This paper estimates the effects of school quality -- measured by the
pupil-teacher ratio, the average term length, and the relative pay of
teachers -- on the rate of return to education for men born between 1920 and
1949. Using earnings data from the 1980 Census, we find that men who were
educated in states with higher quality schools have a higher return to
additional years of schooling, holding constant their current state of
residence, their state of birth, the average return to education in the
region where they currently reside, and other factors. A decrease in the
pupil-teacher ratio from 30 to 25, for example, is associated with a 0.4
percentage point increase in the rate of return to education. The estimated
relationship between the return to education and measures of school quality
is similar for blacks and whites. Since improvements in school quality for
black students were mainly driven by political and judicial pressures, we
argue that the evidence for blacks reinforces a causal interpretation of the
link between school quality and earnings. We also find that returns to
schooling are higher for students educated in states with a higher fraction
of female teachers, and in states with higher average teacher education.
Holding constant school quality measures, however, we find no evidence that
parental income or education affects state-level rates of return.

This paper presents evidence on the quality of schooling by race and ethnic
origin in the United States. Although substantial racial segregation
across schools exists, the average pupil-teacher ratio is approximately the
same for black and white students. Hispanic students, however, on average have
l0 percent more students per teacher. Relative to whites, blacks
and Hispanics are less likely to use computers at school and at work. The
implications of these differences in school quality for labor market
outcomes are examined. We conclude by examining reasons for the increase
in the black-white earnings gap since the mid-1970s.

Between 1960 and 1980 the gap in earnings between black and white
males narrowed by 15 percent. A detailed analysis of 1960, 1970, and 1980
Census data indicates that increases in the relative return to education
were largely responsible for black workers’ relative earnings gains. One
explanation for these higher returns is that they reflect the market
valuation of higher-quality schooling available to later cohorts of black
students. To investigate the role of school quality in the convergence of
black and white earnings, we have assembled data on three aspects of school
quality -- pupil/teacher ratios, annual teacher pay, and term length -- for
black and white schools in l8 segregated states from 1915 to 1966. The
school quality data are then linked to estimated rates of return to
education for men from different cohorts and states. Improvements in the
relative quality of black schools explain roughly 20 percent of the
narrowing of the black-white earnings gap in this period.

We present a survey of the literature on the economic returns to school quality. A
dozen studies conducted over the past 20 years show remarkably consistent estimates of the
effect of school quality on students’ subsequent earnings. A 10 percent increase in school
spending is associated with 1 to 2 percent higher annual earnings for students later in life.
We argue that the similarity of the findings across data sources and research methods suggests
that school quality has a true causal effect on student earnings. Increases in school resources
are also associated with significantly higher educational attainment, although the range of
estimates of the effect is relatively wide.

This paper presents an overview and interpretation of the literature relating school quality to
students‘ subsequent labor market success. We begin with a simple theoretical model that
describes the determination of schooling and earnings with varying school quality. A key insight
of the model is that changes in school quality may affect the characteristics of individuals who
choose each level of schooling, imparting a potential selection bias to comparisons of earnings
conditional on education. We then summarize the literature that relates school resources to
students’ earnings and educational attainment. A variety of evidence suggests that students who
were educated in schools with more resources tend to earn more and have higher schooling. We
also discuss two important issues in the literature: the tradeoffs involved in using school-level
versus more aggregated (district or state-level) quality measures; and the evidence on school
quality effects for African Americans educated in the segregated school systems of the South.