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The Link Between The Economy and Education

February 20, 2012 3 minute Read by James W. Guthrie

If the United States is to meet intensifying global economic challenges and restore growth domestically, it must improve schooling. As the U.S. faces a challenge to remain commercially competitive, policies to escalate economic growth move front and center. Government regulations, tax rates, infrastructure modernization, investments in research and development, and a myriad other exogenous conditions influence the pace of a nation’s economic growth. However, educating citizens effectively is also a major long run economic growth determinant. Better educated citizens contribute to a nation’s economic well-being in several ways:  they bring increased human capital, and the prospect of increased productivity, to the labor force; they are more innovative and able to develop new technologies; and they are more able to understand, implement, and build on technological innovations of others. An educated citizenry also contributes to a nation’s economic well being through added civic engagement and social cohesion. Hoover Institute economist, Eric Hanushek, and Ludger Woessmann of the University of Munich have explored connections between education and economic growth.  They rely upon international math and science test results, which they contend are more representative of a nation’s average level of cognitive skills than a simple years-of-schooling measure.  Using assessments dating back 40 years and a sample of 50 nations, Hanushek and Woessmann concluded that nations with higher test scores experienced higher rates of economic growth.  Specifically, if a nation had test scores half a standard deviation higher than another in 1960, that nation experienced an average of one percent more GDP growth per year over the 40-year period from 1960 to 2000. This relationship between cognitive skills and economic growth has significant consequences for the future of the United States’ economy.  If the U.S. had fulfilled the promise of “First in the World by 2000,” as proposed in President George H. W. Bush’s 1989 Governor’s Summit, or even come close by raising scores 50 points to the performance level of students in of Canada, Hanushek and Woessmann concluded that the U.S. rate of GDP growth would have been 4.5 percent higher by 2015.  Even if the increased test scores came more slowly, taking 20 years to achieve instead of 10, in 75 years, real GDP would be 36 percent higher than if no such gains were made. With both international and domestic test scores and the economy slowed, it is a critical time for the U.S. to invest in improving the former if one hopes to see eventual gains in the latter. This post was written by James W. Guthrie, Senior Fellow and Director of Education Policy Studies at the George W. Bush Institute. 


Author

James W. Guthrie
James W. Guthrie

Dr. Guthrie is the Superintendent of Public Instruction for the State of Nevada and is a professor at the Annette Caldwell Simmons School of Education and Human Development at Southern Methodist University in Dallas.

Before joining the Bush Institute, Dr. Guthrie served as director of the Peabody Center for Education Policy at Vanderbilt University and dean of the School of Education at the University of California at Berkeley.

Dr. Guthrie earned a bachelor’s degree, master’s degree, and a doctorate from Stanford University.

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