Working Paper: Measuring Inflation in Public School Costs
The desire to understand the patterns of variation in educational services over time has increased the need for meaningful and reliable measures of the patterns of educational cost differences. Measuring these patterns of variations, however, is not a simple undertaking. To account for these variations, it is necessary to adjust the actual values of expenditures that are commonly reported by public school systems in order to determine the real differences in educational services over time. What is needed is a cost-of-education index that measures the changes in the prices of school inputs (personnel and nonpersonnel items used in the provision of school services) in the United States over time.
Specifically, an inflationary cost-of-education index (ICEI) would measure the level of inflation in the salaries of comparable teachers, school administrators, and noncertificated school personnel, as well as the prices paid for nonpersonnel inputs at different points in time. An ICEI would measure how much more or less it costs to provide the same quantities and qualities of school inputs at these different points in time.
An inflationary cost adjustment for education would, in fact, be helpful in providing important accountability data for policymakers and educators who increasingly want to know what the nation is getting for its investment in education. This report addresses the following question:
- Are the dollars invested in U.S. education today buying the same level of educational services or resources as in previous years?
The purpose of this report is to develop an inflationary cost-of-education index that improves upon measures of inflation previously proposed and used by researchers in the field. Until now, NCES and others attempting to adjust actual data that have been reported over time for educational expenditures have had to use the consumer price index (CPI), the gross domestic product deflator (GDPD), and the elementary-secondary school price index (SPI) developed by the Research Associates of Washington, DC (1994). More recently, Mishel and Rothstein (1996) have proposed the net services index (NSI), a modified version of the service index of the CPI, as an alternative measure of inflationary trends. The Bureau of Labor Statistics also publishes an employment cost index (ECI) which measures inflation in hourly wage rates for public elementary and secondary school personnel.
In contrast, this report presents a comprehensive measure of inflation for the prices of school inputs. The methodological approach builds on the same hedonic wage model used in previous work by Chambers (1995b) to develop a geographic cost-of-education index. The analysis presented in this report uses this model to estimate patterns of wage inflation and makes several significant improvements in the empirical application of the model:
- Improvements in explanatory measures. The present analysis incorporates additional measures of teacher quality (for example, quality of the undergraduate college attended), explores alternative ways of measuring teacher experience, includes more accurate data on local crime rates, controls for the effects of collective bargaining, and uses a more sophisticated measure of labor market competitiveness—the Herfindahl index.
- Extension to additional school inputs. This report extends Chambers' (1995) earlier work on teachers to include school administrators, selected categories of noncertificated school personnel, and specific categories of nonpersonnel inputs. Major data sources include the NCES Schools and Staffing Survey (SASS) for teachers and administrators and the Current Population Surveys for noncertificated personnel. Component indexes (indexes of specific goods and services used to make up the consumer price index or any other overall index) from the Consumer price index and the Producer Price Index are used for nonpersonnel inputs.
- Application to expenditure data. The inflationary cost adjustment developed in this report is applied to national level expenditure data to illustrate how such an index may be utilized to adjust actual expenditure data reported by NCES.
- Comparison with alternative indices. This report will compare the ICEI with alternative cost adjustments indexes such as the consumer price index (CPI), the gross domestic product deflator (GDPD), the school price index (SPI) created by the Research Associates of Washington, DC (1995), the net services index (NSI) proposed by Rothstein and Mishel, and a modified version of the employment cost index (MECI) for public elementary and secondary school personnel produced by the Bureau of Labor Statistics (BLS).
In addition to focusing directly on school inputs, the ICEI attempts to adjust for the qualitative differences in those inputs employed over time. The index controls for variations in a fairly wide range of personal and job characteristics that affect the supply of, and demand for, school personnel. It reflects differences over time in factors that underlie cost-of-living differences and differences in the characteristics of regions that affect their desirability as places to live and work. In addition, the methodology reduces the influence of forces within the control of school decisionmakers by including in the ICEI only those factors that are beyond local control. Finally, the inflationary cost adjustments contribute to the school finance policy debate by improving how the NCES can report fiscal information over time. This ICEI enhances an understanding of factors that affect changes in the patterns of demand for school inputs over time.
The purpose of the comparison between the ICEI and the alternative indexes is to illustrate the extent of difference between these alternative measures. While each of these indexes measure something different, they are theoretically linked to one another, and the comparison will provide some evidence as to how close the patterns of change are among these alternative measures of inflation.