1. Chapter 32 Education Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2. 32-2 Chapter Outline INVESTMENTS IN HUMAN CAPITAL SHOULD WE SPEND MORE? SCHOOL REFORM ISSUES COLLEGE AND UNIVERSITY EDUCATION

3. 32-3 You Are Here

4. 32-4 Investments in Human Capital Human Capital: the ability of a person to create goods and services An education is an investment like any other. –You incur costs early –You reap rewards later Any investment only makes economic sense if the net present value (the present value of the benefits minus the present value of the costs) is positive.

5. 32-5 Why “Free” Public Schools are not “Free” Taxpayers pay $599 billion in taxes to support the system. Some states and school districts have fees (such as textbook rental) that parents must pay.

6. 32-6 Analyzing the Education Decision If parents had to pay the entire cost of K- 12 education and chose not to send their children to school they would still incur daycare costs for their smaller children. Parents would then compare the present value of benefits to the present value of the tuition costs minus daycare costs.

7. 32-7 Why “Free” Public School Makes Economic Sense The external benefits (the benefits to the rest of society that result from a child being educated) are such that the efficient price is zero. External benefits include –the social stability that is enhanced by providing opportunity for all to succeed. –the more intelligent voting population. –the greater tax base associated with higher incomes. –Lower crime rates

8. 32-8 Modeling External Benefits Social BenefitExternal Benefits 0 Enrolled Students D S Tuition T* S* T’ S’ What Schools Get What Parents Pay

9. 32-9 Should We Spend More? What we get for our $599 billion in tax money –More real spending per student –Lower student-teacher ratios –Flat to declining SAT Verbal (recently rising SAT Math) –Increasing high school graduation rates

10. 32-10 More Per Student Spending (2006 Dollars)

11. 32-11 Lower Student-Teacher Ratios

12. 32-12 SATs

13. 32-13 Increased High School Graduation Rates

14. 32-14 Cautions Against Quick Conclusions Much of the increased spending has gone for –Noninstructional spending (e.g.Janitors, secretaries, administration) –Special education spending (more than 10% of students now qualify for special services) Some of the decline in SATs comes from more (and less academically prepared) students taking the exams. Some of the increase is graduation rates comes from GEDs, and social promotion.

15. 32-15 The Economic Literature on Education Spending Economists have studied the relationship between student success and spending. The majority show little relationship. –Measures of success Graduation rates, standardized test scores –Inputs Student-teacher ratios Teacher degree attainment Teacher salaries

16. 32-16 The Education Production Function Test Scores Teacher Quality/Quantity Education Production Function The flat of the curve. The argument is that in this range more spending does not increase scores.

17. 32-17 School Reform Issues The public school as a monopoly –Lack of competition makes all monopolies less cost- and quality-conscious. The existence of tenure (the job protection for teachers with experience) and the lack of merit pay –Tenured teachers can not be fired for poor teaching and good teachers are rarely paid more than poor ones. –Evidence indicates quality teaching matters, but without merit pay, you can not use money to attract it. Private vs. Public Education and Vouchers –Creating competition would stimulate cost and quality consciousness. Evidence is mixed.

18. 32-18 The Flight of Bright Women from Teaching With gender equality in hiring across more areas of employment, teaching is less attractive to bright women. Evidence suggests that –fewer bright women are choosing education majors in college. –more less bright women are choosing education majors in college.

19. 32-19 College and University Education Costs are higher than K-12 –Teachers spend less time in the classroom 6 to 12 hours per week Spend time on research, committees, keeping up with the latest in their fields. –Equipment and lab costs are substantially higher.

20. 32-20 More College Graduates

21. 32-21 What is a College Degree Worth Present Value of Costs –Opportunity costs of lost work time –Tuition –(not living expenses…you have to eat) Present Value of Benefits –Increased expected earnings over a lifetime Net Present Value –Estimates vary between $300,000 and $500,000 for the positive net present value