The impact of charter schools on the efficiency of traditional public schools: Evidence from Michigan

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Abstract

This paper examines the competitive effects of charter schools on the efficiency of traditional public schools. The analysis utilizes a statewide school-level longitudinal dataset of Michigan schools from 1994 to 2004. Fixed effect and two alternative estimation methods are employed. Overall, the results suggest that charter competition had a negative impact on student achievement and school efficiency in Michigan's traditional public schools. The effect is small or negligible in the short run, but becomes more substantial in the long run.

Introduction

One of the central issues in the charter school debate is whether the competition induced by charter schools improves school efficiency. Recent research in this regard has focused on whether charter schools are more efficient than traditional public schools (TPS). However, the more important issue that remains unresolved is whether charter competition improves the efficiency of TPSs and thereby benefits the vast majority of students who remain in the traditional public school system.

School choice advocates argue that introducing school choice will result in TPSs working more efficiently. They suggest that TPSs both operate in a relatively monopolistic market and are overburdened by institutions of democratic governance that leave them vulnerable to the conflicting demands of multiple interest groups (Chubb & Moe, 1990). They have little incentive to improve the quality of education they provide their students or to increase the efficiency of their resource use. According to this view, the introduction of school choice helps to free schools from the constraints of both bureaucracy and monopoly, creating market incentives that induce TPSs to become more efficient.

Moreover, economists anticipate that the positive long-run effects on resource allocation, school quality, and even the existence of schools would be more substantial than the short-run effects (Hoxby, 2003a). In the short-run, an administrator who wants to raise school productivity has only limited options such as inducing the staff to work harder, getting rid of unproductive staff and programs, and allocating resources away from non-achievement oriented activities. However, in the long run, some general equilibrium mechanisms are available to an administrator. For instance, administrators can improve teacher quality through professional development, or propose higher salaries in order to attract high quality teachers, and thus draw people into teaching who would otherwise pursue other careers (Hoxby, 2003a).

Other scholars, however, argue that TPSs will not necessarily be more efficient when they face school choice competition. First, highly motivated students might be more active in choosing to attend choice schools; less motivated students would then be clustered in increasingly disadvantaged TPSs. These schools in turn would have difficulty responding to the competitive challenge because of negative peer effects over which school administrators have limited control. Second, losing students to choice schools will ordinarily decrease TPSs’ educational revenue. Expenditure, however, cannot be so readily decreased. Losing students to competitors creates fiscal constraints for TPSs, which makes it harder for them to continue providing the same quality programs, let alone improve educational services. Since revenues may decline faster than costs in TPSs that lose students, TPSs may be compelled to cut programs, which could spur the loss of additional students and resources, and trigger a downward spiral (Arsen, Plank, & Sykes, 1999; Fiske & Ladd, 2000).

With the growth of school choice policies, better information on the merits of these contrasting viewpoints is clearly important, since – for the foreseeable future – the majority of students will still remain in the TPS system. However, the existing literature fails to provide consistent evidence on how school choice affects TPS efficiency. Researchers face two big empirical challenges in establishing the causal relationship between competition and student outcomes: choice schools are not randomly located and students systematically sort themselves between choice schools and TPSs, often in unobserved ways that affect school efficiency.

Using 11 years of school-level longitudinal data in Michigan, this paper examines the competitive effects of charter schools on the efficiency of TPSs. The analysis uses fixed effects and two alternative estimation methods that implicitly control for unobservable school characteristics, and explicitly control for changing student composition and other factors induced by the charter school policy. The analysis also separates the competition effect of charter schools from that of Michigan's inter-district school choice policy. My results show no positive competitive effect on student achievement in TPSs. Indeed, in areas with sustained, high-levels of charter school competition, I find a significant negative impact on TPS performance.

Section snippets

Literature review

There has been relatively little research on the impact of charter school competition on the efficiency of TPSs, because only recently have charter school policies become sufficiently widespread to elicit competitive response from TPSs. So far, studies of this issue have focused on states such as Florida, California, Arizona, Michigan, Texas, and North Carolina, where charter school laws have been in place long enough and charter school enrollments are large. Among these studies, the results

School choice context in Michigan

In 1993, Michigan became the eighth state to adopt a charter school law. A charter school, officially designated a public school academy (PSA) in Michigan, is a state-supported public school that operates independently under a charter granted by an authorizing body. In Michigan, PSAs can be chartered by local school districts, intermediate school districts, the state board of education or the governing boards of public community colleges or universities. Charter schools have no geographic

Research questions

This paper aims to address some of the limitations of past research and investigate the relationship between charter competition and TPS efficiency. Specifically, I ask two questions: (1) how has competition from charter schools influenced efficiency in TPSs? and (2) does the competition generate different impacts on TPS efficiency in the short-run and the long-run?

Like Hoxby (2003b) and Bettinger (2005), my analysis focuses on Michigan's charter school program. However, my research differs

Data sources

This analysis utilizes a statewide school-level panel dataset of Michigan schools from 1994 to 2004. The data were assembled from three main sources: the Michigan Department of Education (MDE), the State of Michigan's Center for Educational Performance and Information, and Common Core Data from the National Center of Educational Statistics. The merged dataset includes information by school for school choice enrollment, student demographics, school finance, and other school level factors over

Descriptive statistics

Table 1 provides information on charter competition in Michigan from 1994 to 2004. The percentage of charter school enrollment statewide increased almost every year. In 2004, it reached 4.2% of all public school students. Although the first charter schools in Michigan were founded in 1994, no TPS experienced strong charter competition before 1996. By 2004, about 370, or 14% of all TPSs in Michigan had experienced long-run charter competition and an additional 13% had experienced only short- or

Discussion and conclusion

My analysis suggests that overall charter school competition has had a negative impact on student achievement in Michigan's traditional public schools. The effect is small or negligible in the short-run, but becomes more substantial in the medium- and long-run. The negative effect of charter competition is consistent for both math and reading tests in both 4th and 7th grades and robust across a range of econometric models and estimations. In the long run, for schools in districts where charter

Acknowledgements

I wish to express my special thanks to David Arsen for his advice and guidance throughout the preparation of this paper. I would also like to thank Jeffrey Wooldridge, Dorothea Anagnostopoulos, Ken Frank, Gary Sykes, and Margaret Levenstein for their invaluable comments and suggestions.

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    Citation Excerpt :

    The majority of the empirical literature comes from the United States charter school experiences (Betts, 2009; Jabbar et al., 2019; Ni and Arsen, 2010; Zimmer and Buddin, 2010). An analysis by Ni (2009) used 11 years of Michigan data to compute short and long run impacts of competition. The author reviews Hoxby (2003)’s influential work which documented positive competitive effects on Michigan and Arizona; and finds that charter competition exceeding 6% of district enrolment, Hoxby (2003)’s measure of competition, actually hurt student achievement and school efficiency in Michigan.

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