Lecture 1: wherefore econ of ed ?

1. Lecture 1: wherefore econ of ed? Econ 395, Fall 2011

2. Syllabus • Contact • Prereqs • Assignments • 3 Midterm Exams, no final (de-weight worst) • HW, paper • Readings • Required readings are marked by “►” • Other readings are “suggested” in a weak sense • Powerpoint notes as the central repository of expected knowledge (see “notes” to each page) • Schedule

3. Why Econ of Ed? • An entire class on one industry! • Imagine “Economics of software”, “Economics of retail groceries”, or “Economics of cement” courses • What makes education so special that it deserves its own class? • Virtually everyone spends at least 10 years (1/8th of their life) as students • The average person spends around 14 years in school • Recently, around 40% of people earn at least bachelor’s degrees:16 years or more  An industry that effects us all

4. Why Econ of Ed? • “An industry that effects us all” • Let’s not beat around the bush: education is an industry and can be studied as such • In 2005, education spending represented around $800 billion, or about 7% of GDP. • In 2005, 72 million people were enrolled in school • In 2005, 9.4 million people were employed by the field of education (4.4 million are teachers) • Total government spending (state and federal) on education is greater than government spending on either national defense or health care.

5. Why Econ of Ed? • A hugely influential part of the economy! • Virtually every well-paying job takes some sort of formal education • On-the-job-training (OTJT) is something that we won’t really discuss in this class, but easily falls under the area of “education”, and every job takes some degree of OTJT  To understand labor markets, you must understand education • Labor is an input into all goods. Therefore, the production of all goods involves education

6. But why Economics? • Lots of disciplines study education, most for longer than economists have • Psychology, sociology, history, anthropology, polisci (and, of course, education folk) • So, what can economists add? • How is economics particularly useful in exploring educational issues? • Standard definition of economics: the study of allocation of scare resources among competing ends • How to best use resources - i.e., efficiency • How do we get the most gain at least cost? Most output with the least input?

7. But why Economics? • Efficiency • What are inputs in education? What’s the output? Is there more than one output? • The answers to these question alone are very important • Economists stress rationality and optimization • Optimization: people want to do as best as they can • Rationality: people use the best possible means to achieve their goals. • Assumes they know what they want, and know all the possible means to achieve their goals

8. But why Economics? • Rationality + optimization  a responsiveness to incentives. • People who behave this way will respond in predictable ways to policy changes (taxes, subsidies, etc) • Economists have useful insight into the design of educational policy, so as to increase social welfare. • The dominant framework for discussing education in economics: Human Capital (from Becker, 1964) • Human Capital: Any characteristic that makes a unit of labor more productive • Education, health, training, experience, strength, intelligence, etc.

9. But why Economics? • Human capital is like labor-augmenting technology. • We will cover the sub-field of labor economics • The input-output framework suggests that we are interested in how the industry organizes inputs and achieves efficiency (if at all). • We will cover the sub-field of industrial organization • Education is governmentally funded via taxation. • We will cover the sub-field of public finance

10. Course goals • I have three-and-a-half main objectives in the class • Use the economic theory to explain how and why the educational system works. • How is education produced? • Why do people “get an education”? • How does education relate to economic outcomes like growth or income inequality? • How does the mechanism of markets interact with, and potentially improve, the educational system? • The market for teachers • School choice: the market for schools

11. Course goals • I have three-and-a-half main objectives in the class • Use the analytical tools of economics/statistics to evaluate policy proposals in the field of education • What are the effects of No Child Left Behind and other “accountability” measures? • Do vouchers and charter schools “work”? • What is the best thing to spend more money on, in order to improve education? • Can we spend more money and improve education?

12. Course goals • I have three-and-a-half main objectives in the class 3.5. Increase your comfort level in reading technical evaluations of education • If you want to understand the educational system and educational policy evaluation beyond sheer punditry, you’ve got to be able to understand the studies of the system • Involves data, statistics, experiments, surveys, etc. • There are other classes that teach these things in detail – I want to take away the “fear” of jumping into the data. We’ve got to be reality-based!