Education economics | Wikipedia audio article

Education economics or the economics of education
is the study of economic issues relating to education, including the demand for education,
the financing and provision of education, and the comparative efficiency of various
educational programs and policies. From early works on the relationship between
schooling and labor market outcomes for individuals, the field of the economics of education has
grown rapidly to cover virtually all areas with linkages to education.==Education as an investment==
Economics distinguishes in addition to physical capital another form of capital that is no
less critical as a means of production – human capital. With investments in human capital, such as
education, three major economic effects can be expected:
increased expenses as the accumulation of human capital requires investments just as
physical capital does, increased productivity as people gain characteristics
that enable them to produce more output and hence
return on investment in the form of higher incomes.===Investment costs===
Investments in human capital entail an investment cost, just as any investment does. Typically in European countries most education
expenditure takes the form of government consumption, although some costs are also borne by individuals. These investments can be rather costly. EU governments spent between 3% and 8% of
GDP on education in 2005, the average being 5%. However, measuring the spending this way alone
greatly underestimates the costs because a more subtle form of costs is completely overlooked:
the opportunity cost of forgone wages as students cannot work while they study. It has been estimated that the total costs,
including opportunity costs, of education are as much as double the direct costs. Including opportunity costs investments in
education can be estimated to have been around 10% of GDP in the EU countries in 2005. In comparison investments in physical capital
were 20% of GDP. Thus the two are of similar magnitude.===Returns on investment===
Human capital in the form of education shares many characteristics with physical capital. Both require an investment to create and,
once created, both have economic value. Physical capital earns a return because people
are willing to pay to use a piece of physical capital in work as it allows them to produce
more output. To measure the productive value of physical
capital, we can simply measure how much of a return it commands in the market. In the case of human capital calculating returns
is more complicated – after all, we cannot separate education from the person to see
how much it rents for. To get around this problem, the returns to
human capital are generally inferred from differences in wages among people with different
levels of education. Hall and Jones have calculated from international
data that on average that the returns on education are 13.4% per year for first four years of
schooling (grades 1–4), 10.1% per year for the next four years (grades 5–8) and 6.8%
for each year beyond eight years. Thus someone with 12 years of schooling can
be expected to earn, on average, 1.1344 × 1.1014 × 1.0684=3.161 times as much as someone
with no schooling at all.===Effects on productivity===
Economy-wide, the effect of human capital on incomes has been estimated to be rather
significant: 65% of wages paid in developed countries is payments to human capital and
only 35% to raw labor. The higher productivity of well-educated workers
is one of the factors that explain higher GDPs and, therefore, higher incomes in developed
countries. A strong correlation between GDP and education
is clearly visible among the countries of the world, as is shown by the upper left figure. It is less clear, however, how much of a high
GDP is explained by education. After all, it is also possible that rich countries
can simply afford more education. To distinguish the part of GDP explained with
education from other causes, Weil has calculated how much one would expect each country’s
GDP to be higher based on the data on average schooling. This was based on the above-mentioned calculations
of Hall and Jones on the returns on education. GDPs predicted by Weil’s calculations can
be plotted against actual GDPs, as is done in the figure on the left, demonstrating that
the variation in education explains some, but not all, of the variation in GDP. Finally, the matter of externalities should
be considered. Usually when speaking of externalities one
thinks of the negative effects of economic activities that are not included in market
prices, such as pollution. These are negative externalities. However, there are also positive externalities
– that is, positive effects of which someone can benefit without having to pay for it. Education bears with it major positive externalities:
giving one person more education raises not only his or her output but also the output
of those around him or her. Educated workers can bring new technologies,
methods and information to the consideration of others. They can teach things to others and act as
an example. The positive externalities of education include
the effects of personal networks and the roles educated workers play in them.Positive externalities
from human capital are one explanation for why governments are involved in education. If people were left on their own, they would
not take into account the full social benefit of education – in other words the rise in
the output and wages of others – so the amount they would choose to obtain would be
lower than the social optimum.==Demand for education=====
Demand for vs. supply of education===A 2013 study assesses demand- and supply-side
factors that affect educational access and attainment in development countries, and it
shows that addressing demand-side factors, such as geographic gaps between rural and
urban areas, higher levels of population growth (which place constant pressure on new enrolments)
and child labour, can often have greater impact on increasing levels of education in developing
countries than supply-side factors, such as constructing additional
school facilities, hiring more teachers etc.===Liberal approaches===
The dominant model of the demand for education is based on human capital theory. The central idea is that undertaking education
is investment in the acquisition of skills and knowledge which will increase earnings,
or provide long-term benefits such as an appreciation of literature (sometimes referred to as cultural
capital). An increase in human capital can follow technological
progress as knowledgeable employees are in demand due to the need for their skills, whether
it be in understanding the production process or in operating machines. Studies from 1958 attempted to calculate the
returns from additional schooling (the percent increase in income acquired through an additional
year of schooling). Later results attempted to allow for different
returns across persons or by level of education.Statistics have shown that countries with high enrollment/graduation
rates have grown faster than countries without. The United States has been the world leader
in educational advances, beginning with the high school movement (1910–1950). There also seems to be a correlation between
gender differences in education with the level of growth; more development is observed in
countries which have an equal distribution of the percentage of women versus men who
graduated from high school. When looking at correlations in the data,
education seems to generate economic growth; however, it could be that we have this causality
relationship backwards. For example, if education is seen as a luxury
good, it may be that richer households are seeking out educational attainment as a symbol
of status, rather than the relationship of education leading to wealth. Educational advance is not the only variable
for economic growth, though, as it only explains about 14% of the average annual increase in
labor productivity over the period 1915-2005. From lack of a more significant correlation
between formal educational achievement and productivity growth, some economists see reason
to believe that in today’s world many skills and capabilities come by way of learning outside
of traditional education, or outside of schooling altogether.An alternative model of the demand
for education, commonly referred to as screening, is based on the economic theory of signalling. The central idea is that the successful completion
of education is a signal of ability.===Marxist critique===
Although Marx and Engels did not write widely about the social functions of education, their
concepts and methods are theorized and criticized by the influence of Marx as education being
used in reproduction of capitalist societies. Marx and Engels approached scholarship as
“revolutionary scholarship” where education should serve as a propaganda for the struggle
of the working class. The classical Marxian paradigm sees education
as serving the interest of capital and is seeking alternative modes of education that
would prepare students and citizens for more progressive socialist mode of social organizations. Marx and Engels understood education and free
time as essential to developing free individuals and creating many-sided human beings, thus
for them education should become a more essential part of the life of people unlike capitalist
society which is organized mainly around work and the production of commodities.==Financing and provision==
In most countries school education is predominantly financed and provided by governments. Public funding and provision also plays a
major role in higher education. Although there is wide agreement on the principle
that education, at least at school level, should be financed mainly by governments,
there is considerable debate over the desirable extent of public provision of education. Supporters of public education argue that
universal public provision promotes equality of opportunity and social cohesion. Opponents of public provision advocate alternatives
such as vouchers.===Pre-primary education financing===
Compared to other areas of basic education, globally comparable data on pre-primary education
financing remain scarce. While much of existing non-formal and private
programmes may not be fully accounted for, it can be deduced from the level of provision
that pre-primary financing remains inadequate, especially when considered against expected
benefits. Globally, pre-primary education accounts for
the lowest proportion of the total public expenditure on education, in spite of the
much-documented positive impact of quality early childhood care and education on later
learning and other social outcomes.==Education production function==
An education production function is an application of the economic concept of a production function
to the field of education. It relates various inputs affecting a student’s
learning (schools, families, peers, neighborhoods, etc.) to measured outputs including subsequent
labor market success, college attendance, graduation rates, and, most frequently, standardized
test scores. The original study that eventually prompted
interest in the idea of education production functions was by a sociologist, James S. Coleman. The Coleman Report, published in 1966, concluded
that the marginal effect of various school inputs on student achievement was small compared
to the impact of families and friends. Later work, by Eric A. Hanushek, Richard Murnane,
and other economists introduced the structure of “production” to the consideration of student
learning outcomes. Hanushek at al. (2008, 2015) reported a very
high correlation between “adjusted growth rate” and “adjusted test scores”.A large number
of successive studies, increasingly involving economists, produced inconsistent results
about the impact of school resources on student performance, leading to considerable controversy
in policy discussions. The interpretation of the various studies
has been very controversial, in part because the findings have directly influenced policy
debates. Two separate lines of study have been particularly
widely debated. The overall question of whether added funds
to schools are likely to produce higher achievement (the “money doesn’t matter” debate)
has entered into legislative debates and court consideration of school finance systems. Additionally, policy discussions about class
size reduction heightened academic study of the relationship of class size and achievement.==Notable education economists====
See also==Academic inflation
Education policy Educational devaluation==
Sources==This article incorporates text from a free
content work. Licensed under CC-BY-SA IGO 3.0 License statement:
Investing against Evidence: The Global State of Early Childhood Care and Education, 15,
Marope, P.T.M., Kaga, Y., UNESCO. UNESCO. To learn how to add open license text to Wikipedia
articles, please see this how-to page. For information on reusing text from Wikipedia,
please see the terms of use.==Notes

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