incorporated, does not make a difference at the macroeconomic level. What matters is instead the potential for new jobs and better education at lower cost. 

A realistic estimate of the economic benefits from school choice suggests that if Wyoming families were allowed the same school-choice opportunities as they have in Wisconsin, we could soon have 11,000 jobs in private schools all over our state. Add to that the emergence of businesses in support of private schools as well as the return of tax money to the private sector (when the cost of K-12 education goes down) and we have the potential give our state economy a major boost. 

The Wisconsin school-choice model is interesting as an object of comparison for primarily two reasons: it started in Milwaukee in 1990, being very much tried and true by now; and has since expanded to a point where it enrolls 34 percent of all eligible K-12 students in the state. 

Annually, private schools produce educational services for almost $2.9 billion in Wisconsin. It is important to keep in mind that this number includes all kinds of private-instruction institutions, not limited to K-12 education. However, if we make the reasonable assumption that the K-12 schools are overwhelmingly dominant in this category - a fair assumption - we can use it as part of a hypothetical scenario explaining the benefits that school choice would have for Wyoming.

In 2014 private schools in Wisconsin employed 70,566 people. Their average employee compensation was $35,754 which does not sound like much; in fact, it implies that teachers in private schools make much less money than in public schools. That, however, would be a rush to conclusion. We cannot distinguish teachers from other employee categories in available data; it is reasonable to assume, though, that private schools have more part-time workers and fewer well-paid administrators than public schools. Especially the last point pulls down the average compensation figure.  

The employee and compensation figures are important as we proceed. Before we put them to work, though, let us take a quick look at some facts about the Wisconsin school-choice system. There are four different choice programs, three based on vouchers and one based on a tax credit (all numbers are from 2015):

The Milwaukee Parental Choice program has 26,686 participating students, which amounts to 57 percent of all students eligible for the program; average voucher funding is $7,366; students go to 113 different schools;
The Statewide Parental Choice program has 1,011 participating students, which amounts to 26 percent of all eligible students; average voucher funding is $7,388; students go to 31 different schools;
The Racine Private School Choice program - local to the city of Racine, 30 miles south of Milwaukee - has 1,733 participating students, which amounts to 25 percent of all eligible students; average voucher funding is $7,324; students go to 15 different schools;
The Individual K-12 Private School Tax Credit program - which started in 2014 - has an estimated 38,500 participating students, which amounts to 27 percent of all eligible students; average tax credit is $4,696.

In total, almost 68,000 students benefit from school choice in Wisconsin, which is one third of all the 200,000 eligible students. By comparison, there are approximately 867,000 students in Wisconsin K-12 schools, which means that, so far, the choice programs have only reached a portion of all students. 

Let us assume that we in Wyoming created a school-choice program that offered both vouchers and tax credits. Let us also assume that we made all 94,000 K-12 students in our state eligible for the program; that the vouchers and tax credits provided the same average funding as in Wisconsin; and that we, like them, could reach a 34-percent participation rate among eligible students. 

Here is the estimated outcome:

1. We would have almost 32,000 students in private schools of their parents' choice;
2. Vouchers would pay almost $235 million to those schools;
3. Assuming additional private funding - tuitions paid directly by parents, donations to non-profits, contributions from churches to confessional schools, etc - private schools could produce a total economic value of $447 million per year;
4. Assuming the same school employee to student ratio as in the Wisconsin private-school system, private schools in Wyoming would employ more than 11,000 people;
5. With an average employee compensation on par with Wisconsin, private-school employees would earn a total of more than $401 million per year.

To put the 11,000-job figure in perspective, oil and gas extraction employs less than 10,000 people in our state. 

With a total economic value of $447 million per year, private schools would be as important to our economy as private hospitals, nursing homes and residential-care facilities.

Add to this the fact that a student in this hypothetical school-choice program costs $9,000 less per year than a student in public schools. We can now reduce the state's budget deficit by $287 million - and that is before we consider the positive multiplier and accelerator effects from the school-choice program.

Someone, please remind me again - what are the arguments against school choice...?

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