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Education improves people's lives: a good education is a step towards a good job; it raises incomes and boosts productivity; it enables people to fulfil their potential; and it is linked with better health and happiness. Governments invest heavily to reap the benefits of education - but what should the money be spent on? Economists investigate how education affects individuals and the society in which they live.

Education matters for people's employment, earnings and wellbeing. It is one of the driving forces behind a country's productivity and influences social mobility. It is also one of the biggest areas of government spending (at £92.4 billion in 2019-20 - third behind social protection and health). Economists investigate what influences educational achievement and inequality - and how education affects people's lives.

For the last 30 years, researchers at the Centre for Economic Performance (CEP) have explored many important issues in the economics of education. This Insight highlights some of CEP's contributions - covering the effects of school expenditure, whether good teaching can be taught, the consequences of the school academies programme, the use of choice and competition in education policy, and vocational pathways beyond school.

Does more funding lead to higher grades?

It is not obvious how much funding matters in education because so many other things obscure the relationship between the level of government expenditure and pupil achievement. CEP researchers Stephen Gibbons, Sandra McNally and Martina Viarengo solved this problem by carefully evaluating how much school expenditure matters for student outcomes through comparing similar schools on different sides of a local authority boundary.

The government formula used to allocate funding to schools through local authorities (between 2004 and 2009) meant that similar schools could receive large (and unfair) differences in per pupil funding. This difference in funding caused large differences in pupil performance and suggests a strong role for general funding increases in raising achievement in urban state schools.

To get an idea of how much difference it makes, if pupil achievement were measured on a scale of 1 to 100, an increase of £1,000 per pupil per year over four years would move a pupil who started at the mid-point of 50 up to point 62 on the scale. This means pupils make, on average, four additional months' progress over four years (between age 7 and 11), compared with those in schools without this extra funding.

Given that many students have lost at least this amount of schooling during the Covid-19 pandemic, this suggests that making up ground will not be cheap (but money will make a difference).

Can good teachers be made?

Education economists agree that good teachers are the most important school input (as opposed to class size, for example). But it is not simple to attract and retain good teachers - or even to identify who is a good teacher during the recruitment process (as the teachers who help students progress most are not necessarily more highly qualified than others).

Can good teaching be taught? CEP research suggests that how literacy is taught matters for reading skills at the end of primary school - and even affects maths as well. One 2008 project looked at the effect of a highly structured "literacy hour" introduced in English primary schools in the 1990s.

By comparing schools in the de facto pilot (the National Literacy Project) with similar schools in a control group before and after the policy was introduced (what's known as a difference in differences framework), researchers Stephen Machin and McNally found the programme had a positive effect on achievement at the end of primary school. The size of the effect is much smaller than the effect of increasing school expenditure, but the cost of the literacy hour is low.

Jumping to the early 2000s, another prominent national policy changed how young children learnt to read. The Rose Review of the teaching of early reading in 2006 recommended "synthetic phonics" as the way to teach early reading and this was subsequently adopted nationally. As part of the national roll-out, the government employed teaching consultants to disseminate good practice throughout local authorities and to give more intensive guidance to a small number of schools each year.

Machin, McNally and Viarengo evaluated this intervention by comparing those schools that were first given intensive training from literacy consultants, to schools that had not yet had intensive training because they were in a later phase of the rollout. The evaluation found large initial effects (similar to those for school expenditure) just a year after the programme, but these tended to fade as pupils got older.

Most of us learn to read, in one way or another. But synthetic phonics had a sustained impact on pupils who were more likely to struggle with reading. For example, moderate effects were still found at age 11 for pupils whose first language was not English and who came from poorer families.

This research shows that teaching methods matter. Opportunities for professional development in the use of effective pedagogies will ultimately make a difference to how much pupils learn.

Sweeping reforms fail to keep early promise

Giving schools greater autonomy over various aspects of their organisation has become a popular school improvement policy in some countries - for example "charter schools" in the United States and "free schools" in Sweden. In England, "academies" have transformed the education sector since 2010. But the academies programme started out in the early 2000s as a small-scale remedial policy targeted at failing secondaries, after concerns that in some schools, teachers had lost control of the corridors. When these schools became academies, they represented a new type of state school managed by a private team of independent co-sponsors. The board of governors operated with independence from government and could take control over various aspects of school organisation including the hiring and pay of teachers, the curriculum, and structure of the school day and term dates.

CEP research by Andrew Eyles and Machin evaluated the causal impact of academy school conversion on pupil performance by comparing pupils who attended these schools before and after conversion to an academy (the difference-in-differences approach again) while also making use of the fact that some pupils were attending the school before conversion to an academy took place (what's known as an instrumental variable approach). This approach is needed to ensure the estimates of the impact are not influenced by changes in the type of pupils enrolling (or leaving) a school before and after the policy takes effect.

The findings show that, independently of differences in funding or pupil mix, the freedoms that came with these early academy conversions generated sizable effects on pupil achievement that are bigger for pupils receiving more years of tuition in an academy school. After three years, the magnitude of effect is similar to that documented above on the effects of an additional £1,000 per pupil of school expenditure over four years.

Picture of child doing test. Source: Photo by Jessica Lewis on Unsplash
Funding makes a difference to pupil outcomes. Photo by Jessica Lewis on Unsplash.

Although these findings inspire hope that the large-scale roll-out of the academies model might produce positive effects, these did not materialise. Differences between the Labour government's small-scale policy of the early 2000s and the coalition (and then Conservative) governments' large-scale academies policy starting in 2010 are documented in Academies 2 - The New Batch: The Changing Nature of Academy Schools in England, by Machin, Gibbons and Olmo Silva.

The large-scale policy prioritised higher-performing schools for conversion and most did not have sponsors. The sheer scale of the programme is incomparable to the original remedial policy. Over 70 per cent of secondary schools and 25 per cent of primary schools are now academies. In 2017, the research paper Unexpected school reform: Academisation of primary schools in England showed that conversion to academies had no effect on pupil performance in primary schools. And in the same year, an Education Policy Institute report - co-authored by CEP academics - showed that the effects for secondary academies were mixed, varying across schools of different types and without the large impact of the small-scale programme.

An additional concern is what the longer term and general equilibrium effects of the general shake-up will be. Allowing schools to "take control" has advantages - local decision-makers have stronger leverage over everyday decisions. Offsetting this, the institutions supporting coordination among local schools (local authorities) have been much weakened financially, which has consequences for support services available locally. The academy structure also removes a layer of accountability and oversight as local government is no longer represented among school governors. The long-term impacts of this change have yet to be scrutinised, but it is not at all surprising that some degree of re-centralisation has occurred among academy schools with the increased presence of multi-academy trusts.

A competition with no winners

Encouraging school choice and competition has been a feature of English education since the 1980s when parents were given the right to apply to any school of their choice. In most cases this "choice" is not real for parents who cannot afford to live near a popular school as distance from home to school is a commonly used over-subscription criterion. CEP research shows that living near a "good school" adds significantly to house prices.

Picture of pencils. Source: Photo by Lucas George Wendt on Unsplash
Having more choice doesn't necessarily lead to better performance. Photo by Lucas George Wendt on Unsplash.

Although "choice" may be perceived as a good in itself, it is also part of the marketisation of education in that it spurs competition between schools, not least because money follows the pupil. But has competition between schools led to higher performance?

CEP researchers conducted the first pupil-level analysis on this question in England. It considered primary schools in the South East of England and found that pupils who had a wider choice of schools performed no better than those with more limited choice. There was also no evidence of a causal link between school competition and school performance. Of course, this may have changed in the new environment of school academies combined with years of austerity in education. This is an important question for future research.

Post-16 education and beyond

From 2015 to 2020, CEP intensified its work on post-16 education with funding from the DfE-funded Centre for Vocational Education Research. This area of research has a long tradition within CEP because of the influential work of Hilary Steedman on the importance of apprenticeships for boosting skills.

The pathways available to young people after taking GCSEs at age 16, as they enter further education have been documented by Claudia Hupkau, McNally, Jenifer Ruiz-Valenzuela and Guglielmo Ventura who show a complex array of options, which often do not lead to progression to higher levels of qualification or to an apprenticeship. Other work also highlights the high-stakes nature of GCSE exams - the cost of even just marginally missing a good grade in these 'gateway' exams can close doors to pupils with longer-term consequences for their education and job prospects.

Apprenticeships are one of the few known and well-regarded options for pupils outside higher education. CEP research shows that doing an apprenticeship will lead to higher earnings, compared to doing similar classroom-based vocational education. But the study by Chiara Cavaglia, Machin, McNally and Ruiz-Valenzuela found the earnings return varies greatly by sector, being much higher in sector-areas popular among young men (such as engineering) than among young women (such as child development).

As the UK emerges from the pandemic, it is more important than ever to put in place structures and resources to facilitate a good education for the half of young people who pursue vocational education after school. When shocks to the economy come, whether through a pandemic, Brexit or unpredictable changes, it is vital that people have the skills to re-engage in training and the opportunities to re-skill in useful ways for themselves and for society at large. CEP research will continue to engage in building the evidence-base for effective policy.

By: Sandra McNally

State school system in England

Maintained schools are funded by central government, through the local authority. There are 152 local authorities responsible for education in England (although two are very small with just one school each). LAs are able to keep part of their maintained schools' budget to pay for central services such as human resources and ICT services, music tuition, outdoor education centres and monitoring of national curriculum assessments.

Academy schools are independent of local authorities. They are funded directly by the government and are directly accountable to the Education Secretary. They receive their full budget and can buy in those services provided by the LA for maintained schools from their own LA or elsewhere.

Both maintained and academy schools are inspected by the schools' watchdog Ofsted.

Both maintained schools and academies have control over their budget and staffing, but academies have more control over some aspects of their day-to-day running. They do not have to follow the national curriculum and they can set their own term dates, although this is also true of some maintained schools.