Transforming Education

Good morning. Thank you, Michael, for that kind introduction. It is a pleasure to be here with all of you at this important conference. I am going to give some prepared remarks, and then I look forward to taking your questions. I am going to challenge you in my remarks. I hope you challenge me right back with your questions in an active discussion. Before I begin, let me remind you that my comments are my own, and do not necessarily represent the views of the Federal Reserve System.

Introduction

The goal of this conference is to “explore the interplay between the development of kids and their communities, with an understanding that ‘development’ factors into key economic and social aspects of kids’ lives.” We know that there are many important factors that contribute to the health of communities and the opportunities that children have, including family, education, health care, safety and nutrition, among others. All are important, but in my talk I am going to focus on education—because I believe education, more than anything else, can and must be the great equalizer in our society. A child born into poverty who receives a good education can climb out of poverty and reach his or her full potential. You know as well as I do that children who stay in school and receive a good education are far more likely to stay away from drugs, gangs and crime, to get a good job and to have a healthy, productive life.

But the real power of education is that it transforms more than one life. An entire lineage—future generations, children and grandchildren—can be put on a safer, healthier, more prosperous path. Education, more so than anything else, has the ability to break the cycle of poverty that continues to devastate so many families and communities. Children of parents who stay in school and get a good education are far more likely to follow a similar path.¹ You know the old adage: Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime? Well, I think we should update it: Teach a man or woman to fish, and they will teach their children to fish. That is the real power of education.

You may wonder: Why is a senior Federal Reserve official talking about education? What does education have to do with the Fed? Congress has given the Fed a dual mandate, which we talk about all the time: stable prices and maximum employment. As I mentioned earlier, a key determinant of employment outcomes is education. People who receive more and better education tend to have more job options and lower unemployment. It is vital to understand education if we want to understand the drivers of maximum employment. And while the Federal Reserve may not have policy tools that can directly affect education, we do have world class independent research capabilities that might be able to help. We have researchers in the Federal Reserve studying productivity growth that we, as our nation’s central bank, cannot directly influence. Similarly, if the Fed can objectively analyze education models that can help more Americans get and keep good jobs, I believe it is important we do that research and share our findings with other policymakers. This research may help us achieve maximum employment as a nation.

The context for change

Part of our nation’s remarkable economic success over the past century came from investments in education decades ago, which led to an enormous lead in education attainment over other countries.² In 1910, education levels were very low everywhere. Even in the United States, which was already the world leader, only 11 percent of U.S. working-age adults had completed secondary school. By 1970, that had climbed to 57 percent for America, but to only 22 percent in the other advanced economies, giving us a big advantage in skilled labor. But then U.S. gains slowed, so that by 2010, just 62 percent of working-age Americans had at least a secondary education, while other advanced economies had climbed to 54 percent.³ Our education advantage eroded as other countries caught up. We must not stand still—not just for the sake of our economic competitiveness, but also so that we become a fairer society where all Americans have a real opportunity to fulfill their potential.

The high end of our education system is second to none. But, alarmingly, we still have terrible education gaps in our country. Americans of color and those living in poverty still, today, have far worse educational opportunities and outcomes than their wealthier, white counterparts.

In the most recent data available, from 2014, 87 percent of white high school students graduated within four years. Graduation rates for Hispanic children were 76 percent, for African Americans 73 percent, and for American Indian and Alaska Natives 70 percent.⁴ In addition, children from low-income families are consistently behind in school achievement and graduation rates compared with children from higher income families. In 2014, 75 percent of low-income students graduated on time compared with 89 percent of higher-income students.⁵

This maps directly to employment outcomes. Today, while the headline unemployment rate for white Americans is 4.1 percent, it is 8.1 percent for African Americans and 5.6 percent for Hispanics. Among adults at least 25 years old, the unemployment rate for those who didn’t graduate high school is 7.9 percent, while it is only 2.4 percent for those who have a college degree. When we include those who are stuck in part-time jobs and those who have given up looking for work, the numbers are roughly twice as high.⁶

Over the past few decades, there has been a lot of attention, activity and programs to try to close these educational and employment gaps. At the local level, in some communities and in some neighborhoods, progress has been made. But these small successes simply haven’t moved the needle at a national level. We have to admit it: As a nation, we have failed.

Continuing to deny millions of Americans their opportunity for a better life is a national tragedy. The time for targeted, small-scale interventions has long since passed.

I was one of the first responders battling the terrible financial crisis in 2008. One of the things I learned from that experience is that you don’t tackle a crisis with incremental solutions. You tackle a crisis with overwhelming force.

So I ask you now: Are we as a nation finally serious about closing our educational gaps? Do you agree with me that these gaps are a crisis? If your answer is yes, then we must move beyond targeted, narrow interventions and boldly pursue transformational, nationwide changes in our education system.

Focusing on schools

Some people correctly point out that schools are responsible for educating kids. It isn’t their job to raise kids. In a 6- or 7-hour school day, 180 days a year, how can we expect schools to compensate for so many potential challenging factors in a child’s life? The child is away from school 5 out of every 6 hours in a year. Perhaps it’s not fair to expect schools to perform miracles.

It is a lot to ask, but I do believe focusing on schools as a key point of intervention is essential. First—if we wait until all other aspects of a child’s life are put on a good path, we will never get going. I agree that high-quality early childhood education helps children arrive at kindergarten prepared to succeed, as my colleagues at the Minneapolis Fed have documented over the past 15 years. But we need to follow up on these investments. If we don’t, we will doom additional generations to a life of lost opportunity. Second—schools are a controlled environment that lends itself to change. They are institutions where policy can make a direct impact. And third—the good news is that there are schools that are truly transforming children’s lives; schools that are nothing short of miraculous. I’ve seen them with my own eyes. This can be done. It is not too much to ask. Recent empirical evidence also suggests that high quality schools can be enough to increase academic achievement among the poor.^{7 8} There are schools that focus on kids from poverty, whose parents never went to college. Oftentimes, English is the families’ second language. And, despite all those challenging background factors, the schools educate the kids so that they perform as well as kids from wealthier families with well-educated parents. Kids leave those schools career and college ready. It absolutely can be done.

Although each of these miraculous schools is different, I have seen some common elements. Usually it starts with a great principal who is truly a visionary leader. That principal attracts high-quality, motivated teachers who share the principal’s vision. Together they create a culture of excellence and high expectations for every child. And they work, as a team, to achieve success for their students.⁹ The details are usually different—customized for the needs of their students in their neighborhood. There is no one model that will work in all inner city schools, or across the country in all rural communities.

The challenge with these miraculous schools, and this isn’t a criticism, is that they are hard to scale. Usually they add one grade level per year, taking great care to maintain and deepen the school’s culture. It’s a prudent, sensible strategy. Too rapid growth could undercut the success that they are working so hard to achieve. After all, the principal’s and the teachers’ jobs are to help their kids in that school to learn. Their jobs aren’t to close the education gap for all kids. That is the job for policymakers and researchers. But we must learn from those miracle workers and find ways to bring their success to all students.

What does transformation look like?

If we really are serious about finally addressing the educational gaps in America, I believe we need an approach that delivers on two fundamental dimensions: customization and scale. Each community is different. Their families are different. The kids and cultures are different. One size, imposed from above, definitely does not fit all. But the approach needs to allow for innovation and customization while also working at a scale of millions of kids. If we aren’t focused on meeting the needs of all kids in America, then we are turning our backs on all those we leave behind. So I challenge you to honestly ask yourself: Am I working on an approach that can scale to meet the needs of all the kids in our country? Why not?

We need to consider all transformational approaches that can deliver both customization and scale. I will now offer you one such approach for your consideration that I believe has the potential to dramatically close our education gaps. It has three components:

1. Maximum choice
2. Dispassionate accountability
3. Independent research

I will next describe those components and how they could work together to deliver transformational change to our education system. While I am not necessarily committed to this one specific transformational approach, I am committed to fixing a system that is failing. I challenge all of you and everyone reading this speech to offer even better approaches that deliver real transformation. The status quo is unacceptable.

Maximum choice

To explain this approach, let me begin with an example of choice at work. America has the best higher education system in the world. Students from all over come to America because of how strong our university system is. Choice is an essential element to that system. When young people approach their senior year of high school and think about going to college, they can look wherever they want: the neighborhood college, the state university system, another state’s system or private colleges. For example, even though I was born and raised in Ohio, I only applied to state schools outside my home state.

What does this choice give us? It provides an essential ingredient for innovation and customization. Choice creates a marketplace where competition for students forces colleges and universities to always try to improve. It eliminates the presence of local or national monopolies in the higher education system. Choice also forces universities and colleges to recognize that different students have different needs. Students choose their colleges in part based on how good those schools fit their educational needs. Some colleges specialize in certain fields of study. Some offer smaller class sizes. Some offer a wider array of electives. Part of what makes our university system so effective is its ability to innovate and customize to meet the individual needs of students. I, for example, chose to go to the University of Illinois at Urbana-Champaign because it has an excellent engineering school that fit my educational needs.

In an elementary and secondary education context, the same principles can apply. I believe all parents—across income, racial and geographical groups—should be able to choose where to send their children to school: traditional public, magnet, charter or private. I attended traditional public schools through 8th grade, but my parents chose to send me to a private school for high school. In America today, middle-class and wealthy families already have some forms of school choice. Some families send their kids to private school. Other families move to better neighborhoods to make sure their kids attend good schools. Low-income families generally can’t do either. Why do we prevent low-income families from having the same opportunity for their kids? These are the kids that deserve the best schools. Yet we give them the fewest options. Why? How is that fair? The great equalizer in our society is reserved for those already on top.

Choice and innovation are essential to developing more miraculous schools that I described earlier. Allowing a thousand flowers to bloom, each tailored to the needs of their students, is the best approach I am aware of that can achieve both the scale and the customization that our education system needs.

Dispassionate accountability

But choice (and the innovation that it enables) is not enough. It must be paired with dispassionate accountability to ensure that kids have access to high-quality schools. A recent study of a public school choice lottery showed that the lottery winners who attended their first-choice schools did better in college attainment only when they gained access to a better quality school.¹⁰ School quality was the critical factor.

I believe there is a market failure in the elementary and secondary education market that requires policy intervention. It turns out that it can be difficult for families to know if their neighborhood schools are good. You’ve no doubt heard the joke that most people don’t like Congress, but most people like their own representative? (By the way, I am not picking on Congress. The Federal Reserve isn’t popular either, but I suspect regional Reserve Banks are more popular locally than the System is as a whole.) The same tends to be true of local schools. People are much more likely to be dissatisfied with their school system than with their local school or their child’s individual teacher, even if that local school or that teacher is a poor performer. It is hard for parents to really know.

Some states have tried to tackle this market failure by assigning letter grades to schools, A, B, C, D, F, based on some objective measure of the schools’ performance, such as test scores and graduation rates. It is hard for parents to ignore if their child’s school earns a failing grade. Parents then tend to demand corrective action or the chance to send their kids to a different school.

Not only do parents need the information to make informed choices, but I also believe states or cities need to dispassionately shut down failing schools or replace management and staff when they fail to improve sufficiently. For the market to work, success needs to be rewarded and failure needs to end. The charter school movement nationally suffers in many areas because poorly performing charters are too often allowed to continue operating. Not only are the students in those schools harmed, but the performance averages for charters as a whole also suffer, masking the remarkable success high-performing charters are having.

One model could be for cities or states to create an independent, nonpolitical body to objectively assess how schools are performing and issue letter grades to schools. If the poor performers don’t improve quickly, shut them down or install new management and staff. The same standards should apply evenly to all schools receiving government funding, including both nonprofit and for-profit schools. One option could be to model it in a similar manner to the Defense Base Closure and Realignment Commission (BRAC) that made tough choices about military base closures in the 1990s. The decision to assess and potentially close a neighborhood school can be very emotional for a community. Anything that can make it less political and instill public confidence in the process will likely help.

Regardless of the implementation method, I believe maximum choice combined with dispassionate accountability, based on objective performance measurement, is essential to developing a scalable, customized system that will meet the needs of all of our students. For example, evidence suggests that the charter school systems in Boston and New Orleans seem to have a suitable mix of choice and accountability, and are associated with impressive academic outcomes for children from a variety of backgrounds. Experts who examined the Boston charter schools reported substantial positive effects and cited the key role of the system’s accountability framework.¹¹ In New Orleans, a number of researchers have studied the emergence of charter schools following the Hurricane Katrina tragedy and consistently found them associated with gains in student achievement.^{12 13} These examples highlight the use of choice and accountability in charter school systems, but these principles can be applied across other school types and within public school districts.

Independent research

The final component is independent research. Researchers in universities, think tanks and nonprofits are playing an important role. They are helping to analyze what is working and what isn’t. Researchers are helping to improve assessment methods for teachers and schools. And they are trying to identify and share the best practices that high-performing practitioners on the ground are pioneering. I don’t believe our goal should simply be a marketplace for the survival of the fittest. Independent research, firmly based on data and critical analysis, will play a key role in helping all schools and students succeed.

To that end, the Federal Reserve is going to bring its substantial research expertise to bear on these important issues. In January, the Federal Reserve Bank of Minneapolis launched the Opportunity and Inclusive Growth Institute, where we are partnering with leading academics to conduct world-class research to measure, analyze and make recommendations to improve the economic well-being of all Americans, with a particular focus on structural barriers that limit people from fully participating in the economic opportunity of our nation. While the Federal Reserve may not have policy tools that can directly affect educational outcomes and economic opportunity more broadly, we are going to do our part, and we will inform other policymakers about our findings.

Conclusion

This Federal Reserve Community Development Research conference is in its 20th year. The first conference was in 1997. In those 20 years, more than 10 million American kids dropped out of high school. My question to you is, 20 years from now, at this conference in 2037, how many more kids will have dropped out? Another 10 million? More? Good intentions and a lot of activity are not enough. Results are what matter.

If you don’t like the approach I described, that is fine. What is your transformational approach? Can it scale to meet the customized needs of millions of students? Let’s get it out there for consideration. At our current failure rate, in the 25 minutes I’ve been speaking, 24 more students have dropped out of high school. The clock is ticking.

Thank you.

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Endnotes

1 Bradbury, Bruce, Miles Corak, Jane Waldfogel and Elizabeth Washbrook. 2015. Too Many Children Left Behind: The U.S. Achievement Gap in Comparative Perspective. New York: Russell Sage Foundation.

2 Goldin, Claudia, and Lawrence F. Katz. 1997. Why the United States Led in Education: Lessons from Secondary School Expansion, 1910-1940. Working Paper 6144. National Bureau of Economic Research.
Goldin, Claudia. 1998. America’s Graduation from High School: The Evolution and Spread of Secondary Schooling in the Twentieth Century. Journal of Economic History 58(2): 345-74.

3 Note that working-age adult refers to population ages 15 to 64. Barro, Robert, and Jong-Wha Lee. 2013. A New Data Set of Educational Attainment in the World, 1950-2010. Journal of Development Economics 104: 184-98.

4 National Center for Education Statistics. Public High School Graduation Rates. Accessed March 7, 2017. https://nces.ed.gov/programs/coe/indicator_coi.asp

5 DePaoli, Jennifer L., Robert Balfanz and John Bridgeland. 2016. Building a Grad Nation: Progress and Challenge in Raising High School Graduation Rates. Civic Enterprises and Everyone Graduates Center, School of Education, Johns Hopkins University.

6 U.S. Department of Labor, Bureau of Labor Statistics. 2017. The Employment Situation—February 2017. Supplemental data available at www.bls.gov.

7 Dobbie, Will, and Roland G. Fryer Jr. 2011. Are High-Quality Schools Enough to Increase Achievement Among the Poor? Evidence from the Harlem Children’s Zone. American Economic Journal: Applied Economics 3(3): 158-87.

8 Angrist, Joshua D., Parag A. Pathak and Christopher R. Walters. 2013. Explaining Charter School Effectiveness. American Economic Journal: Applied Economics 5(4): 1-27

9 Rivkin, Steven G., Eric A. Hanushek and John F. Kain. 2005. Teachers, Schools, and Academic Achievement. Econometrica 73(2): 417-58.

10 Deming, David J., Justine S. Hastings, Thomas J. Kane and Douglas O. Staiger. 2014. School Choice, School Quality, and Postsecondary Attainment. American Economic Review 104(3): 991-1013.

11 Cohodes, Sarah, and Susan M. Dynarski. 2016. Massachusetts Charter Cap Holds Back Disadvantaged Students. Brookings Institution. www.brookings.edu/research/massachusetts-charter-cap-holds-back-disadvantaged-students/

12 Abdulkadiroglu, Atila, Joshua D. Angrist, Peter D. Hull and Patag A. Pathak. 2016. Charters without Lotteries: Testing Takeovers in New Orleans and Boston. American Economic Review 106(7): 1878-1920.

13 Harris, Douglas N., and Matthew Larsen. 2016. The Effects of the New Orleans Post-Katrina School Reforms on Student Academic Outcomes. Education Research Alliance for New Orleans, Tulane University.