Curing Baumol’s Disease: In Search of Productivity Gains in K–12 Schooling

Jul 2010

Public schools in most areas of the U.S. are caught in the vise of declining revenues and rising costs.

Policymakers talk about innovating to do more with less, but to date no one knows what that looks like in education. The truth is that dramatically more productive schooling models simply have not emerged in the last two decades, even amidst cost pressures that drove spending up faster than inflation or GDP.

While education differs in important ways from other service sectors, improvement in productivity in other economic sectors may hold important lessons for understanding how the education system can become more efficient and effective.

This paper first explores the past and future outlook for education absent productivity gains. The authors then discuss several areas in which labor-intensive businesses have improved productivity: information technology, deregulation, redefinition of the product, increased efficiency in the supply chain, investments by key beneficiaries, production process innovations, carefully defined workforce policies, and organizational change. They conclude with a five-step agenda for finding the cure for Baumol’s* disease in public education.

*In the 1960s, economist William Baumol observed that productivity (defined as the quantity of product per dollar expended) in the labor-intensive services sector lagged behind manufacturing. Because labor-intensive services must compete with other parts of the economy for workers, yet cannot cut staffing without reducing output, costs rise constantly. This phenomenon, of rising costs without commensurate increases in output, has been labeled Baumol’s cost disease.