Chapter 25 Education


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Chapter 25EducationChapter OutlineINVESTMENTS IN HUMAN CAPITALSHOULD WE SPEND MORE?SCHOOL REFORM ISSUESCOLLEGE AND UNIVERSITY EDUCATIONInvestments in Human CapitalHuman Capital: the ability of a person to create goods and servicesAn education is an investment like any other.You incur costs earlyYou reap rewards laterAny 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.Why “Free” Public Schools are not “Free”Taxpayers pay $389 billion in taxes to support the system.Some states and school districts have fees (such as textbook rental) that parents must pay.Analyzing the Education DecisionIf 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.Why “Free” Public School Makes Economic SenseThe 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 includethe 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.Modeling External BenefitsSocial BenefitExternal Benefits0Enrolled StudentsDSTuitionT*S*T’S’What Schools GetWhat Parents PayShould We Spend More?What we get for our $300 billion in tax moneyMore real spending per studentLower student-teacher ratiosFlat to declining SATsIncreasing high school graduation ratesMore Per Student Spending 1996 DollarsLower Student-Teacher RatiosFlat to Declining SATsHigher High School Graduation RatesCautions Against Quick ConclusionsMuch of the increased spending has gone forNoninstructional 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.The Economic Literature on Education Spending Economists have studied the relationship between student success and spending. The majority show little relationship. Measures of successGraduation rates, standardized test scoresInputsStudent-teacher ratiosTeacher degree attainmentTeacher salaries The Education Production FunctionTest ScoresTeacher Quality/QuantityEducation Production FunctionThe flat of the curve. The argument is that inthis range more spendingdoes not increase scores.School Reform IssuesThe public school as a monopolyLack 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 payTenured teachers can not be fired for poor teaching and good teachers are rarely paid more than poor ones. Private vs. Public Education and VouchersCreating competition would stimulate cost and quality consciousness. Evidence is mixed.College and University EducationCosts are higher than K-12Teachers spend less time in the classroom6 to 12 hours per weekSpend time on research, committees, keeping up with the latest in their fields.Equipment and lab costs are substantially higher.More College Graduates What is a College Degree WorthPresent Value of CostsOpportunity costs of lost work timeTuition(not living expensesyou have to eat)Present Value of BenefitsIncreased expected earnings over a lifetimeNet Present ValueEstimates vary between $300,000 and $500,000 for the positive net present value