Free Economy, More Education, More Earnings

The Federal Reserve Bank of Dallas has issued its 2004 Annual Report, which examines the benefits of education in the U.S. The report, "What D'Ya Know: Lifelong Learning in Pursuit of the American Dream," is available online as a 3.5MB PDF document. (HT: Craig Depken of Division of Labour).

Among the many features that make the report worth reading is that the Dallas Fed examined how well nations around the world performed with respect to their position within the Index of Economic Freedom for 2000 (the listing for 2005 is available at Wikipedia). Here is the chart from the report's Exhibit 3, titled "Ignorance is Misery; Knowledge is Bliss" (on page 12), which shows the relationship between 2000 per capita GDP and the average number of years of schooling for each nation:

The report explains the chart's data (emphasis mine):

Free economies get the most out of education. The top quarter of the 108 nations in the Index of Economic Freedom (in green) cluster toward the top of the chart, indicating they’re getting a lot of per capita GDP from years of schooling. The least free
quarter (in orange) tend to get less from their education, which pushes them toward the bottom of the chart. The remaining countries (in purple) make up the middle two quarters of the index.

The lines on the chart indicate the relative position of each country with respect to its peers. Countries that are above the line are effectively receiving a higher return on their schooling than those falling below the line. The Dallas Fed's report observes that the position of the U.S. below the green line indicates that "Americans aren't getting as much income as we could from our years in the classroom."

I wonder what factors account for the lower performance of the U.S. with respect to its peers. Quality of education? Demographics? Public funding? Culture? Bueller?