How Important Are Teachers? An Econometric and Cost-Benefit Analysis Using U.S. PISA Data

Abstract

In this thesis, I study the effect of classroom size (by using student-teacher ratio as a proxy) on U.S. school-wide average PISA Math and Reading scores between 2000 and 2015. In addition, I also perform a cost-benefit analysis to determine the net present value of a school reducing its student-teacher ratio by one, to see if this is a practical investment. This study finds a significant and negative causal effect of a school’s student-teacher ratio on its PISA scores. The study also finds that an investment of reducing student-teacher ratio for the average school in the U.S. PISA data set will yield an ROI of over 75%. Additionally, the findings show that large schools and private schools may have the most to gain from such an investment. The results are consistent with prior work of researchers in the empirical literature on this topic who have found a significant impact of educational expenditures, including classroom size, on student achievement. This thesis also supports the need for public policymakers and school boards to re-examine the economic efficiency of their budgets and highly consider the merits of hiring additional teachers.