Economies of Scale Comparison

The analysis of the economies of scale for the two Sample ISDs is shown below:

Indicator	Small District	Large District
Total Revenues	$ 8,823,250	$ 329,638,930
Revenues per Student	$ 10,529	$ 10,316
Total Operational Expenditures	$ 7,216,335	$ 284,664,004
Expenditures per Student	$ 8,611	$ 8,908
Average Teacher Salary	$ 39,771	$ 50,307
Total Students	830	32,326

What strikes me immediately are the specific similarities between the two districts with regard to their revenues as well as revenues per student.  Specifically, the smaller district actually receives more revenue per student than the larger district.  In addition, the operational expenditures per student are also similar, with minimal difference between the two districts.


There is a large disparity between the two districts with regard to average teacher salary.  The larger district pays approximately 27% more per teacher.  My initial thought was that the pay disparity may be due to a significant difference in years of service between the two districts, but upon further analysis, I found that to not be a significant factor.  An analysis of teacher service is below:

Indicator	Small District	Large District
Average Years of Service	13.3	11.6
% with < 5 Years of Service	30.1 %	36.7 %
% with Advanced Degrees	12.7 %	24.7 %
Teacher Turnover Rate	16.4 %	15.7 %

There is no meaningful difference between the average years in service that would explain the difference in average salary.  While the large district has a significantly larger percentage of teachers with advanced degrees, that point alone does not explain the disparity as most district stipends for advanced degrees range between $ 500 and $ 1500 per year.  The only explanation I can find would be that the larger district is able to leverage their economies of scale to allow them to offer teachers a much higher salary.   

Economy of scale creates an environment where increasing the size of an organization can result in a lower per unit production cost. In other words, as an organization becomes larger, it develops the ability to reduce infrastructure costs for the product produced.  A typical example is that a factory can produce a product for a much lower cost than a small business.  Similarly, a large “big box” store can use their size and purchasing power to offer lower prices than a small “mom & pop” store.  In a school district, the only product we produce is learning.

Larger district have a tactical advantage in which they can leverage their economies of scale to reduce their infrastructure costs and allocate a larger percentage of revenues toward instruction.  Please see the breakdown of expenditures for the two districts below:

Indicator	Small District	Large District
Total Operational Expenditures	$ 7,216,335	$ 284,664,004
Expenditures per Student	$ 8,611	$ 8,908
% Instructional	54 %	62 %
% Central Admin.	7 %	5 %
% School Admin.	5 %	6 %
% Plant Services	13 %	10 %
% Other Operations	21 %	18 %
Instructional Expenditures per Student	$ 4,619	$ 5,494

The data specifically demonstrates how economies of scale create an instructional advantage. 

Because of its ability to control its infrastructure costs, a larger percentage of expenditures are able to be spent per student.  The difference in this example amounts to approximately an $ 875 per student increase of instructional expenditures for the larger district.  That difference directly equates to the higher salaries per teacher earlier in this analysis.  Through its higher salaries, the larger district is able to recruit and hire stronger (and / or more) instructional staff, offer additional course offerings, clubs, UIL activities, and improve the overall quality of its educational offerings.