This is In Real Terms, a weekly column (now on Mondays!) analyzing the latest economic news. Comments? Criticisms? Ideas for future columns? Email me, or drop a note in the comments.
As millions of children across the country head back to school this month, they will be returning to schools with fewer teachers than in past years. Those teachers will be paid less, on average. And many of them will be working in school systems that receive less funding.
The 7-year-old economic recovery has not been kind to the American public education system. In May 2008, as the Great Recession was just beginning, U.S. school departments employed 8.4 million teachers and other workers, according to the Bureau of Labor Statistics. This past May, they employed just 8.2 million — despite public-school enrollments that the Department of Education estimated have risen by more than 1 million students during the same period. Student-teacher ratios are as high as they’ve been since the late 1990s, though they’re still well below their levels of the 1980s and most of the 1990s.
The staff cuts reflect a broader pullback in education funding in recent years. Public schools actually came through the recession relatively well, as stimulus money from the federal government helped offset cuts at the state and local levels. But federal dollars dried up before states were able to pick up the slack. In 2014, the latest year for which full data is available, state public-education funding was 6.6 percent lower than in 2008. (Local funding, which accounts for about 45 percent of school budgets, was down about 1 percent over the same span.) Federal spending rose, but not enough to overcome the state cuts: Per-student spending fell 2.4 percent after adjusting for inflation. (All spending figures in this story have been adjusted for inflation.)
More spending, of course, doesn’t necessarily translate into better education, and budget watchdogs have long called on states to rein in spending on administrative salaries, building construction and other non-instructional items. But classrooms haven’t been spared; instructional spending has been cut at roughly the same rate as overall budgets.
Those nationwide totals obscure significant differences at the state level. According to an analysis earlier this year by the left-leaning Center on Budget and Policy Priorities, 15 states cut per-student spending by more than 10 percent from 2008 to 2014, while a dozen states meaningfully increased funding.1 At the extremes: North Dakota, where an oil boom allowed the state nearly to double per-student spending, and Arizona, where the housing bust forced the state to slash spending by nearly a quarter. Not all the states making big cuts were necessarily forced to do so: The biggest cuts tended to come in the states that already spent the least on public education.
The good news is that the post-recession cutting seems largely to have ended. Most states have restored at least some funding in recent years, and total spending has begun to rise. But the rebound has been slow: As of 2016, at least half of states were still spending less per pupil out of their main education funds than they did in 2008, according to the center’s analysis.2
The larger challenge for schools, however, may be longer-term: attracting teachers. Tight school budgets — and the broader pushback against public-sector payrolls in many states — have squeezed teacher salaries. Average weekly wages for public school teachers have dropped 5 percent over the last five years, according to a new analysis by the left-leaning Economic Policy Institute. Moreover, teacher salaries are falling further behind those of other professions that require a college degree; the trend holds up even after accounting for more generous public-sector benefits. The growing gap could have serious consequences: As my former colleague Hayley Munguia wrote last year, evidence shows that fewer top students are going into, or staying in, teaching.
The economic recovery could ease funding pressure in the next few years. But the longer-term picture is darker. The aging of the baby boom generation will put pressure on budgets at the federal, state and local levels as governments struggle to pay for health care and other costs associated with a graying population. Much of the debate over education in recent years, including on the campaign trail, has focused on expanding access to college and preschool. But ensuring adequate funding for the years in between could prove just as important.
The Federal Reserve famously has a “dual mandate”: It must try to keep unemployment low and inflation in check. Based on the latest economic numbers, it might seem like the Fed is doing a pretty good job. Inflation is low (lower, in fact, than policymakers would like), and unemployment has fallen below 5 percent amid steady job growth. Many economists inside and outside the Fed look at those figures and think it’s time to start raising interest rates to cool the economy and prevent inflation from getting out of control.
Liberal critics of the Fed, however, look at the same data and see a very different picture. They see an unemployment rate that is still distressingly high for African-Americans and other groups, and wage growth that remains weak for many workers. Raise interest rates now, they argue, and the Fed will risk snuffing out the recovery before it reaches many of the most vulnerable Americans.
Those critics got the chance to make that case to the Fed directly last week. On Thursday, ahead of the central bank’s annual conference in Jackson Hole, Wyo., a group of top Fed officials met with members of the Fed Up campaign, a liberal activist group. It’s unlikely the meeting itself will sway policy much, but there is evidence that the 2-year-old movement and its backers are beginning to have an impact. Members of Congress have recently pressed Fed Chair Janet Yellen to diversify the bank’s leadership (one of the Fed Up campaign’s goals), and minutes of the Fed’s last meeting indicate that members discussed the high unemployment rate among blacks and other demographic groups.
The week ahead
One of the most troubling — and perplexing — economic trends in recent decades has been the prolonged decline in the rate at which Americans start companies. Understanding what’s behind this entrepreneurial slump has been made more difficult by an absence of good data. This week, however, the Census Bureau plans to release data from its first Annual Survey of Entrepreneurs, which will provide detailed information on American businesses and the people who found them. The data will give a window into which industries and regions have the most startups, which types of business have the biggest economic impact, and which demographic groups are the most entrepreneurial.
As with any data set, the new survey will become more valuable over time as we see how the patterns change from year to year. But at a time when tight budgets and political controversy are forcing the government to cut back its data-collection efforts, the new survey is an exciting opportunity to answer important economic questions.
Last week on FiveThirtyEight
Is Airbnb driving up rents in pricey coastal cities? On Wednesday, Ariel Stulberg looked at the data and found the answer is probably “not yet.” But there is reason to think that could change.
Two decades after Bill Clinton and Congress ended “welfare as we know it,” the U.S. welfare system has fractured into 50 very different state systems. On Thursday, Andrew Flowers reviewed the legacy and impact of the 1996 reform.
Enjoy FiveThirtyEight’s economics coverage? Join our team.
Rents are so high in the Bay Area that tech startups are shifting jobs to Arizona, reports Conor Dougherty in The New York Times. (But hey, maybe that’s a good thing, argues Conor Sen in Bloomberg View.)
There was a time when after decades at a company, longtime employees could rest on their laurels a bit. Those times are gone, writes Lauren Weber in The Wall Street Journal.
What’s driving “wage segregation,” in which a few superstars make all the money? Samuel Hammond says (in a somewhat tongue-in-cheek essay) to blame Ezra Klein.