How Local Economic Conditions Affect School Finances, Teacher Quality, and Student Achievement: Evidence from the Texas Shale Boom.

TLDR: In this paper, an empirical approach using variation in shale geology across school districts shows that the boom in shale oil and gas drilling, with its large and localized effects on wages and the tax base, provides a unique opportunity to address this question that spans the areas of education, labor markets and public finance.

Abstract: Whether improved local economic conditions lead to better student outcomes is theoretically ambiguous and will depend on how schools use additional revenues and how students and teachers respond to rising private sector wages. The Texas boom in shale oil and gas drilling, with its large and localized effects on wages and the tax base, provides a unique opportunity to address this question that spans the areas of education, labor markets, and public finance. An empirical approach using variation in shale geology across school districts shows that the boom reduced test scores and student attendance, despite tripling the local tax base and creating a revenue windfall. Schools spent additional revenue on capital projects and debt service, but not on teachers. As the gap between teacher wages and private sector wages grew, so did teacher turnover and the percentage of inexperienced teachers, which helps explain the decline in student achievement. Changes in student composition did not account for the achievement decline but instead helped to moderate it. The findings illustrate the potential value of using revenue growth to retain teachers in times of rising private sector wages.

Figures

Figure 4: Shale Oil and Non-Shale Differences in Revenue, Spending, and Wages, 2002-2014

Figure 1: Normalized Shale Depth across Texas School Districts

Figure 6: Shale Oil and Non-Shale Differences in Student Achievement, 2002-2014

Figure 2: Comparisons between Oil and Gas Formations, 2000-2014

Table 3: Baseline Differences in Students, Teachers, and Achievement, 2000

Table 1: Baseline Differences in Local Finances, School Spending, and Wages, 2000

Full text

Working Paper No. 2019-07
How Local Economic Conditions
Affect School Finances, Teacher
Quality, and Student Achievement:
Evidence from the
Texas Shale Boom
Joseph Marchand
University of Alberta
Jeremy Weber
University of Pittsburgh
April 2019
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How Local Economic Conditions Affect School Finances,
Teacher Quality, and Student Achievement:
Evidence from the Texas Shale Boom
Joseph Marchand
University of Alberta
Jeremy G. Weber
University of Pittsburgh
April 2019
1

Abstract
Whether improved local economic conditions lead to better student outcomes
is theoretically ambiguous and will depend on how schools use additional
revenues and how students and teachers respond to rising private sector wages.
The Texas boom in shale oil and gas drilling, with its large and localized
effects on wages and the tax base, provides a unique opportunity to address
this question that spans the areas of education, labor markets, and public
finance. An empirical approach using variation in shale geology across school
districts shows that the boom reduced test scores and student attendance,
despite tripling the local tax base and creating a revenue windfall. Schools
spent additional revenue on capital projects and debt service, but not on
teachers. As the gap between teacher wages and private sector wages grew, so
did teacher turnover and the percentage of inexperienced teachers, which helps
explain the decline in student achievement. Changes in student composition
did not account for the achievement decline but instead helped to moderate it.
The findings illustrate the potential value of using revenue growth to retain
teachers in times of rising private sector wages.
Keywords: local labor markets, local school finances, resource booms, student
achievement, teacher quality.
JEL codes: H70, I22, J31, J40, Q33, R23.
2

1 Introduction
How do schools, students, and teachers respond to a localized economic boom that
provides additional resources to schools but also increases the opportunity cost for
students and teachers to stay in the classroom? Greater revenue from a boom
may allow schools to purchase equipment that enhances learning or to pay higher
salaries to attract better teachers, thereby possibly increasing student achievement.
Spending additional revenue in productive ways may prove difficult, however, when
it comes rapidly, temporarily, and in large sums. An economic boom can also create
jobs and increase private sector wage rates. Higher wage rates, particularly for low-
skill labor, could encourage students to miss class or drop out of school, especially
for those with higher discount rates and lower returns to education. Teachers may
also leave for higher paying jobs, especially if no commensurate increase in teacher
salaries occurs. The overall effects on school-wide student achievement will therefore
depend on how additional money is spent and whether high or low performing
students or teachers are pulled from the classroom.
A boom in natural resource extraction provides a large and localized economic
shock useful for addressing this question that spans the areas of education, labor
markets, and public finance. In recent years, high energy prices and innovations
in horizontal drilling and hydraulic fracturing have caused an oil and gas drilling
boom in shale formations across the United States, increasing employment and
wages (Feyrer et al., 2017; Marchand and Weber, 2018) and generating public rev-
enues (Raimi and Newell, 2015; Weber et al., 2016). Home to four major shale
formations, Texas has been the epicenter of the U.S. shale boom, with parts of the
state experiencing large and localized shocks based on spatial variation in geology
3

and temporal variation in energy prices and technological change.
1
As will be shown
for the 2001-2014 period, the Texas shale boom tripled the tax base of the average
shale school district and increased the private sector wage by almost 20 percent.
The evidence shows that the percentage of students passing standardized tests
in the average shale oil district declined relative to districts outside of any shale
formation, even relative to districts with below-average shale geology or those with
only shale gas. The decline occurred despite an increase in the property tax base
of over a million dollars per student in shale districts, which led school districts to
lower property tax rates, borrow more, and spend more. Most additional spending
went to capital projects or to service debt, but none of it went to teachers. Despite
the shale boom increasing the private sector wage, attendance rates only slightly
declined and completion rates were unaffected. However, the boom widened the gap
between private and education sector wages, increased teacher turnover, and led to
more inexperienced teachers in the classroom. The overall negative effect of shale
development on student achievement may therefore partly stem from the disruption
of turnover and the decline in teacher quality. Student composition changed but in
a way that moderated the decline in achievement.
The findings contribute to several strands of literature. First, this study adds to
a growing body of research on how local labor market conditions for teachers affect
teacher quality and, in turn, student achievement. Teacher labor markets tend to be
geographically small, enhancing the credibility of finding localized impacts (Boyd
et al., 2005), but these have not been previously explored for a resource boom.
Improved labor market conditions for talented women in the U.S. have previously
1
Texas has not only been the epicenter of the U.S. shale boom, but it is also a state where
local schools and governments tax producing oil and gas wells as property. Independent appraisers
assign value to a well based on the discounted flow of profits that it is expected to generate, with
wells reassessed annually as they mature and prices change. The local property tax rate is then
applied to the assessed value of wells.
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Frequently asked questions

Q1. What contributions have the authors mentioned in the paper "How local economic conditions affect school finances, teacher quality, and student achievement: evidence from the texas" ?

The Texas boom in shale oil and gas drilling, with its large and localized effects on wages and the tax base, provides a unique opportunity to address this question that spans the areas of education, labor markets, and public finance. The findings illustrate the potential value of using revenue growth to retain teachers in times of rising private sector wages. 

Q2. Why did Texas school districts spend the money to mitigate the labor market pull on teachers?

Because of greater property tax revenues, Texas school districts had the money to mitigate the labor market pull on teachers, but they spent it elsewhere. 

Q3. What is the effect of a shale boom on student achievement?

Despite shale districts benefiting from a revenue windfall caused by an expanded tax base, student achievement in shale districts declined. 

Q4. What could be the effect of the decline in attendance on scores?

The decline in attendance could affect scores, with less attendance potentially stemming from some students missing school days to work part-time and take advantage of the higher wages. 

Q5. What was the effect of the shale boom on student achievement?

Despite the shale boom increasing the private sector wage, attendance rates only slightly declined and completion rates were unaffected. 

Q6. What is the effect of the changes in composition on student achievement?

Although some changes in composition occurred, namely a decline in the percentage of of economically-disadvantaged students, controlling for these changes results in a larger decline in achievement. 

Q7. What other dimensions of geology do shale districts have?

other dimensions of geology also matter, including shale thickness, with thicker shale holding more oil and gas (Brown et al., 2016). 

Q8. What is the plausible explanation for the decline in the percentage of economically-disadvantaged students?

In addition, the higher wages documented in the prior section are the most plausible explanation for the decline in the percentage of economically-disadvantaged students. 

Q9. What is the first approach to determining the outcome of a shale boom?

The first approach uses a district fixed effects model to quantify how outcomes evolved year-by-year based on shale geology:Outcomedy = 2014∑ 2002 βy (Depthd · Y eary) +Districtd + 

Q10. What were the trends in pass rates in the Permian and non-shale?

The Permian and non-shale districts (column b) also had similar trends in pass rates prior to the rise of oil prices in the mid-2000s. 

Q11. What is the reason for the lower tax base in the gas formations?

The smaller increase in the tax base in the gas formations likely reflects the fewer number of wells drilled and the lower profitability of gas wells. 

Q12. Why is the focus on the oil formations due to the small changes in the tax base and?

The focus on the oil formations is due to the small (or non-existent) changes in the tax base and wages observed in the natural gas formations.