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The Economics of Education

The Economics of Education. Background for Case Study on Public Preschool. What is “human capital”? And why is it so important? Firstly, it is important to the individual. Secondly, it is important for society. Education and Expected Earnings. Educational Attainment of U.S. Population 2007.

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The Economics of Education

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  1. The Economics of Education Background for Case Study on Public Preschool

  2. What is “human capital”? And why is it so important? • Firstly, it is important to the individual. • Secondly, it is important for society.

  3. Education and Expected Earnings

  4. Educational Attainment of U.S. Population 2007

  5. Labor Market Characteristics, By Education Group, 2007

  6. Age-Wage profile

  7. Why is education important for the individual? • How does an individual decide whether or not to get education? • What is diminishing marginal returns to education? Recap: education and the individual

  8. Now… Why good for Society?

  9. Table 1.1: Estimates of the Wealth of Nations, Dollars per Head: Selected Nations, 1995

  10. There is a benefit to the individual, but the cost goes to the individual (in a private market)…. • But benefit goes to society? • What is this called? • Will the good be over or under produced? What happens when

  11. A private market for education. Let’s explore

  12. Tuition ($) $12,000 a b $5,000 Supply = MPC = MSC Demand = MPB 1 E1 E2 The Private Demand For Education

  13. When a private market allocates education, who gets it? • What does this mean for: • Poverty reduction • Equal opportunity • Differences across race Who gets?

  14. Does MSB > MPB? Tuition ($) MSB1 MSB0 MSB3 $12,000 a b $5,000 Supply = MPC = MSC Demand = MPB 1 E1 E2

  15. MSB = MPB + Positive Externality • As a society, we would prefer that more people get an education than would occur in the private market. • This justifies public intervention – government provision of education. But where? How much? Externalities in Education

  16. The government has to kick in… • MSB = MPB + Positive Externality When MSB > MPB

  17. Table 6.2: International Comparisons of Education Expenditures, 1998 Source: Sharp Chapter 6, page 137.

  18. See Education-Earnings Profile

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