ECONOMICS OF EDUCATION AND FINANCING Module 2 HOST : Habib D. Ali Assistant Lecturer University of Dodoma-Tanzania 14th Nov.2012

IS EDUCATION AN INVESTMENT OR CONSUMPTION OR BOTH?  CONTENTS: Education as a consumption. Education as an investment Education as a National investment Education as a social investment Education as an individual investment

Outline cont’d Concept of spill over effects of education The rate of returns Demand & supply in education

IS IT A CONSUMPTION?  Activities of educated person such as enjoying non-pecuniary benefits- reading stories &poems, enjoying higher social status  Absorption of a large number of educated person in education system by carrying out teaching &research responsibilities.

Cont’d In other words:  A consumption when it is for the sake of pleasure or pursued with the intention of getting a degree  In this sense formal education is considered a consumption

Cont’d  Students can’t solely be consumer b’se they do not only consume  Students also invest in themselves &society

Education as an investment Involves monetary gains from a lifetime’s earnings. Gives a surplus educated man power contributing to human capital formation in the economy and forms the basis for rising the level of production Education in term of on the- job- training e.g preservice training, development and maintenance of skills-is investment in human resources

Cont’d It entails costs in the present and increases productive capacity of income( of educated individuals to be sure but also of society in the future) Developed nations invest around 6% of their GDP in the system of their public schooling

Cont’d The national importance of education is based on the significant positive influence it has on the individual lives and on the welfare of communities.

Cont’d Education is primarily a way to train children in the skill they will need as adults to find good jobs and live well Education has also broader socio-economic benefits for individuals, families and society at large

Cont’d These benefits even by people whose relationship to the public school system does to extend beyond “taxpayer” The wide spread improvement of social and economic condition is a direct outcome of an educated population

Cont’d The population that is able to use information to make good decisions in a better manner.

What does research show? A great deal of recent research demonstrate how the benefits of supporting public education extend far beyond each child’s individual academic gain.

Findings-- cont’d A population that is better educated means : Less unemployment Reduced dependence on public assistance programs. Greater tax revenue Reduction of crime Improved public health

Cont’d Greater political and civic engagement Investment in public education results in billions of shillings of social and economic benefits for society at large

Spill over effects of education  Transforms individual gains into social gains.  The personal individual benefits of good education have broader benefits for society when improved “human capital” capacity  Personal knowledge, skills &judgment are taken by individual into work place, the public square &the home

Cont’d The entire society benefits when more people are able to find adequate &stable employment A better educated workforce not only leads to more research innovation- The benefits of this economic innovation are then even spread more widely &powerfully throughout a better educated public

Cont’d NB: Every one benefits when fewer citizens experience alienation or general distrust of others & government. Children of well educated parents are less likely to seek public assistance even if is eligible.

Cont’d All these examples thus call for “quality education”. In short effective education improves decision making abilities. This then helps individual stay out of trouble, live better, healthier &longer lives

What does Milton Friedman say on spill over effects of education? He is an economist “The education of my child contributes to other people welfare by promoting a stable & democratic society” Several governments in the world have adopted this approach &invested heavily in education.

Demand and supply in education Central problems in all economies: Unlimited wants Limited resources Scarcity What How For whom Prices Demand Supply Trivedi: 1991

Determinants of education Demand The price that school charge Prices of other goods &services that are compliments to school education (Uniforms, transportation,text books)

Cont’d Prices of other goods &services that are substitutes for education of a particular level- tutors, apprenticeship) Opportunity cost of student’s time Number of families with school aged children Distribution of income among families in the country

Determinants of Supply in education The price paid by families for a year of particular level of education The price the school owners must pay for inputs; teachers, books, teaching materials, building rent,etc(input prices)

Why supply demand analysis? Enables us to distinguish whether an exogenous events affects demand or supply In what ways it affects demand or supply (graphically, whether the curve shifts to the left or right)

Food for thought Task: 1.Think of the current budget of education in Tanzania and thoroughly observe how is distributed accordingly

References Babalola, J.B. (2003). “Fundamentals of Economics of Education”, in J.B. Babalola (Ed). Basic Text in Educational Planning, EPPU. Ibadan: Deparment of Educational Management, University of Ibadan. Hardwick, P;Khan,B. and Langmead, J.(1994). An Introduction to Modern Economics,4th Edition, New York: