Why Increased Education Funding is Critical to Our Nation…and Manufacturing

Study finds that increased education funding pays for itself in 2.3 years

Public funding for education has been cut to the bone. At the same time, the clamor for corporate and personal tax cuts has never been higher. School systems are going broke. Teachers aren’t getting paid. Poor education means higher unemployment, increased poverty, more crowded prisons, and poorer healthcare—which all leads to higher costs for taxpayers.

The bigger picture

Is there a reliable cost-benefit analysis of education expenditures and the costs of such social ills? According to Walter W. McMahon there is. The professor of economics and of educational organization and leadership at the University of Illinois tapped a large established research base accumulated by dozens of institutions. He and his team applied standard statistical methods to estimating social cost savings with varying levels of education investment. They looked at how populations with different education levels were associated with costs of Medicaid, prisons, children’s school performance and other factors.

They also estimated the benefit to the individual as well as the reduced cost to the public of raising one high-school dropout to graduation, one graduate to a two-year degree or to a four-year degree and one college graduate to an advanced degree.

When they analyzed their data for Illinois, they concluded that, when seen as an investment rather than a cost, increases in state funding for public education yields returns of 9.5 to 15 percent. Furthermore, the payback period for the investment is 2.3 years. If you flip the cost/benefit relationship to estimate the cost penalty for cutting education budgets, any savings will be outweighed by increased expenses. Past skimping is one cause of rising social costs states are incurring now. McMahon’s research, by quantifying those relationships, shows just how short-sighted it is to save money that way.

How does this impact manufacturing?

Manufacturers are paying the price every time they try to hire workers. They are finding fewer with sufficient skills to fill out a job application, perform basic math calculations and/or pass a drug test. At the same time, not enough good students are pursuing engineering and technical career paths. But tighter budgets mean fewer school counselors, so it’s that much harder to make students aware of opportunities in manufacturing.

Better education does more than improve manufacturers’ talent pool. It also means more effective firefighters and police, teachers, bankers, auto repair services, electricians and doctors. And who knows? It could mean even better-informed taxpayers and politicians to make decisions for the future.

To examine the methodology and data that McMahon used, check out his online appendices, which has links to dozens of peer-reviewed articles.

Karen Wilhelm has worked in the manufacturing industry for 25 years, and blogs at Lean Reflections, which has been named as one of the top ten lean blogs on the web.