Politics

12.19.13

Improvements in Public Education May be One of Mayor Bloomberg’s Most Important Economic Legacies

Critics say New York City’s technology, finance, and housing booms have left the poor and middle-class behind. But a new study suggests that improvements in public school performance are leading to rising incomes and property values across the city.

As Michael Bloomberg prepares to leave the post of New York City mayor after three terms, analysts are rightfully focusing on his economic legacy. Much of the discussion has centered around the rezoning of vast regions of New York, the controversial addition of bike lanes and changing traffic patterns, a new technology campus on Roosevelt Island, the development of downtown Brooklyn, and the high-end construction boom throughout the five boroughs.

There’s one area that has thus far received short shrift: public education. In fact, a new analysis suggests that Bloomberg’s signature reforms of public education are likely to have a significant economic pact. Under Bloomberg’s reforms, the share of New York City youths earning their high school diplomas and the share going on to college both rose sharply. Those accomplishments are mostly viewed through the lens of education or social policy. But the improvements also have a significant long-term economic impact. For some 71,000 young New Yorkers, the “income premiums” associated with those improvements should add more than $15 billion to their lifetime incomes – and the benefits are not limited to those students. The study also found that home property values rose substantially in the neighborhoods where schools improved the most, by as much as $60 billion. 

I conducted the study with Kevin Hassett, of the American Enterprise Institute, in conjunction with The Fund for Public Schools. The full study can be seen here. We focused on changes in three objective measures of student performance – test scores by New York public school students on statewide tests, high school graduation rates, and rates of college attendance.

We started with the test scores on statewide tests, to see if those scores tracked the improvements in graduation and college attendance rates. With other researchers, we found that they did. From 2006 to 2012, the “mean scale” scores of New York City students on English Language Arts tests rose two percent, twice the gains of all students across New York State. Similarly, New York City students’ scores on the statewide mathematics tests increased four percent, compared to a three percent gain across the State. Moreover, students from the poorest parts of the City, the Bronx and Brooklyn, showed the greatest improvements. 

Students from low-income, minority backgrounds also account for much of the improvements in high-school graduation rates. From 2006 to 2012, the four-year graduation rate of New York City students increased from 49 percent to more than 60 percent, an increase of 23 percent.  Progress by African-American and Hispanic students drove much of those increases. From 2006 to 2012, graduation rates for African-American students increased from less than 43 percent to 55 percent, a 28 percent jump. Similarly, the graduation rates of Hispanic students rose from 40 percent to nearly 53 percent, a 31 percent improvement.

It hardly bears repeating that students who graduate high school earn substantially higher incomes throughout the working lives than those who drop out. Economists use those differences to calculate the “net present value” of a high school diploma – the value in today’s dollars of the additional income which, on average, they will earn over their lifetimes. Today, that net present value comes to $218,000. Using 2006 graduation rates as our reference, we calculated that from 2008 to 2012, 41,000 more New York City public high school students earned their diplomas than would have occurred if the same share of students had graduated as in 2006. That tells us that the improvements in graduation rates under the Bloomberg reforms will raise their lifetime earnings by nearly $9 billion.

Similarly, from 2008 to 2012, nearly 31,000 more New York City public school students enrolled in institutions of higher learning than would have occurred if the college enrollment rates of New York City students in 2006 had persisted. To calculate the net present value of the additional lifetime income all of the additional New York City students who enrolled in college, compared to ending their educations with a high school diploma, we tracked the income differences, less the average cost of college tuition and their foregone income while in college. We found that the lifetime value of enrolling in college comes to $207,000, in today’s dollars – which tells us that the net present value of the additional income that the additional 31,000 New York City college attendees will earn comes to $6.4 billion. On top of the income gains derived from higher high-school graduation rates, this suggests that improvements in student performance under Bloomberg’s reforms should raise the lifetime earnings of New York City students by some $15 billion.

Better schools also are associated with higher property values, so we tested whether these improvements had those effects in New York. Using a technique that tests for statistical causality, called the “Granger Causality” test, we analyzed the relationship between changes in New York City property values by zip code, covering 94 city zip codes, and changes in graduation rates in those zip codes. It showed that each one percent improvement in the graduation rates in a zip code led to a 0.53 percent increase in residential property values in that zip code, in the following year. On this basis, we estimate that New York City’s rising graduation rates from 2008 to 2012 have added more than $37 billion to the total value of the city’s residential housing stock.

We also explored whether New York’s major expansion of charter schools has had economic effects. At a basic level, Bloomberg’s strategy granted schools and their principals much greater autonomy – and large funding increases to accompany it – in exchange for greater accountability for the results. The reforms also expanded school choice for public school students, and then enhanced those choices by adding nearly 200 new public charter schools.  This combination of greater accountability and enhanced choice intensified competition for students among schools, especially since funding follows the students. 

While two national studies have found that across the country, charter schools do not outperform other public schools, three recent studies of New York City concluded that students at those schools perform better than students at other City public schools. We tested whether Bloomberg’s expansion of charter schools also has affected property values in the city, independent of changes in graduation rates. We found that across nearly 200 New York City zip codes, the addition of one new charter schools in a zip code led to a 3.8 percent increase in residential property prices in that zip code in the following year. Based on the expansion of those schools in this period, the results suggest that the charter-school reforms have added more than $22 billion to New York City’s residential property values. On top of the boost in property values tied to higher graduation rates, these results suggest that Bloomberg’s reforms have added nearly $60 billion to the city’s residential property values.

Across the country, the record of educational reforms is mixed. Nevertheless, by several objective measures, the academic performance of New York City public school students has improved markedly under the reforms enacted since 2002. Moreover, those improvements can be expected to generate large income benefits for tens of thousands of New York City students, and they already have produced substantial economic benefits for New York City homeowners.  These achievements deserve emulation.