Chapter 30
Education
Issues In Economics Today, 4e
Guell
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
• INVESTMENTS IN HUMAN
CAPITAL
• SHOULD WE SPEND MORE?
• SCHOOL REFORM ISSUES
• COLLEGE AND UNIVERSITY
EDUCATION
30-2
You Are Here
30-3
Investments in Human Capital
• Human Capital: the ability of a person to
create goods and services
• An education is an investment like any
other.
– You incur costs early
– You reap rewards later
• Any investment only makes economic
sense if the net present value (the present
value of the benefits minus the present
value of the costs) is positive.
30-4
Why “Free” Public Schools are
not “Free”
• Taxpayers pay $551 billion in taxes to
support the system.
• Some states and school districts have
fees (such as textbook rental) that
parents must pay.
30-5
Analyzing the Education Decision
• If parents had to pay the entire cost of K-12
education and chose not to send their
children to school they would still incur
daycare costs for their smaller children.
• Parents would then compare the present
value of benefits to the present value of the
tuition costs minus daycare costs.
30-6
Why “Free” Public School
Makes Economic Sense
• The external benefits (the benefits to the rest
of society that result from a child being
educated) are such that the efficient price is
zero.
• External benefits include
– the social stability that is enhanced by providing
opportunity for all to succeed.
– the more intelligent voting population.
– the greater tax base associated with higher
incomes.
– Lower crime rates
30-7
Modeling External Benefits
Tuition
What
Schools
Get
S
T’
Social Benefit
T*
External Benefits
D
0
S*
S’
Enrolled Students
What Parents Pay
30-8
Should We Spend More?
• What we get for our $551 billion in
tax money
– More real spending per student
– Lower student-teacher ratios
– Flat to declining SAT Verbal (recently
rising SAT Math)
– Increasing high school graduation rates
30-9
19
19
19
33
19
39
19
45
19
51
19
57
19
63
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
Real (2004-05) Current Spending per
Student
More Per Student Spending
(2004 Dollars)
$10,000
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Year
30-10
19
5
19 5
5
19 7
5
19 9
6
19 1
6
19 3
6
19 5
6
19 7
6
19 9
7
19 1
7
19 3
7
19 5
7
19 7
7
19 9
8
19 1
8
19 3
8
19 5
8
19 7
8
19 9
9
19 1
9
19 3
9
19 5
9
19 7
9
20 9
0
20 1
03
Student-Teacher Ratio
Lower Student-Teacher Ratios
30
25
20
15
10
5
0
Year
30-11
19
67
19
69
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
Math and Verbal SATs
SATs
550
540
530
520
510
500
490
480
470
460
Year
SATV
SATM
30-12
White
Black
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
Graduation Rate
Increased High School
Graduation Rates
100
90
80
70
60
50
40
30
20
10
0
Year
Hispanic
30-13
Cautions Against Quick
Conclusions
• Much of the increased spending has gone
for
– Noninstructional spending (e.g.Janitors,
secretaries, administration)
– Special education spending (more than 10%
of students now qualify for special services)
• Some of the decline in SATs comes from
more (and less academically prepared)
students taking the exams.
• Some of the increase is graduation rates
comes from GEDs, and social promotion.
30-14
The Economic Literature on
Education Spending
• Economists have studied the relationship
between student success and spending.
The majority show little relationship.
– Measures of success
• Graduation rates, standardized test scores
– Inputs
• Student-teacher ratios
• Teacher degree attainment
• Teacher salaries
30-15
The Education Production Function
Test Scores
Education Production Function
The flat of the curve.
The argument is that in
this range more spending
does not increase scores.
Teacher Quality/Quantity
30-16
School Reform Issues
• The public school as a monopoly
– Lack of competition makes all monopolies less
cost- and quality-conscious.
• The existence of tenure (the job protection for
teachers with experience) and the lack of merit
pay
– Tenured teachers can not be fired for poor
teaching and good teachers are rarely paid
more than poor ones.
– Evidence indicates quality teaching matters,
but without merit pay, you can not use money
to attract it.
• Private vs. Public Education and Vouchers
– Creating competition would stimulate cost and
quality consciousness. Evidence is mixed.
30-17
The Flight of Bright Women
from Teaching
• With gender equality in hiring across
more areas of employment, teaching is
less attractive to bright women.
• Evidence suggests that
– fewer bright women are choosing
education majors in college.
– more less bright women are choosing
education majors in college.
30-18
College and University Education
• Costs are higher than K-12
– Teachers spend less time in the
classroom
• 6 to 12 hours per week
• Spend time on research, committees,
keeping up with the latest in their fields.
– Equipment and lab costs are
substantially higher.
30-19
19
60
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
Graduation Rate
More College Graduates
30
25
20
White
15
Black
Hispanic
10
5
0
Year
30-20
What is a College Degree Worth
• Present Value of Costs
– Opportunity costs of lost work time
– Tuition
– (not living expenses…you have to eat)
• Present Value of Benefits
– Increased expected earnings over a lifetime
• Net Present Value
– Estimates vary between $300,000 and
$500,000 for the positive net present value
30-21