The Political Economy of Education: Comparative Perspectives. Professor W. John Morgan

1. The Political Economy of Education:Comparative Perspectives. Professor W. John Morgan

2. Human Capital • Aims of Session: • 1. To undertake an exercise relating to the concept of Human Capital Theory. • 2. To consider (i) Individual benefits (ii) Screening (iii) Observations. • 3. Questions for discussion. • 4. Suggested reading.

3. Exercise • Human capital theory says that highly educated people should earn more than those with less human capital. Yet many workers with only secondary education earn more than those with degrees. • Does this mean that the human capital theory of wage determination is wrong?

4. Exercise • HCT does not say that those with higher levels of education will inevitably earn more than others. • The theory does suggest that if education is not regarded as pure consumption, then to induce people to undertake additional education, they will have to obtain future benefits great enough to outweigh investment costs.

5. Exercise • These benefits need not, however, be solely pecuniary. HCT is a theory of investment, not of wage determination. • The theory does not claim to explain all sources of wage differentials, nor does it deny the importance of non-pecuniary factors in occupational or indeed educational choice.

6. Individual Benefits • Is education a good investment for individuals? • Many studies have attempted to measure this by calculating the individual rates of return. • These normally estimate benefits by calculating earnings differentials at each age from age/earnings profiles.

7. Individual Benefits • Earnings are usually used to measure benefits because higher wages and more secure jobs are both results of more education. • The rate of return is that discount rate that equates the present value of benefits to the cost of acquiring the level of education in question.

8. Individual Benefits • All such studies focus on the monetary and not the psychological costs of and returns to educational investment. • In the USA estimated rates of return are between 5-15%, approximately the same as stocks, bonds and real estate.

9. Individual Benefits • There are systematic biases in the estimated rates of return to education.These are of unknown size and work in opposite directions. • Upward bias: inability to distinguish between competence and schooling as contributions to higher earnings. • Downward bias: Failure to take into account the wider benefits of education.

10. Screening • This argues that formal education reveals to employers the productive and creative characteristics inherent in prospective workers. • It is argued that ‘schooling’ is the ‘work’ of youth and may well be a good predictor of ability to succeed later on.

11. Screening • The fact that employers have not generally substituted their own screening devices for the formal educational qualifications widely used suggests either:- • Education does enhance worker capacity or it is a cheaper screening tool than any other that employers may use.

12. Observations • Investment should not be restricted to an initial period of education and training, partly because this would change the skill profile of the workforce too gradually. • Also individuals need to develop knowledge and competence to adapt to changing requirements. • Consider also voluntary work.

13. Observations • The policy focus so far has been on the knowledge and competence developed through initial schooling and formal tertiary education for young people. • Attainment early in life is certainly important;those who complete upper secondary or tertiary education have greater chances of proficiency in literacy and numeracy, of employment and higher earnings.

14. Observations • Participation has concentrated among those who already have high levels of initial education. • Governments can encourage job-related learning among a wide range of groups, but in partnership with individuals, employers, voluntary associations and communities.

15. Observations • There will be a gradual convergence of countries according to one measure of the human capital stock:The proportion of the adult population which has completed upper secondary schooling. • This could take place even faster if the countries with the lowest qualified workforce continue to raise the USS completion rates.

16. Human Agency • Human beings are the active agents who accumulate capital, exploit natural resources, build social and political organizations and carry forward national development. Clearly, a country which is unable to develop the skills and knowledge of its people will be unable to develop anything else-F. J. Harbison,Human Resources and the Wealth of Nations, OUP, New York, 1973.

17. Questions • Why do women receive lower wages on average than men of equal age? Why does the discrepancy grow with age? • Why do those who argue that more education ‘signals’ greater ability, believe that the most able people will receive the most education? • What are the HCT arguments against subsidizing higher education?

18. Questions • Beyond economics what might be the wider benefits to individuals, employers, communities and states from investment in education & training? • Given the unequal distribution of the economic returns and wider social benefits to stakeholders, what can we say about who should pay,how much and through what mechanisms?

19. Questions • The answers to the above have implications for the modes of educational delivery e.g.public v private, full time v part time provision, distance v college based. • What are the implications for the development of Lifelong Learning in economically developed countries?

20. Suggested Reading • D. Ashton and F. Green, Education, Training and the Global Economy, Elgar, Cheltenham, 1996, pp. 44-68. • C. R. Belfield, Economic Principles for Education, Elgar, Cheltenham, 2000, pp. 16-47. • CERI, Human Capital Investment: An international comparison, OECD, Paris, 1998.

21. Suggested Reading • P.Bourdieu ‘The forms of capital’, in Halsey, et al, Education:Culture, Economy, Society, OUP, 1997, pp. 46-58. • J.S.Coleman ‘Social capital in the creation of human capital’, ibid.pp 80-95. • M.Woodhall ‘Human capital concepts’,ibid. pp. 219-223.

22. Suggested Reading • J. Mitchell and M. Peters (eds.) Education Policy, International Library of Comparative Public Policy, Elgar, Cheltenham, 1999, Part 2. • A. B. Krueger, Education Matters,Elgar, Cheltenham, 2000, Parts 4 & 5.

23. Suggested Reading • J.S. Coleman, Foundations of Social Theory, Harvard University Press, Cambridge, MA and London, 1990. • R.Putnam, Bowling Alone:The collapse and revival of American community, Simon and Schuster, New York, 2000.

24. Suggested Reading • C. Winch, Education,Work and Social Capital:Towards a new conception of vocational education, Routledge, London, 2000. • D.E.Leigh, Does Training Work for Displaced Workers? A survey of existing evidence, Upjohn Institute, Michigan, 1990.

25. Suggested Reading • ‘Human capital’, S.Smith, Labour Economics, Routledge, London, 2003, pp. 119-164.

26. To Be Continued WJM