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Over view of the Economics of Education.

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91 education1

  1. 1. Lesson 1 Economics of Education Prof. Prabha Panth Dept of Economics, Osmania University, Hyderabad, India
  2. 2. Section 1. Role of education in the economy • Education is part of the Theory of Endogenous Growth - Lucas 1988 • Investment in human capital has positive spillover effects in production • Growth due to improvements in Human Capital, i.e. improvements in labour. • Expenditure on Education is an Investment • Positive externalities due to Education. 1
  3. 3. • At the Macro level, educated labour adds to National Income through higher output of trained labour. • At the Micro level, education improves the chances of the individual to increase his productivity and income. • It also increases his capacity to achieve higher paid jobs.
  4. 4. SOCIAL DEMAND FOR EDUCATION: Output is produced with the help of K and L. Q = F (K, L) Growth of K, especially different types of K, is considered to be important for economic growth and development. • But as the total quantity and different types of K increases, there is also demand for specialised labour to use this K.
  5. 5. The type of K growth also changes with development:- • New technology is introduced – e.g. computers • Technical progress in existing sectors – new methods of production. • New sectors are opened up – e.g. soft ware development, space research, etc.
  6. 6. • Labour works with capital to produce output. • So labour has to acquire the skills, training and knowledge needed by the new technology and latest K goods. • Otherwise the new capital will lie unused. • This will be a waste of the economy’s investment resources.
  7. 7. Costs of Education 2.Private Costs1.Social Costs a. Monetary costs b. Indirect, Real or opportunity costs
  8. 8. Benefits of Education 2. Private Benefits1. Social Benefits a. Direct or Monetary benefits b. Non-monetary benefits or externalities
  9. 9. 1. SOCIAL COSTS of Education a. Direct or Monetary Costs: • Scholarships, free ships to students • Construction of school, college and university buildings, • Construction of all other infrastructure for education – games and sports, library, laboratories, NCC, NSS, etc. • Free meals, mid-day meals schemes, etc.
  10. 10. • Payment of salaries, pensions and other incomes to teaching and non-teaching staff, • Cost of upgradation of syllabi, and training teachers • Cost of examinations and paper corrections • Educational conferences and workshops • Publication of books, stationery, etc. • Cost of research
  11. 11. b. Indirect Social Cost or Opportunity cost: The funds diverted to education in government budget, could have been used more productively in other sectors. • Subsidies on education: • The land, buildings and equipment could have been used for other types of production. • The trained teachers and staff could have been employed in other sectors.
  12. 12. • The students could have been employed. • Then they would have been an asset to the economy, by adding to NY and output. • But now they are a liability, as money is being spent on them, without immediate returns. • Higher taxes to collect funds to pay for education – such as education cess, library cess, etc.
  13. 13. 1. Private Cost of Education a. Direct or Monetary Costs: • Tuition and examination fees, • Hostel and boarding expenses, • Books, equipment and stationery, • Clothes, uniforms, shoes, etc. • Transport, • Other expenses.
  14. 14. b. Indirect or Opportunity Costs: • Employment foregone, • Income foregone, • On job training and experience, which cannot be learned through books. • Lack of horizontal mobility between jobs • Age factor • Burden and not support to family • Educated under employment
  15. 15. 1.SOCIAL BENEFITS OF EDUCATION a. Direct Benefits • Increase in Labour productivity. • Increase in national income and growth of the economy. • Increase in share of Tertiary sector. • Increase in direct tax earnings for the State. • Reduction in levels of poverty and unemployment. • More labour mobility
  16. 16. Externality b. Indirect Social Benefits: • Education is a “public good” since society as well as the individuals, benefit from increased education. • Broadening minds and visions • Cultural growth, less superstitions • Improved health and medical care • Reduction in crimes and violence • Research and addition to knowledge • Technical improvements.
  17. 17. • 15 to 20 percent of the annual average growth in output for the United States was explained by increases in education levels, during 1929-56. • Denison estimated that education per worker was the source of 16 percent of output growth in non-residential business.
  18. 18. 2.Private benefits a. Direct or Monetary Benefits: • Human capital - individuals acquire skills and knowledge to increase their value in labour markets, according to Gary Becker • With higher education, individuals earn higher income. • Better pensions • Other benefits – promotions, perks, etc.
  19. 19. • Studies have shown that the returns to an additional year of education rose from 6.2 percent in 1979 to nearly 10 percent in 1993-4 in most countries. • Educated workers have three advantages relative to less-educated workers: 1.Higher wages, 2. Greater employment stability, 3. Greater upward mobility in income.
  20. 20. In USA, a college graduate can earn nearly 3 times the median salary than one with < 9 std education.
  21. 21. Difference in earnings with higher education
  22. 22. b. Indirect Private Benefits: • Improves quality of life • Widens horizon • Lessens superstition and narrow mindedness • Improves health • More societal involvement • Cultural improvements • More political awareness and democratic outlook • Old age insurance – care of family and parents
  23. 23. SECTION 2
  24. 24. Education in India • Article 42 of the Constitution (1976 amendment) transferred education from the State list to the Central government. • Joint responsibilities regarding funding and curriculum. • Article 43 of the Constitution provides for free and compulsory education up to the age of 14 – primary and middle school levels. • It gave the States the power to set standards for education within their jurisdictions.
  25. 25. Primary schools increased by more than 230 percent between 1951 and 1980. • The percentage of the primary school-age population attending classes more than doubled. • The proportion of trained teachers in primary and middle schools, rose from 60 percent in 1950, to more than 90 percent in 1987. Achievements
  26. 26. Literacy in India Year Literacy rates % Male and female literacy rates 1951 13.17 1991 52.21 63.9% and 39.4 % 2001 65.38 76% and 54% The country has made good progress in literacy rates – increased 4 times in 40 years, and 5 times in 50 years
  27. 27. But there are wide differences between states: • Kerala, ranked first with a 1991 literacy rate of about 89.8 percent, in terms of both male and female literacy. • Bihar, ranked lowest with a literacy rate of only 39 percent (53 percent for males and 23 percent for females).
  28. 28. Limitations • But just 50 percent of children between the ages of 6-14 actually attend school. • High drop out rates, - nearly 60 percent of children dropped out between grades one and five. • These are mostly in rural regions and from low income groups. • And mostly girl students dropped out.
  29. 29. • 40% of primary schools do not have masonry construction. • 60% have no drinking water facilities, • 70% have no library facilities, • 89 % lacked toilet facilities. • Single-teacher primary schools are commonplace, • High level of teacher absenteeism • Subcontracting teaching work to unqualified substitutes
  30. 30. Higher Education in India 1950- 51 2005 Av annual growth Students 2.6 lakh 110 lakh 75% Colleges 750 17,000 40% Universities 30 230 12%
  31. 31. Education and higher incomes In India • A study based on a micro level household survey in India, a study by Tilak (2000) reported that: - Earnings of male workers get nearly doubled if they have higher education compared to secondary education, - In case of women their incomes increase by 80 per cent.
  32. 32. Main features of Indian Higher Education system • Highly bureaucratised system with multiple controls • System is heavily subsidised by the Government. • Up to 90 per cent of the operating costs paid by the state.
  33. 33. Expenditure on Education in India • Largest allocation to Primary school education • But wildly fluctuating over the years. • Allocation to Primary education is roughly W- shaped. It changed from: o From 56% in the 1st Plan o to 30% in the 4th and 6th Plans, o again rising to 65% in the IX plan.
  34. 34. Percentage allotment to Education sector in various Plans Elementary Secondary Higher 0 10 20 30 40 50 60 70 I II III IV V VI VII VIII IX FIve Year Plans Percentageallotment Elementary Secondary Higher
  35. 35. Allocation to Secondary Education • The allocation to Secondary is far below the allocation to the Primary school sector. • Secondary education received only 13% in the 1st Plan, • This increased to 25% in the 6th Plan, • But again fell to 10.5% in the IX Plan,
  36. 36. Allocation to Higher Education • The allotment to Higher education is still lower – • From 9% in the 1st Plan, • Rose to 25% in the 4th Plan, • But again fell to 10% in the IX Plan. These fluctuations show that government priority is not for Higher education. Private sector institutes, and now foreign educational institutes are catering to the need for Higher education in India
  37. 37. Manpower planning • Allotment to various educational sectors is very irregular and unsteady. • Growth of different educational sectors is also not steady • There seems to be no planned effort of education expenditure to meet the manpower requirements of the country, based on demand for different types of higher education.
  38. 38. FUTURE REQUIREMENTS • New areas like biotechnology, nano-technology, bioinformatics, etc, are growing. • Demand for more than 3 million trained manpower by 2010. • More higher education especially in general and technical education is needed. • Centres of excellence – for quality manpower relevant to industry and society required. • Triangular partnership of academia, industry and government should be undertaken

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