Educational investment and economic growth

Oregonians know funding public education is one of the smartest investments taxpayers can make. Investments in education pay for themselves many times over, not just in a better economy but also with a better quality of life for everyone in the state. To get the best outcomes, Oregon needs to sustain improved programs over the entire course of a students educational careers. Since Oregon schools are currently so underfunded, bringing education funding back up to an adequate level will require a significant amount of new revenue.

Improving Oregon’s educational system is one of our best population level economic improvement options. Nearly all the proposals we’ve seen for improving Oregon’s economy include some recommendations for educational investment. The Path to Prosperity report that we’ve been discussing in our five part series includes a number of educational programs ranging from early childhood education to career and technical education. These are good ideas, but unfortunately their report makes no suggestions for raising revenue to pay for these programs. Therefore, any enhancement in education for some students would come at the expense of others. It doesn’t have to be an either or:  Oregonians support raising funds for education. In today’s post we estimate the education investments necessary to make a real difference. In the following post we will present our plans for raising the revenues needed to make those investments.

Early Learning

Funding early learning programs is a good investment, with potential returns of $8 or more for every $1 spent. Aside from starting kids on a good path early, early learning programs like Head Start can free up parents to participate in the labor force. Currently not all eligible families are able to participate in Head Start, due to lack of funding. According to the Oregon Head Start Association, providing universal pre-K services to all 35,000 3 and 4 year olds living in poverty who are not currently being served would cost about $290 million in additional funding per year. This would be a wise investment in Oregon’s future.

Career and Technical Education

Across the state, employers have unmet needs for skilled workers. By expanding and strengthening Career and Technical Education (CTE) programs, more people will have the skills to work in good jobs. For CTE programs to be effective at preparing students to enter the workforce, they require state-of-the-art equipment that must be maintained and experienced instructors who are certified in their fields. Neither come cheap.

Unfortunately, budget cuts at community colleges and the K-12 system have reduced technical training opportunities. Because CTE programs are more expensive to run than general education courses, and serve smaller numbers of students, they are often the first to get cut. In the 1990s there were 1,200 approved high school CTE programs; today there are only 641 (Laura Roach, Oregon Department of Education).

To get a sense of what one successful CTE program might look like and what it costs, let’s look again at the Path to Prosperity report. That report mentions one new CTE program in Malheur County, where “local leaders are working to connect recent high school graduates with local business owners who anticipate unfilled jobs.” (p.10) In the first year of the program, high school juniors learned how to weld using new shop equipment at Ontario High School. Local businesses donated materials and equipment for students to practice on. Treasure Valley Community College added a new two-year welding program, and as seniors students will earn college credit for taking advanced classes on welding and fabrication there. The first cohort of 20 high school juniors just finished their first year of the program, with promising results; five or six students are even planning to transition to the community college program to continue their training (according to Cathy Yasuda, Treasure Valley Community College). 

While the Malheur County project is a great example of what communities can do when resources are available, to sustain and scale up those efforts statewide will take a large investment. Here’s what the Malheur County project cost: The Oregon Department of Education granted $200,000 for the Malheur County project, and additional funds came from school districts and a foundation grant. Businesses contributed in-kind resources like raw materials and equipment for students to use. This initial investment got the program up off the ground, but now they need to raise an additional $450,000 to keep operating. Program staff are currently applying for grants to keep the program running but only a few foundations fund programs like these and competition is fierce. If funding can’t be secured, all this good work will disappear.

In order to sustain and replicate this project across the state, we need to make funds available for communities to put to work. Because community colleges have already prioritized technical education programs with the help of local business leaders, they are well positioned to act quickly with additional funds.

An additional $150 million per biennium would raise Community College funding per student to 2007 levels (Oregon Community College Association).  These funds could be put to use restoring and expanding CTE and other programs, like those that prepare students who will transfer to a four-year university. $100 million more would enable community colleges to expand course offerings and reduce tuition costs.

K-12 Education

Sustained investment throughout K-12 education will amplify the positive effects of early learning programs and get more students ready to succeed in CTE programs, college, or whatever else they pursue after high school.

Quality education makes a big difference in students’ lives, but there are striking differences in educational attainment across Oregon’s schools. Though technical assistance can help schools be more efficient with limited resources, disparities in student outcomes are driven primarily by economics, not teaching styles. In every state, students who are economically disadvantaged (noted by being eligible for free or reduced-price lunch) are less likely to meet or exceed expectations in reading, math, and science. In 2009-10, 59.8% of economically disadvantaged high school students in Oregon graduated on time, compared to 72.1% of students who weren’t economically disadvantaged (Oregon Department of Education, Graduating Class 2009-2010).  When comparing average test scores between school districts, the percent of students from economically disadvantaged families is the main predictor. In the 2013-14 school year, 52% of the students in Oregon lived in economically disadvantaged families (Oregon Department of Education).

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Average reading scores for 4th graders in Oregon by school district, 2012-2013

While all students benefit from more individual attention from teachers, low-income students get the biggest boost from smaller class sizes. After controlling for the percent of students on free and reduced-price lunch, 8th grade test scores are lower in states that average more students per teacher. The associations between 8th grade reading and math test scores and student/teacher ratios were stronger for students eligible for free and reduced-price lunch, evidence that greater investments in education helps kids from economically disadvantaged families the most (author’s analysis of data from National Education Association’s Rankings and Estimates report).

Between the 2007-08 and 2013-14 school years, Oregon public schools lost nearly 5,300 full time equivalent (FTE) positions. According to historical data from the Oregon Department of Education, the biggest cuts were in the classroom: 3,386 FTE teachers and 1,176 FTE instructional assistants, (equivalent to 1 in 9 of those jobs lost).  With fewer teachers, class sizes increased—Oregon now has one of the largest average class sizes in the country (National Education Association, “Rankings & Estimates” report).

In addition, according to the Oregon Department of Education budget cuts forced school districts to close one in twenty schools and consolidate operations.  With fewer neighborhood schools operating, more kids have longer commutes to school. Oregon also has one of the shortest school years in the country. Most states require 180 days of instruction, but no school district in Oregon offers that many days to students. In recent years some school districts even switched to four-day school weeks to save on operating costs. This creates an additional financial burden for working families who must make child care arrangements for school-age kids.

Education experts estimate an additional $2.4 billion per biennium is needed to fund K-12 at an optimal level. This investment would be used to hire back teachers, reduce class sizes, extend the school year, and restore programs and extracurricular activities.

Higher Education

In addition to underfunding K-12, Oregon has also disinvested in higher education, shifting costs to students. Between the 1989-1990 and 2011-2012 school years, average tuition and fees for community college students more than doubled, from an inflation-adjusted $1,003 to $2,175 per full time student (Oregon Department of Community College and Workforce Development).  Tuition and fees in the Oregon University System have also much climbed faster than inflation, while state funding has declined. To cover increasing tuition costs, many students take on debt. 55% of the Oregon University System class of 2012 graduated with debt, with the average debt being $24,673. This debt load is a big drag on young adults trying to transition from school to a career.

$1.6 billion in funding could be used to cut university tuition and fees in half, greatly reducing the debt burden on post-secondary students.

Summary of Ideal Educational Investment

Oregon could have a world-class education system with an additional $4.8 billion dollars per biennium. This substantial investment in education would have a big positive impact on Oregon’s economy.

• $580 million for universal pre-K for all 3- and 4-year olds living in poverty

• $2.4 billion for K-12 to reduce class sizes, add school days, and expand programs

• $250 million for Community Colleges

• $1.6 billion to cut university tuitions and fees in half

$4.8 billion is a lot of money, but if the state increased corporate taxes to raise that much per biennium from big companies headquartered outside of the state, Oregon would still only be 40th among the states in business taxes (calculations based on Anderson Economic Group 2014 State Business Tax Burden Rankings).  In our next post we describe how to raise the money.

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Who is struggling in Oregon’s economy, why, and what we can do about it

Hundreds of thousands of Oregonians work each week but still live in poverty. Tens of thousands of other Oregonians can’t work – so they are often stuck in poverty too. The best way to lower Oregon’s hunger and poverty rate and improve lives for kids and families is to make sure that everyone that is working, and can work, has a job that allows them to support themselves and their family. Our proposals in this series have focused on just that: making work pay.

When you focus poverty reduction plans on the people that can’t work, or you assume that people are trying not to work, you end up with goals that won’t address our underlying problems. When you focus on making work pay for the people that can and want to work, it’s easier to develop solutions for Oregon’s economy. This difference in focus between those that can work and those that can’t is the source for the differences in policy recommendations from our Better Oregon Plan and the Oregon Business Plan’s Path to Prosperity report. Another difference is the scope of policy recommendations: the Oregon Business Plan focuses on interventions for individuals and pilot programs, our approach attempts population level solutions under the assumption that we need to find policies that will help every Oregonian. While programs for individuals can provide a boost to some people living in poverty, they won’t change the underlying conditions that are keeping Oregon families struggling.

In today’s post, we discuss the differences between population level and pilot project approaches, and why large-scale population level change is the most efficient and effective way to improve Oregon’s economy and help working people.

Many people are still living in poverty even though they work hard

Path to Prosperity highlights two groups of people who use safety net programs: “adults who can’t work, as well as the elderly and those with severe physical and mental disabilities”; and “larger populations who may be capable of work in the short run but cannot find it.” (p. 13) The sad truth is that there is a third group of families in poverty – hundreds of thousands of adults in Oregon who are working but still need public assistance. In fact, among the 494,707 Oregon adults receiving food assistance benefits in January 2014, about 195,000 (39%) worked the previous year, with many working multiple jobs. However, those workers averaged only 910 hours of work at $12.36/hour, not nearly enough to support a family. (Oregon Health Authority/Department of Human Services, 2014 High Poverty Hotspots Report and supplemental data)

The real challenge is that people are working full time or more than full time, but they are not earning enough to make ends meet. The companies that pay these low wages should be more responsible for the community burden they create – but they’re not. Right now, not only are these hard working Oregonians underpaid, our Oregon taxes must subsidize these low wage workers while major out-of-state companies profit. For instance, Wal-Mart reported $16 billion in profits last year, while receiving an estimated $6.2 billion in taxpayer subsidies for their low wage employees. Nationally, public assistance to fast food workers costs $7 billion a year. This is a vicious cycle. When low-wage workers must turn to the community to help, that creates a burden on social services. With great need and limited resources, important programs are starved. That hurts the entire community because with fewer state resources for core state services, class sizes get bigger, tuition skyrockets, families lose health care, and much more.

The best way to end the cycle is to make sure working Oregonians are paid enough to support their families. When budgets are tight and families have trouble meeting basic costs for food, clothes and housing, there’s little left to spend on anything else. When working families earn more, they spend more in their communities, putting more people to work and strengthening the economy. Recently, Standard and Poor’s reported that income inequality related to stagnant wages is limiting economic growth.

Identifying and fixing underlying causes of poverty in Oregon will have a greater long-term impact than targeting intensive aid efforts at Oregon’s poorest families. A population level approach is in contrast to the individualized approaches discussed by Path to Prosperity and others which focus on the differences between individual people living in poverty.. Their analysis is based on the notion that “Reducing poverty starts by untangling the different groups of people in poverty and addressing the needs of each.”(p.3) Unfortunately, the one by one approach just can’t help enough people to make a difference for all of Oregon’s economy.

Though poverty affects communities differently, the root causes of poverty are consistent across the state.

• U.S. based companies have moved millions of middle-wage American jobs to foreign countries where labor is cheaper and regulations to protect worker safety and the environment are not as strong. Between 1999 and 2009, U.S.-based multinational companies cut their U.S. labor force by 2.9 million people while creating 2.4 million jobs in other countries.

• While millions of good jobs were outsourced, many of the new jobs created since the recession hit pay only low wages or are part-time only. Most Oregonians have seen their wages decline over time; between 2002 and 2013 real wages decreased for over half of Oregon’s workers. In addition, since the recession hit in 2008 a greater share of workers have been unable to find full-time work. About one quarter of the part-time workers in Oregon were part-time for economic reasons, meaning the workers wanted to work more hours, but they were not made available by their employer. 

• Disinvestments in education mean too many Oregon students are not being adequately prepared to succeed once they leave school. Education funding in Oregon has not kept up with population growth, and recession-related budget cuts hit schools the hardest. Between the 2007-08 and 2013-14 school years, Oregon public schools lost nearly 5,300 full time equivalent (FTE) positions. The biggest cuts were in the classroom: 3,386 FTE teachers and 1,176 FTE instructional assistants, (equivalent to 1 in 9 of those jobs lost).  Oregon is now 49th among the states in student:teacher ratio, which translates to larger class sizes where students don’t learn as well. Oregon also has short school years—between grades 1 and 12 Oregon students receive a full year less instruction than the national average. This puts graduates of Oregon schools at a big disadvantage. While most higher-paying jobs require advanced education, fewer than half of Oregon high school graduates in 2010 went directly to college (compared to the U.S. average of 62.5%).

• Investing in education and putting people back to work costs money. Oregon has not had sufficient resources to make these investments because big corporations are not paying their fair share. This tax avoidance is self-defeating, as investments in education, infrastructure and public services are good for business. Oregon is in last place among the states for business taxes, and would need to raise billions of dollars more each year just to get up to the national average.

part 2 fig 1 change in wages

While the complex challenges of poverty certainly require a multi-faceted approach, population-level interventions are almost always more successful than those that target intensive efforts at high-risk groups. Pilot projects can show small short-term results, but they are often difficult to implement and expensive to maintain. While targeted resource-intensive programs can help some people for a short period of time, scaling up those efforts statewide is costly and unlikely to achieve desired statewide results.

For an example of a resource intensive targeted approach, consider one of the policy options proposed by the Oregon Business Plan: offering financial incentives for schools that graduate a lot of students with technical certificates. Technical training programs are expensive, so incentives would have to be large for schools to break even without diverting funds from other classrooms. Without additional funding few schools would stand to receive any of these incentives, which may end up going to schools that already have successful programs and not the schools in impoverished districts that need the help more. This proposal is not likely to change the number of students that have access to Career Technical Education.

In contrast to a program by program approach, acting on upstream factors has proven successful. For example, in public health over the 20th century, public health interventions have added 25 years to the life expectancy of people born in the United States. Efforts to reduce smoking are a good example. Smoking rates are much higher among people with lower incomes; in fact, higher smoking rates are one of the major drivers of lower life expectancies for low-income individuals. A health promotion strategy that addressed the cessation needs of each low-income smoker would be extremely expensive to implement statewide, and would not actually be the most effective strategy to achieve long-term change. One-on-one interventions cost a lot of money so we can’t afford to deliver many of them, and when the money runs out (which it always does) we won’t be any better off than before since other people will have started smoking in the meantime. Instead of focusing on an intervention for the few worst off, a population-level approach, such as raising tobacco taxes, achieves a greater impact on a larger number of people. Raising tax rates reliably lower consumption among all smokers, but has the biggest effect on low-income smokers. Higher tobacco taxes also discourage kids from starting to smoke, Furthermore, instead of costing money, this approach actually brings in more revenue, which can be used to fund additional programs or offset health care costs.

There are a number of policies that can reduce poverty at the population level that we’ve discussed before – a combination of these approaches can help all working families and will not take years to develop or rely on unstable pilot project funding to implement.

Raise the minimum wage. Minimum wage jobs aren’t just for teenagers—many working adults make the minimum wage or not much more. The erosion of wages in Oregon has hurt our economy and slowed the recovery from the recession. To improve Oregon’s economy for all we need to raise wages. Oregon should start by phasing in a significant minimum wage increase, to bring the minimum wage up to a living wage. As time goes on we should strive to create jobs and set standards that allow families to support themselves.

Invest in education. Oregon needs to make new investments in education and services to ensure the economy grows in the years ahead. A complete economic plan for Oregon needs to include support and resources for high quality childcare, pre-K, kindergarten through grade 12, community college and four-year colleges.

Fix crumbling infrastructure and restore public services. We all benefit from clean air, safe drinking water, goods roads, and bridges that aren’t in danger of collapse. Corporate executives cite strong transportation infrastructure as a key factor in decisions where to locate businesses. Cuts to state services and delayed maintenance of infrastructure threaten Oregon’s economic future. Besides putting people to work in jobs that can’t be outsourced, these investments will set the stage for a robust economy in the years ahead.

Hold corporations accountable when they take advantage of the safety net.  Profitable corporations like Walmart and McDonald’s maintain a part-time, low wage workforce, boosting corporate profits while paying workers so little they must rely on taxpayer-supported safety net programs to get by. We should make the largest employers profiting off low wages pay a fee to offset the costs of safety net services to make sure their employees can provide for their families.

2 Responses to “Who is struggling in Oregon’s economy, why, and what we can do about it”

  1. Doug Burris

    In our economy which allegedly is 70% consumer driven, consumers need disposable income FIRST before businesses can provide goods or services to sell, it is not the other way around. One suggestion I’ve seen is to postpone the FICA tax indefinitely {as we did briefly} which provide 6+% of additional income to workers and business’. Second, you have to deal with Janet Yellen and company that want’s approximately 5.5 % of the workforce unemployed regardless of skill-sets to prevent inflation.

    Reply
  2. Kenneth D Scott

    As an owner of a mfg corp in Oregon, I have found that mfg workers struggle to earn $15/hr whereas top middle management labor has risen to $250-500,000 per year. If we are to succeed as a Nation we need to do something about this.

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The rest of the story of Oregon’s economy

To inform an effective poverty reduction plan, we need to have a better understanding of the underlying causes that result in so many families struggling financially. It helps to put these in the context of general economic trends in Oregon and the United States.

Oregon’s economy is a story of opposites. Gross state product grew three times faster than the U.S. economy between 2001 and 2012, but unemployment rates exceed the national average. Though some metro areas are seeing promising growth in high wage jobs, most of the new jobs elsewhere in the state pay only low wages, or are part-time only. Corporate profits soar and the rich are getting richer, but most families saw their real incomes drop over the past decade. Over 1 million Oregonians received food stamps in 2013 and over half the students in Oregon public schools are eligible for free or reduced-price lunch.

How is it that the economy is growing but most Oregonians are getting poorer? The answer is that economic gains are going not to workers but to boost corporate profits, which go mostly to wealthy shareholders. Corporate profits are at record highs. The top 1%, who own more than half of all corporate stocks, reap the benefit. Corporate profits quickly recovered from the 2008 crash, but most of the good jobs that were lost have not returned. As a result, the recovery from the 2008 recession has been one of the most lopsided in American history. From 2009 to 2012,“top 1% incomes grew by 31.4% while bottom 99% incomes grew only by 0.4%… Hence, the top 1% captured 95% of the income gains in the first three years of the recovery.” The top tenth of 1% of the U.S. wealth distribution (that’s 1 in 1,000) now hold over 20% of the nation’s wealth.

part 1 fig1saez

In Oregon, total personal income for full-year tax filers increased by $6 billion between 2011 and 2012, but more than half of the increase ($3.4 billion, or 56%) was claimed by just the wealthiest 1%.  These dramatic gains in income came not from rising wages, but from capital gains and other unearned income. The top 1% claimed 73% of all capital gains in Oregon in 2012. Because federal taxes on capital gains are much lower than taxes on earned income, the wealthy pay much lower tax rates than the bottom 99%.

figure 2 corporate profits

Skyrocketing corporate profits aren’t being shared with workers who generate them, as evidenced by relatively flat or falling wages. In fact, one of the main reasons for record-high profits is that workers are not getting their fair share. The less corporations pay their workers—the more they cut hours, salaries, and benefits—the more they deliver to their shareholders in the form of higher dividends and stock values. In Oregon the share of personal income from wages, salaries and benefits is shrinking, while corporate profits as a share of the gross state product are growing. While corporate profits are at record highs, employee compensation is at its lowest level in 65 years.

figure 3 profits and worker comp

In Oregon, corporate profits account for an increasing share of the gross state product, while compensation to workers makes up a diminishing share. As corporations make more and workers make less, more and more of the income goes to wealthy shareholders, exacerbating income inequality.

Other papers discussing Oregon’s economy — chiefly the Path to Prosperity report from the Oregon Business Plan—don’t tell this side of the story. Instead, they claim that over the past 25 years, “Economic gains have been largely limited to skilled workers.”(Page 1) The data does not show this to be true. While it is true that earnings of some professionals like doctors have increased over time, these are dwarfed by the gains going to the top 1%. Most skilled workers lost ground in the new economy, having to settle for lower wages and part-time jobs.

The Path to Prosperity report blames technology for the loss of jobs. “Technology and globalization continue to enforce a long-term trend: medium-wage jobs involving routing tasks, once plentiful in our state and nation, have declined in good times and bad over the past three decades.” (Page 2) Clearly, advancing technology has made some jobs unnecessary, that is not the main reason big corporations have slashed wages and benefits and outsourced so many American jobs overseas. The Wall Street Journal reported that between 1999 and 2009, U.S.-based multinational companies cut their U.S. labor force by 2.9 million people while creating 2.4 million jobs in other countries. Cutting labor costs was done to boost corporate profits. Meanwhile, the erosion of jobs, wages and benefits has left the U.S. economy in bad shape.

While the rich get richer, most Oregon families are struggling. Between 2002 and 2012, inflation-adjusted income fell for the bottom three quarters of Oregon’s income distribution. Even though many people are working, the erosion of wages and benefits is keeping people from getting ahead. The households receiving food assistance in January 2014 have seen their real incomes decline by an average 29% over the past five years, after adjusting for inflation. (Author’s analysis of data from 2014 High Poverty Hotspots Report)

figure 4 change in income

So, what can be done? First and foremost, improving wages for Oregon workers must be a high priority. When workers earn more, they spend that money locally, growing the economy and creating jobs. Higher incomes also generate more tax revenue to fund education, infrastructure and essential public services, which also promote economic growth. In addition, raising wages means fewer working people will need assistance through safety net programs, saving taxpayer money and freeing up those resources for other needed investments.

We propose several policy options to raise wages in Oregon.

Raise the minimum wage. Minimum wage jobs aren’t just for teenagers—many working adults make the minimum wage or not much more. The erosion of wages in Oregon has hurt our economy and slowed the recovery from the recession. To improve Oregon’s economy for all we need to raise wages. Oregon should start by phasing in a significant minimum wage increase, to bring the minimum wage up to a living wage. As time goes on we should strive to create jobs and set standards that allow families to support themselves.

Hold corporations accountable when they take advantage of the safety net.  Profitable corporations like Wal-Mart and McDonald’s maintain a part-time, low wage workforce, boosting corporate profits while paying workers so little they must rely on taxpayer-supported safety net programs to get by. We should make the largest employers profiting off low wages pay a fee to offset the costs of safety net services to make sure their employees can provide for their families.

• Provide paid sick leave. Getting sick shouldn’t mean losing your job. Nationwide 39% of private-sector workers and 80% of low-income workers have no paid sick days from their job. Only 31% of Oregon employers offer paid sick leave to full-time, non-management employees. Allowing people to earn sick time while working will benefit many workers and their families, strengthen Oregon’s economy, and keep everyone healthier.

• Preserve workers’ rights. When workers can organize and advocate for themselves, they earn better wages and improve working conditions. Wealthy CEOs and big corporations are trying to erode workers’ rights in order to boost profits that are already at record levels. Rejecting efforts to eliminate workers’ rights are crucial.

 

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