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Wednesday, January 1, 2003

How Much Do the Public Schools Waste?

Governments in the United States currently spend about 4 percent of gross domestic product on “public” schools.1 Those schools also employ about 4 percent of the nation’s workforce. Although few will admit it, public education is clearly an anachronistic, socialist institution, with all of the characteristics of a typical Soviet enterprise. As such, one would expect it to display the inefficiency that eventually brought a collapse of the communist/socialist economic system, and that this inefficiency would lead it too to wither. Yet public education continues to thrive in market economies, where it has a host from which it can draw sustenance to mask its inefficiencies. My purpose is to estimate the degree of inefficiency in the U.S. public schools with a view to exposing the extent of its burden on the American people.

The obvious way to estimate the inefficiency is to compare its costs to those of private schools, which, because they are faced with parental choice, have much greater incentives to operate efficiently. While relevant, for two reasons, such comparisons must be done with some care and caveats.

First, while private schools undoubtedly feel the pressures of choice, they also operate under the protective umbrella of the public school system. Their market environment is hardly a fully competitive one. Faced with universal, “free” public schools as competitors, private schools have emerged and thrived in niche markets. While it is true that private schools must be more market-oriented and leaner than their government counterparts, to some extent they are actually protected in their niches by the public-school umbrella under which they serve. As one private-school administrator once remarked to me: “It’s hard to look bad with the public schools as competition.” The point is that one should not presume that present private schools are a good example of the schools that would emerge under a fully competitive system.

A second problem is the lack of systematic collection of private-school cost data. Since most education data collection is by government agencies or teachers’ unions, both of which have large stakes in public education, a cynic might speculate that this vacuum is due to the education establishment’s fear of what it might find. And, as we shall see, for good reason. Further, private schools are more eclectic, ranging from strict religious schools to expensive, elite boarding schools. The fact that most private schools have some kind of religious affiliation raises the issue of employees who may be paid less than market wages. Nevertheless, the statistics that do exist, taken together with various ways of adjusting these data for some private-school peculiarities, give us a reasonable estimate of the efficiency advantages of private education.

Teacher Salaries and Benefits. Salaries and benefits are the largest operating costs of any school in lower education. Using data from the 1987-88 National Center for Educational Statistics (NCES) Schools and Staffing survey, Dale Ballou and Michael Podgursky found average public and private-school teacher salaries to be $26,458 and $17,434, respectively.2 (An adjustment was made for teachers who were members of religious orders by excluding all Catholic teachers who were never married.) This shows that private salaries are on the average 65.9 percent of those in public schools. In 1993-94 another study found private school salaries to be 64 percent of public-school teachers’ salaries.3

Both data sets ignore benefits, such as health insurance and retirement contributions, which are much higher in the public schools. Benefits are about 31.3 percent of salary in the public sector as a whole and 15.8 percent in the private sector.4 Benefits averaged 26.2 percent of salary for U.S. public-school teachers from 1994-99.5 Teachers’ benefits in public schools are much higher than in private schools.6


Greater Pay Flexibility

There are other differences in teachers and teaching between public and private schools that may make their teachers’ pay not strictly comparable. Since a large fraction of the private schools have a religious affiliation and practice selective admission, lay teachers may be willing to work for less money. The same may be true because of the greater independence and less bureaucratic control in private schools. On the other hand, private schools tend to employ higher-quality teachers from more selective colleges. Private schools have proportionately more secondary teachers who have an academic major but about the same who major in math and science. Because of this, combined with greater pay flexibility, private schools hire and keep teachers of higher quality. Unionization is much lower in private schools, and these schools may have to pay more because few grant tenure. Tenure is virtually universal in public schools after two to three years.7 While these differences cut both ways, it is highly unlikely that the large discrepancy between public- and private-school compensation is completely explained by these variations in teacher characteristics.

On the whole, these data are in clear agreement that private-school teachers’ salaries are in the range of 60 percent to 70 percent of those in public schools. When benefits are taken into account, the best estimate of comparable total compensation is undoubtedly closer to the 60 percent figure. Clearly, a large portion of the waste in public-school education has been captured by the public-school teachers, partly due to the 80-plus percent unionization rate there.

Direct Measures of Public and Private Per-Pupil Costs. John R. Lott, using data from NCES, estimated expenditures per pupil in private Catholic schools to be 54.7 percent of those in public schools in 1976-77, and 51.6 percent in 1977-78.8 Lott adjusted for lower-paid religious teachers by doubling their pay for computational purposes.

There is only one other study that tries to directly estimate per pupil expenditures for U.S. private schools.9 Using various estimating techniques, this study found private per-pupil costs for all private schools in 1991-92 to range between $3,375 and $3,550, or about 67.2 percent and 70.7 percent of public-school costs for that year, which were $5,023 per pupil.10 (It should be noted that the reported public-school costs exclude the costs of the state bureaucracy, which are not insignificant.) When the elite college preparatory schools are excluded from these data, private school costs fall to about $2,883 per pupil, or 57.4 percent of the comparable public-school cost.

For Catholic schools alone, the study found costs to be $2,378 per pupil, or 47.3 percent of public-school costs. The latter estimate is consistent with the results found by Lott for Catholic schools, considering that Lott made an upward salary adjustment for the low pay for religious teachers.

For religious schools other than Catholic and Lutheran the per-pupil cost estimate was $3,048, and for nonsectarian schools the estimate was $2,967. These estimates are undoubtedly more relevant than those that include the Catholic and Lutheran schools for they probably do not include religious (non-lay) teachers who have lower pay. These religious and nonsectarian schools per-pupil costs are 60.7 percent and 59.1 percent of comparable public-school costs, respectively.

If we exclude the unadjusted Catholic school costs, and average the higher Catholic schools costs found by Lott (54.7 percent), the private school costs, excluding the elite prep schools (57.4 percent), and the average of other-than-Catholic-and-Lutheran secular and non-secular costs (59.9 percent), we find private-school costs per pupil average about 57.3 percent of public schools’ costs.

Special Education. The establishment’s response to such an assessment of the relative costs of private education is to bring up the bogeyman of “special education.” Special education is a program created by a federal mandate under the Individuals with Disabilities Education Act of 1975 (IDEA). It is an underfunded mandate that requires local public schools, but not private schools, to provide special education services to children with disabilities. Eliminating the burden of special education on public schools has little effect on the cost differential between private and public education. Special education students in 1999-2000 were 11.8 percent of the total. This figure is undoubtedly inflated because it includes a large and growing number of students diagnosed with specific learning disabilities (SLD), a subjective designation that simply indicates low academic achievement, rather than disability. About 40 percent of the students in special education are there “simply because they haven’t learned how to read.”11


Inflated Costs

The President’s Commission on Excellence in Special Education found the total cost of a special-education student to be $12,474 in 1999-2000, or about 1.7 times the total per-pupil cost of $7,340.12 However, the latter figure also includes special-education expenditures. Applying a little algebra reveals that the estimated cost of special education is about 1.875 times that of a nonspecial-education student. This corresponds rather closely with the Department of Education’s estimate of 1.9. This means, for example, that instead of private education’s per-pupil cost being about 57.3 percent of the cost of public education, when the full inflated special-education burden is taken into account, private education’s per pupil costs rise about 10.1 percent—to 63.2 percent of those in comparable public education. Thus private education is still much cheaper.

More reasonably, if one assumes that the special-education students classified as having SLD remained the same proportion of the total as they did in 1976—1.8 percent instead of 6 percent—producing a total in special education of 7.6 percent in 1999-2000, private education’s per-pupil costs relative to those in comparable public education rise only 6.1 percent—from 57.3 percent to 60.8 percent.

The Waste. All things considered, these various cost comparisons have a remarkable consistency: the most relevant ones show private-school costs at roughly 55 to 60 percent of the costs of public schools. Special-education considerations raise these only another 6 to 10 percent, to roughly 63 percent. Using the latter figure, this means that roughly 38 percent of public-school expenditures is dissipated or wasted. Let us put this waste in perspective.

For 2000-01, NCES estimated total annual current expenditures for public schools to be about $333.8 billion.13 Assuming an additional 17 percent for capital outlays and interest, this brings total annual estimated U.S. public-school expenditures to about $391.7 billion. Applying the waste estimate of 38 percent, this shows that public education wastes about $148.9 billion annually. That is about 1.57 percent of GDP, or about $529 per capita in the year 2000.

The waste does not end there. Both businesses and institutions of higher education now must spend considerable money making up for the failure of the public schools. Jay Greene found that this conservatively amounts to $16.6 billion annually in the United States.14 It is no coincidence that the greatest growth in the establishment of community colleges, where remedial education is concentrated, and the surge in the formation of private elementary and secondary schools, came during 1960-1980, when the decline in public-school performance was the greatest.

Thus the economic cost of deficient public education is not limited to the obvious waste there. All told, the total amount wasted is at least $166 billion annually, about 1.66 percent of GDP, or $588 per capita for the year 2000.

The conclusion is inescapable: U.S. public education is much more expensive than private education, and, aside from producing an inferior education, its waste is a significant drain on the American people.

In the large, socialism has clearly failed. But in the small, where it has a host from which to draw sustenance, it prospers. Marx predicted that socialism would replace capitalism. It is ironic that socialist institutions survive only as parasites on capitalism.[]



1. With considerable reservation, I use the term “public” education throughout, even though the term “government” education is more accurate. Unfortunately, as with our public lands and public television, the use of the term “public” lends a false legitimacy to what are clearly failed government enterprises.
2. Dale Ballou and Michael Podgursky, Teacher Pay and Teacher Quality (Kalamazoo, Mich.: W.E. Upjohn Institute for Employment Research, 1997), Table 6.1, p. 131.
3. Donald H. McLaughlin and Stephen Broughman, Private Schools in the United States: A Statistical Profile (National Center for Education Statistics: Working Paper NCES 97-459, 1997), Table 3.12, p. 93.
4. U.S. Census Bureau, Statistical Abstract of the United States 2000,, Table 691, p. 435.
5. Data computed from tables labeled “Expenditures for Instruction in Public Elementary and Secondary Schools, by Subfunction and State” in National Center for Education Statistics, Digest of Education Statistics, 1998, 1999, 2000, U.S. Department of Education, Office of Educational Research and Improvement, NCES Publications 1999-036, 2000-031, 2001-034,
6. McLaughlin and Broughman, Table 3.13, p. 94; Dale Ballou and Stephanie Soler, “Addressing the Looming Teacher Crunch,” Progressive Policy Institute, Feb. 1, 1998, www.ppionline.oi^ppi_ci.cfm? ontentid=1652&knlgAreaID=110&subsecid=135,
endnote 6; and Ballou and Podgursky, p. 154, note 2.
7. Ballou and Podgursky, p. 145.
8. John R. Lott, Jr., “Why Is Education Publicly Provided?” The Cato Journal, Fall 1987, p. 476.
9. The data in this and the next two paragraphs come from: Michael Garet, Tsze H. Chan, and Joel D. Sherman, Estimates of Expenditures for Private K-12 Schools, National Center for
Education Statistics
, NCES Working Paper #95-17, May 1995.
10. National Center for Education Statistics, Digest of Education Statistics, 1996, 2001 (Washington, D.C.: U.S. Department of Education, Office of Educational Research and Improvement), NCES Publications 96-133, 2002-130, Table 167,
11. President’s Commission on Excellence in Special Education (PCESE), A New Era: Revitalizing Special Education for Children and Their Families (Washington, D.C.: U.S. Department of Education, Office of Special Education and Rehabilitative Services. 2002),, pp. 3, 24 – 25 . See also Jay P. Greene, “The Myth of the Special Education Burden,” Commonwealth Policy Brief, vol. 2002, No. 7, August 2002, Commonwealth Foundation for Public Policy Alternatives, Harrisburg, Pa.,
12. A New Era, p. 30.
13. Digest of Education Statistics, 1996, 2001, Table 161,
14. Jay P. Greene, “The Cost of Remedial Education,” Mackinac Center for Public Policy, August 31, 2000,


  • John T. Wenders was a Research Fellow at The Independent Institute, Professor of Economics, Emeritus, at the University of Idaho and Senior Fellow at The Commonwealth Foundation. He received an A.B. from Amherst College, M.A.s from the University of Hawaii and Northwestern University, and a Ph.D. from Northwestern University, all in economics.