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Volume 25, Number 5
September/October 2009

The Invisible Hand in Education Policy

Behind the scenes, economists wield unprecedented influence


Until 30 years ago, education policy was developed mostly by educators and researchers in the field of psychology. Today, in almost every corner of the education world, you’ll find an economist studying the impact of government policies and helping to design programs that provide incentives—and disincentives—for students and school districts.

“Interest in education by economists is now higher than it has ever been,” says economist Michael McPherson, president of the Spencer Foundation, one of the nation’s leading funders of education research.

Dubbed the “dismal science” by 19th century historian Thomas Carlyle, economics is the study of how goods and services are produced, distributed, and consumed. Economists in the field of education borrow tools developed from the study of the economic system. Labor economists, for example, analyze economic trends and patterns to determine how schools can best prepare students to become productive workers. Other economists are interested in assessing the effectiveness of education policy—weighing the costs and benefits of specific investments, measuring their impact, or identifying unintended consequences. Some develop measures to assess student performance or teacher effectiveness, just as in business they might measure worker productivity. Others focus on the incentives that shape the behavior of schools, students, or teachers.

This is an excerpt from the Harvard Education Letter. Subscribers can click here to continue reading this article.


For Further Information

For Further Information

S. J. Adams, J. Heywood and R. Rothstein. Teachers, Performance Pay, and Accountability: What Education Should Learn From Other Sectors. Washington, DC: Economic Policy Institute, 2009.

C. Belfield and H. Levin, eds. The Price We Pay: Economic and Social Consequences of Inadequate Education. Washington, DC: The Brookings Institution Press, 2007.

F. Cunha and J. J. Heckman. “Investing in Our Young People.” Available online in PDF at

D. N. Figlio and L. Kenny. “Individual Teacher Incentives and Student Performance.” Cambridge, MA: National Bureau of Economic Research, 2006. Available online in PDF at

E. A. Hanushek. “Throwing Money at Schools.” Journal of Policy Analysis and Management 1, no. 1 (1981): 19-41.

T. J. Kane, J. E. Rockoff and D. O. Staiger. “What Does Certification Tell Us About Teacher Effectiveness? Evidence from New York City.” Economics of Education Review 27, no. 6, (2008): 615-631.

R. Murnane with F. Levy. The New Division of Labor: How Computers Are Changing the Way We Work. NewYork and Princeton, NJ:Russell Sage Foundation and Princeton University Press, 2004.