Want to Boost the Economy? Improve Graduation Rates

Want to Boost the Economy? Improve Graduation Rates

There’s nothing novel about levels of education being correlated to future income potential. It’s a longstanding fact that the more education one receives, the more he or she is likely to earn over their lifetime.

But what people may not realize is the impact that high school graduation rates have on the local economy. As it turns out, high school dropouts are costing the economy $1.8 billion in lost tax revenue each year.

A new report finds that increasing graduation rates to 90% could plug state and federal budget gaps simply because of increased tax revenues collected from the graduates. In Colorado, for example, the state had to cut $4.7 million from its higher education budget between 2012 and 2012. If 90% of Colorado’s high school students graduated, the state would have collected an additional $4.1 million in revenue. Instead, the state only graduated 74% of its students in 2011.

In New Jersey, the state recently cut $19.2 million from its public assistance budget. If the state could boost its high school graduation rate from 83% to 90%, it would result in an additional $19 million for state coffers.

The report—written by Civic Enterprises, America’s Promise Alliance and Johns Hopkins University’s School of Education—finds that cumulatively, a 90% graduation rate would boost wages by $5.3 billion. Together, local, state and federal agencies would collect $1.8 billion in additional tax revenue. In all, the report concludes that a 90% graduation rate would lead to $6.6 billion in economic growth each year.

Dropout prevention efforts require upfront investment, but ultimately pay dividends. By some estimates, there is a return of $1.45 to $3.55 for every dollar of investment. If we use these numbers, it means that each new high school graduate provides a net benefit to taxpayers of $127,000 over the course of his or her lifetime. Even if the annual 1.3 million dropouts were reduced by half, this would produce nearly $1 trillion in economic benefit after just 11 years.

Combine new tax receipts with the savings from fewer public subsidies—such as welfare and healthcare costs—and the impact on the economy is massive.

While low high school graduation rates plague the entire country, there is a pronounced racial gap. Nationwide, only 7 of 10 ninth graders will go on to receive their high school diplomas. More than 80% of white and Asian students finish high school, a stark contrast from the 55% of blacks and Hispanics. Given the high concentration of minorities in inner cities, inner cities are particularly affected by the dropout crisis.

Cities in general do a poor job at graduating their students. Almost 50% of students in the nation’s 50 largest school districts fail to get a high school diploma, according to a CBS News report. At one point in time, the U.S. was the world leader in high school graduation rates; we’ve slipped to 18th.

With federal dollars dwindling, cities and states should look for ways to boost local high school graduation rates. It’s clear that, in addition to being a moral imperative (every child deserve a high-quality education), there’s an economic case for increasing the number of our students who complete high school. Ultimately, it is not just high school graduates that will reap the rewards—indeed, all taxpayers will.

May 9th, 2013

TAGS: economic development | cities | taxes | education

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