Post-WWI urban school spending significantly boosted attainment and wages
A new Philadelphia Fed working paper evaluates the impact of early investments in urban school systems in the United States. It finds that post-World War I spending significantly increased educational attainment and wages, particularly for less advantaged children.
Wartime sentiment fuels educational gains
Cities in the United States dramatically expanded spending on public education after World War I, with per pupil expenditures increasing by over 70 percent by 1924.
This unprecedented investment significantly increased educational attainment and wages later in life, particularly for less advantaged children.
The study finds that these expenditures can explain about 40 percent of the sizable increase in educational attainment for cohorts born between 1895 and 1913.
A 10 percent increase in educational expenditures per pupil across an individual's 13 school-age years led to an increase in schooling of about one month, raised the probability of completing eight and twelve years of schooling by about 2 percentage points, and increased adult wages by about 1.6 percent.
The effects on primary schooling and wages were notably larger for the children of blue-collar workers.
Anti-German sentiment as a policy catalyst
The empirical strategy relies on the observation that post-World War I expansions in school resources were partly a response to anti-German sentiment.
World War I abruptly downgraded the status of ethnic Germans in the United States, leading to widespread hysteria and efforts by city governments to assimilate children of 'enemy aliens' through public schooling and expanded budgets.
The authors use this anti-German panic to construct an instrument for school resources, providing a plausibly exogenous growth in school spending.
This approach addresses the potential bias of endogenously determined school resources, ensuring that the estimated returns to educational spending are economically significant and robust.