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Chapter 25

Chapter 25. Education. Chapter Outline. INVESTMENTS IN HUMAN CAPITAL SHOULD WE SPEND MORE? SCHOOL REFORM ISSUES COLLEGE AND UNIVERSITY EDUCATION. Investments in Human Capital. Human Capital : the ability of a person to create goods and services

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Chapter 25

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  1. Chapter 25 Education

  2. Chapter Outline • INVESTMENTS IN HUMAN CAPITAL • SHOULD WE SPEND MORE? • SCHOOL REFORM ISSUES • COLLEGE AND UNIVERSITY EDUCATION

  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.

  4. 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.

  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.

  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.

  7. Tuition S What Schools Get T’ Social Benefit T* External Benefits D 0 S* S’ Enrolled Students What Parents Pay Modeling External Benefits

  8. Should We Spend More? • What we get for our $300 billion in tax money • More real spending per student • Lower student-teacher ratios • Flat to declining SATs • Increasing high school graduation rates

  9. More Per Student Spending1996 Dollars

  10. Lower Student-Teacher Ratios

  11. Flat to Declining SATs

  12. Higher High School Graduation Rates

  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.

  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

  15. 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 The Education Production Function

  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. • Private vs. Public Education and Vouchers • Creating competition would stimulate cost and quality consciousness. Evidence is mixed.

  17. 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.

  18. More College Graduates

  19. 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

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