economic theory of education

Economics of Education Related terms: Download as PDF About this page Introduction As research in economics of education moves toward causal research methods, the importance of

economic theory of education

A primary research area within the economics of education is the association between schooling and individual outcomes, especially those associated with the labor market. Education (and training) is modeled as an individual investment decision that will receive a monetary return in the labor market, typically in the form of higher lifetime earnings. This notion of human capital has a rich history, with early economists such as Adam Smith, John Stuart Mill, and Alfred Marshall suggesting that individual’s skills could contribute to their economic status. In 1776, Smith laid the foundation for human capital theory when he wrote that human effort lies at the root of all wealth. In 1848, Mill built upon Smith’s notion; he considered human abilities as means to wealth ( Sweetland, 1996 ). Modern-day human capital theory has further extended the central insight through the pioneering work of Schultz (1963), Becker (1964), and Mincer (1958, 1962 ).
Economic research has also found nonmonetary benefits, both private and public, associated with educational attainment. Individuals who have invested in education and job training often have more job stability, improved health (e.g., exercise regularly, smoke less, and eat better), are more likely to receive employer-provided health insurance and pension benefits, are more inclined to vote, and have generally increased social and cultural capital that often enables upward mobility. These benefits are reviewed elsewhere in the encyclopedia.

The paper examines the role of education in economic growth from a theoretical and historic perspective, addresses why education has been the limiting factor determining growth, discusses why certain countries have provided education to the masses and others have not, provides estimates of the quantitative importance of the direct and the indirect effects of education on the economy, calculates the marginal national return on investment for 60 countries, and examines the implications of these results for government policy.
These very high macro-marginal returns to education make it possible for poor countries to grow very rapidly if they make a major public commitment to raising the average level of schooling of the masses.

While the human capital theory builds the framework of the economics of education, there is also progress in other theoretical areas. The book of Gradstein, Justman und Meier (2004) comprises a comprehensive framework of the political economy of education and explains many important topics in the financing of education. Falck and Rattsø (1997) examine public-economic determinants of educational expenditures of federal states, and Nerlove, Razin, Sadka and von Weizsäcker (1993) derive the effects of a fiscal policy on the acquisition of human capital theoretically.
Hartog (2001), Bishop and Woessmann (2004) and Brunello and Ishikawa (1999) provide general examples of positive and normative theories of education. Hartog (2001) presents a theoretical model for the understanding of empirical results on human capital and individual skills. Bishop and Woessmann (2004) describe the effects of institutional characteristics of educational systems on educational outcomes within a simple education production model. Brunello and Ishikawa (1999) model the effects of the size of an elitist school sector on investments in academic qualification, average productivity and earnings.
Despite the fact that the network mainly consists of empirical researchers, some of the economists also work on theoretical models. Our excellent advisors from Turkey and Romania analyze the negotiations of tuition fees between universities and potential students (Epple, Romano, Sieg and Sarpça 2006) and model educational and residential decisions under the choice of different schools (Hanushek, Sarpça and Yilmaz 2007).
Hanushek, Leung and Yilmaz (2003) compare the theoretical framework of different distributional mechanism (inter alia educational subsidies) and their effects on the distribution of income. In volume 3 and 4 of the Handbook of the Economics of Education, Glomm, Ravikumar and Schiopu (2010) give theoretical insights into the political economy of educational finance.

Now, sometimes people say “We believe the government should invest in keeping teachers on the job. We believe the government should invest in fixing schools, and roads, and bridges–just not now. Not when the government is strapped for cash.”
Washington is currently engaged in a great battle over two competing theories of education and its relationship to economic growth. And the outcome of this debate has enormous consequences for our children, job creation, and our economic competitiveness.

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Resources:

http://www.tandfonline.com/doi/full/10.1080/00131881.2013.801241
http://www.eenee.de/eeneeHome/Economics-of-Education/Topics/9.html
http://www.ed.gov/news/speeches/tale-two-theories-education-and-economic-growth
http://ideas.repec.org/a/tuz/journl/v9y2011i1p63-78.html
http://www.earlhamsociologypages.co.uk/Labelling%20Theory.html