An empirical investigation of trade-offs between number of children and their scholastic performance confirms that family size directly affects children's achievement. Though parents show no favoritism to first-born children, being early in the birth order implies a distinct advantage, entirely because of the higher probability of being in a small family. Recent large changes in family size explain a portion of aggregate test score declines, but increased divorce rates and market work by mothers have no apparent impact. Finally, teachers are shown to differ enormously, even though performance differences are poorly captured by commonly measured teacher characteristics. The evidence supports a teacher skill interpretation of differences in classroom achievement.

This article begins by reviewing the main body of evidence about the effectiveness of resources devoted to schools. It then discusses some of the central implications for policy and for economic research. The implications for educational policy draw heavily on the discussion of the Panel one the Economics of Education Reform (PEER), a group of economists who met over a four-year period to discuss economic aspects of educational investments. Those recommendations are only sketched here, but are detailed in its report, Making Schools Work (Hanushek and others, 1994).

N RECENT YEARS, public and professional interest in schools has been heightened by a spate of reports, many of them critical of current school policy.' These policy documents have added to persistent and long-standing concerns about the cost, effectiveness, and fairness of the current school structure, and have made schooling once again a serious public issue. As in the past, however, any renewed interest in education is likely to be short-lived, doomed to dissipate as frustration over the inability of policy to improve school practice sets in. This frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools. Although the educational process has been extensively researched, clear policy prescriptions flowing from this research have been difficult to derive.2 There exists, however, a consistency to the research findings that does have an immediate application to school policy: Schools differ dramatically in quality,

T HERE have been a number of attempts to estimate the relationship between schooling and earnings of individuals, but the most common feature of these studies has been severe data limitation which, in turn, has dictated how the analysis could proceed. Perhaps the most serious restriction imposed by the data has been the assumption that earnings relationships are the same across the nation or, at least, across very sizable aggregations of states. This paper examines the viability of such assumptions by looking at differences in earnings functions among smaller, more homogeneous labor markets. This res-earch reveals large differences across labor markets in the returns to human capital and indicates that much of the observed difference in regional and racial earnings results from structural differences in earnings functions.

The estimates in the study considered whether any of the governmental or family factors individually could explain the magnitude and pattern of black-white achievement gaps. Neither the level nor the distribution of school spending appears to provide much explanation for the gaps. School spending levels show little consistent impact with any indication of differential impact on blacks being small. Direct analyses of the effects of spending equalization on performance similarly show little impact. On the other hand, governmental intervention through integration programs appears potentially more important.

Economists have long been concerned with educational policies, but, in this decade of educational reform proposals, economists have not made much effort to translate research into direct policy implications. This is particularly true with respect to federal government policies. This paper provides an overview of current federal involvement in education and considers what, if anything, research has to say about potential policy changes. At the outset I should make it clear that I believe that the general alarm about the state of our educational system is warranted. The educational system that produced so much of the wealth and opportunity for advancement in the United States in the past now faces serious problems. At the same time, I am quite skeptical about the efficacy of a much expanded federal role in education at this time.

Recent attention to education in the United States represents the merger of concern about efficiency of the educational system and concern about the distribution of educational services, particularly along racial and ethnic lines. However, there is very little guidance on how to satisfy any efficiency or distributional goals through public policy because extremely little is known about the relationship between inputs-particularly inputs available for public policy--and outputs of the educational process. Educational research has been slow in providing definitive answers to public policy questions for several understandable reasons: the subject of the educational process is extremely complex, especially as regards the physiological and psychological aspects; any theoretical development of a learning theory amenable to analysis for policy purposes is absent; and the required data traditionally have not been collected. Previous analyses have yielded some suggestive beginnings, and have provided insights into how the analysis should proceed. This analysis represents a next step of statistical inquiry into the educational process from a public policy point of view. Three fundamental educational policy questions are addressed: (1) do teachers count? (2) are schools operated efficiently now? (3) what characteristics of teachers and classrooms are important? Past studies have given ambiguous answers to these questions, largely due to inadequate data. Specifically, no data set which supplies accurate historical information on educational inputs at an individual level has been available. This study attempts to provide more conclusive answers by remedying the most glaring data problems for a set of students (third graders) in one school district.