Quarter 3, 1998
by Katharine Bradbury, Karl Case, and Christopher Mayer

Americans are a mobile lot, chasing opportunity. We move to find or follow jobs or to pursue higher education, we move to obtain that bigger or better house or apartment in the next town, we move to put our kids into good public schools, we move to be near other family members or to find a haven for retirement. One in six Americans move every year.

Choosing a place to move is complicated. Each house has not only its own characteristics, but also a bundle of neighborhood and community attributes (both good and bad) that come with the package. While residential mobility in the nation has declined gradually in recent decades, Massachusetts families with children were apparently more mobile in the 1990s than in the 1980s, for at least one reason - seeking good schools for their children. Families with schoolchildren moved into public school districts with high test scores and moved out of public schools with lower test scores at a much greater pace in the early 1990s than they had in the early 1980s. (See table.)

That families move is no surprise — our preferences, needs, and economic resources change over our lifetimes — and that parents would move to better school districts as their children reach school age is no surprise, either. But what are the implications of such moves, both for the movers and those left behind? And why would families be chasing good schools more aggressively now than a decade ago?

ENROLLMENT SWINGS AND ECONOMIC SWINGS

Beginning in the 1980s, school enrollments in Massachusetts, as in many states, went on a roller-coaster ride, largely reflecting the aging of the baby-boom generation born between 1946 and 1964. Enrollments in most communities plummeted in the early 1980s when a relatively small post-boomer cohort hit school age and replaced its larger predecessor — the tail end of the baby boom graduating from high school. But in the first half of the 1990s, enrollments began rising smartly as the baby boom "echo" (children of boomers) began to enter school. With many schools seemingly bursting at the seams, parents may have become nervous about a potential decline in quality if class sizes rose.

Over the same period, the baby-boom bulge moved into age groups more interested in school quality. In 1980, most boomers were in their twenties. By 1990, ten years older, many owned a home, and many were parents.

Meanwhile, a boom-bust-recovery economic cycle put additional buying power into many boomers' hands. The 1980s "miracle" years brought rapid appreciation in Massachusetts' house prices. The regional economy turned down in 1989 and recession hit hard in 1990, but incomes began to rise again in 1992. By then, baby boomers were mostly in their thirties and forties — their years of peak earnings growth. While the bust brought house prices down 10 to 15 percent, these declines cut only marginally into the equity early buyers had accumulated in the boom. The combination of equity buildup, low interest rates, and higher and rising incomes meant that many families could now afford to buy into the better school systems that they and their predecessors could not manage a decade earlier.

LOCAL FISCAL CONSTRAINT

Added to these demographic and economic changes was Massachusetts' property tax limitation measure, Proposition 2½. Enacted by voters in November 1980, it required many communities to reduce property tax levies in the early 1980s and limited growth in property tax revenues thereafter.

Some communities were more constrained by the tax limit than others, and parents responded to these limits just as they did to test scores. In both the 1980s and 1990s, net enrollments rose more in communities that were unconstrained by Proposition 2½.

But many communities did not become seriously constrained by Proposition 2½ until the late 1980s. By then, five years of small nominal annual limits on revenue had cumulated, and the salutary effects on local budgets of declining enrollments and the strong economy were reversed. As increasing numbers of communities hit the tax cap, parents may have feared that good schools would become scarcer and they avoided places where Prop 2½ might block the resources needed to improve or even maintain the quality of public schools.

PREMIUM ON EDUCATION

National trends that increased the payoff to education may have intensified parents' concerns. While college-educated workers made steady income gains in the 1980s, the real earnings of high-school dropouts declined sharply and even the average high school graduate lost ground. As parents became increasingly aware of the importance of education to their children's future, they probably placed heavier weight on the quality of local public schools in making their residential choices.

Whether higher test scores necessarily equal higher quality schools requires more information. Test results, by themselves, cannot indicate the extent to which student performance levels are produced by the school (because of the quantity and quality of teachers, curriculum, books, etc.), by any advantages or barriers that individual students bring with them, or by "peer effects" — the cumulative impacts from neighborhood and classmates that help shape students' experiences and expectations. However, from the point of view of parents who want "the best education" for their children, test scores can be a useful shorthand measure of broader aspects of school quality, including peer effects. And in a world where the payoff to education is so high, parents may see moving to a high-test-score school district as an insurance policy.

NEW SCHOOL TESTS

New student tests linked to high academic standards were administered in Massachusetts public schools this spring, with results scheduled to be released later this year. These test results will be better publicized than previous tests. The hope is that they will lead to school improvements and that publicity will provide parents with a tool to hold local schools accountable, encouraging them to work actively with school staff to improve local educational quality. Although Proposition 2½ may impair some communities' access to the resources needed to upgrade local schools, the pressure for improvements in low-score communities is surely a plus.

Increased publicity will also heighten awareness of test score differentials across communities. As enrollments continue rising into the next decade and the payoff to education remains high, those families who can afford to will undoubtedly continue to chase good schools.

Such mobility, however, is a market signal about how parents rate local fiscal attributes. If net enrollments continue to rise in the best districts, it will indicate that lower-quality districts have not made enough improvement to be seen as good substitutes. And from society's point of view, the ongoing chase may perpetuate today's unequal distribution of income into the future earnings of current schoolchildren, unless additional education resources can be made available to the communities or individuals left behind.

Katharine Bradbury is Vice President and Economist at the Boston Fed. Karl Case is a Visiting Scholar at the Boston Fed and Professor of Economics at Wellesley College. Christopher Mayer is Associate Professor at Columbia Business School.