There is a cost associated with the deterioration of public schools, and it is borne by the entire community, not just the poor. CEO's in particular bear a significant portion of the burden, which makes the current assault on public schools by Republican governors and state assemblies (who are presumably pro-business) all the more frustrating, if not particularly surprising.
Here is an incomplete list of ways businesses lose when the quality of the public school system declines.
1. It becomes harder to recruit executive talent, as potential new hires consider where their children will attend school. If finding talent becomes 5% harder, total incremental cost to a company to hire one executive with a salary of $100,000 is approximately $17,000.[1] A company with 10% turnover in its executive ranks and 50 such employees would incur about $85,000 incremental annual cost due to poor schools.
2. It becomes harder to recruit entry-level and mid-level talent from the local job applicant pool, as top students become a scarcer resource. Reducing the costs above by 2/3's results in an estimated incremental cost per entry- or mid-level job of more than $5,000; assuming the company experiences 20% turnover among its 200 entry- and mid-level employees, this amounts to $200,000 annually.
3. Training costs increase, as new employees enter the workforce more poorly prepared to start, and less competent at learning the necessary skills for the job. Assuming the 40 new entry- and mid-level employees take 2 weeks longer to learn, and use the resources of their peers and/or supervisor for 2 additional weeks, the incremental training cost is approximately $150,000 in lost work time, assuming an average total compensation (salary + benefits) of $50,000 for trainers and trainees.
4. Turnover increases, as employees who have become dependent on safety nets -- grade recovery, differentiated instruction, "response to intervention," 70% - 80% group work in classes, unlimited retakes on failed quizzes and tests, plus dozens of other safety nets mandated by district school boards as band-aids for students in failing schools -- discover the "real world" has many fewer safety nets and much harder landing areas for those who fail. If turnover increases from 20% to 25% in our hypothetical company with 200 non-executive employees, filling the additional 10 slots each year will cost approximately $200,000 in lost work time, recruitment costs and paid non-productive time for trainer and trainee.
5. The tax base declines, requiring higher taxes or poorer public services such as road maintenance, water, sewer and electric utilities, as less-prepared graduates' salaries start lower and take longer to increase. Quality of life in the area impacts each of the factors above; I'll leave the dollar estimate on that as an exercise for the reader. However, if the property tax were raised 5% to cover the public services needed, the 250 employees of our hypothetical company would pay an extra $45,000 in taxes.[2]
6. The cost/value relationship of a private school education increases, and more people will decide this option is affordable, given their alternatives. This means more of the company's executives must pay for private schooling, which will put upward pressure on salaries. It also means that private schools will have increased demand, which leads, of course, to higher prices. So even the CEO's whose children are already in private schools will see increased direct costs. Assuming 1 out of every 3 of the executives of the company have children in private school (with an average of 1.5 students per executive) and private school costs go up $5,000, the cost to the executive team is $125,000.
Consider the impact of poorer public schools on unemployment. Students who might have stayed in school because they could play in the band or take art classes or play one of the "minor" sports will drop out. Students who might have been able to pass Chemistry if free tutoring had still been available will flunk it and give up. The students who do graduate will be largely unprepared for college. (Even today, 70% of my county's graduates must take remedial courses in their first year of college). Unprepared students entering college become significant drop-out risks at that level. High school and college drop-outs are at much higher risk of unemployment throughout their careers than their peers with degrees.[3] Therefore, higher unemployment will inevitably result from a reduction in the quality of public education.
As a result of higher unemployment,
7. Businesses will pay higher unemployment taxes. States are reducing unemployment benefits as those costs soar in the face of the recession, but that is a strategy that decreases "visible" costs at the expense of creating much higher secondary costs. This year, the unemployment tax is expected to nearly triple, to as much as $72 per employee versus the current $25 maximum. If higher unemployment in the future causes an additional $25 per employee rise, the cost to our hypothetical 250-person business is $6,250.
8. The non-violent crime rate will go up, costing businesses in ways such as higher premiums for property insurance, increased security costs and employees' decreased sense of well-being and safety. Again, the true cost of this issue is the reduced desirability of the city as a place to work, impacting all the factors above.
9. Health insurance premiums will go up even faster, as unemployed and minimum-wage earners are much more likely to use emergency room services and very unlikely to be able to pay for them. Hospitals must provide the care, and must therefore pass along their costs to those who pay -- namely those with health insurance. Companies will undoubtedly pass most of this cost through to its employees, but even a $100 per year increase would cost a 250-person company an incremental $25,000 each year.
10. Social services such as prisons, alcohol treatment centers, homeless shelters, etc. will either reduce services or require more resources. It is significantly cheaper to provide the services than pay for the unintended consequences of not providing them, but in either case, costs to all taxpayers increase. As with the crime rate and reduced public services, reduced social services make the city less livable, which impacts all aspects of the cost of doing business within it.
In summary, as public schools decline enough to make it 5% harder to recruit and hire a high-quality workforce, even a small company of 250 people would experience a nearly $850,000 increased annual cost of doing business in the city. The same analysis would show that if public schools improve by that same amount, that company could save $850,000 annually. Imagine if CEO's of the 400 or so companies of that size or larger in my city each decided to kick in $250,000 to public education, and the roughly 700 companies with 100 - 250 employees added $100,000 each. That's an additional $170,000,000 invested in our schools each year, paid for by companies who recognize that it's an investment on which they'll earn at least double their money annually.
Most of these costs are also borne by all taxpayers, so all of us should be insisting our federal, state and local governments make high-quality public education a major priority, instead of allowing our legislators to cut public school funding year after year, reduce teachers' real wages even in good years, and discuss options like school vouchers to take even more money out of the public school system.
If our public schools were doing a better job educating the American populace, the American populace would understand why we must do a better job educating the American populace.
Notes
[1] Incremental salary cost: $5,000. Incremental benefits cost: $3,000 (60% of salary). Incremental search cost: $1,000 plus $1,000 (20% of salary plus estimated expenses incurred by additional interviewees). Incremental cost of current employees' extra time spent involved in the job search (e.g., interviews, paperwork, etc.): $2,000 (estimated 4 executive-days per interviewee). Opportunity cost of unfilled position for additional 2 weeks: $5,000 (assumes the lost opportunity cost of the unfilled position is no less than the cost of filling it; otherwise the company would leave it empty).
[2] According to CLRSearch.com, there are more than 325,000 households in my city. Nationally, census data shows that about 2/3's of households own their own home; that statistic is very close to being correct in my city, meaning approximately 210,000 households own a home. Property tax collections in 2010 were just over $1,000,000,000 according to the County Property Appraiser, so a 5% (2 mill) increase in property taxes would result in an average $250 increase per household among home owners.
[3] According to the Bureau of Labor Statistics, unemployment among college graduates aged 25 and up was 4.4% in March 2011, compared to 9.5% for high school graduates with no college. For people under age 25, these numbers double - college graduates: 8.5%, high school grads with no college: 20%.
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