Lecture 1: Why Econ of Ed?
Econ 325, Winter 2016
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Syllabus
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Contact
Prereqs
Assignments
 2 in-class exams, no final
 “Low-stakes” writing: HW, free writing, practice paper
summaries, peer feedback sessions, instructor meeting
 Formal writing: the drafts of the constituent parts of
your term paper (including the final product)
Readings
 Powerpoint notes as the central repository of expected
knowledge (see “notes” to each page)
Schedule
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Why ULWR?
The Econ of Ed is very empirical, and very policyrelevant.
A good policy economist needs to be able to
understand the literature, and to translate the
literature into words (and possibly thereafter,
action)
 Clear communication of quantitative results is
critical in “analyst” or “consultant” type jobs.
Many of the “formal writing” drafts are
themselves practical exercises: grant writing,
research summary, “executive memo” styles
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Why Econ of Ed?
An entire class on one industry!
 Imagine “Economics of software”, “Economics of
retail groceries”, or “Economics of cement” courses
 What makes education so special that it deserves
its own class?
 Virtually everyone in the developed world spends at
least 10 years (1/8th of their life) as students
 The average American spends around 14 years in
school
 Recently, around 40% of Americans earn at least
bachelor’s degrees:16 years or more
 An industry that effects us all
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Why Econ of Ed?
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“An industry that effects us all”
 Let’s not beat around the bush: education is an
industry and can be studied as such
 In 2011, education spending represented around
$1.1 trillion, or about 8% of GDP.
 In 2012, 86 million people were enrolled in school
 In 2012, 11 million people were employed by the
field of education (4.7 million are teachers)
 Education is the third-biggest government
expenditure (state and federal), after health care
and social income support (Soc Sec, medicaid, etc).
Greater than national defense, for example.
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Why Econ of Ed?
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A hugely influential part of the economy!
 Virtually every well-paying job requires some sort
of formal education
 On-the-job-training (OTJT) is something that we
won’t really discuss in this class, but easily falls
under the area of “education”, and every job
takes some degree of OTJT
 To understand labor markets, you must
understand education
 Labor is an input into all goods. Therefore, the
production of all goods involves education
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But why Economics?
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Lots of disciplines study education, most for as long
or longer than economists have
 Psychology, sociology, history, anthropology, poli sci
(and, of course, education folk)
 How is economics particularly useful in exploring
educational issues?
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Standard definition of economics: the study of
allocation of scare resources among competing ends
 How to best use resources - i.e., efficiency
 How do we get the most gain at least cost? Most
output with the least input?
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But why Economics?
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Efficiency
 What are inputs in education? What’s the output?
Is there more than one output?
 The answers to these question alone are very
important
Economists stress rationality and optimization
 Rationality: people know that they want, and use
the best possible means to achieve their goals.
 That is, a rational person optimizes, given what
they know, and given their various constraints
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But why Economics?
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Rationality / optimization  a responsiveness to
incentives.
 People who behave this way will respond in predictable
ways to policy changes (taxes, subsidies, etc)
 Economists have useful insight into the design of
educational policy, so as to increase social welfare.
A fundamental building block in the “modern” movement
of the economic analysis of education: Human Capital
(from Becker, 1964)
Human Capital: Any characteristic that makes a unit of
labor more productive
 Education, health, training, experience, strength,
intelligence, etc.
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But why Economics?
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Human capital is like labor-augmenting technology.
 We will cover the sub-field of labor economics
The input-output framework suggests that we are
interested in how the industry organizes inputs and
achieves efficiency (if at all).
 We will cover the sub-field of industrial
organization
Education is governmentally funded via taxation.
 We will cover the sub-field of public finance
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Course goals
I have four-and-a-half main objectives in the class
1. Use the economic theory to explain how and why
the educational system works.
 How is education produced?
 Why do people “get an education”?
 How does education relate to economic outcomes
like unemployment or income inequality?
2. Understand the structure of the educational system
– the facts of “how things are done”
 What are the practices, constraints and
incentives currently faced by educators?
 Is this structure beneficial? How might we
change this structure?
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Course goals
I have four-and-a-half main objectives in the class
3. Use the analytical tools of economics/statistics to
evaluate policy proposals in the field of education
 What are the effects of No Child Left Behind and
other “accountability” measures?
 Do vouchers and charter schools “work”?
 What is the best thing to spend more money on,
in order to improve education?
 Can we spend more money and improve
education?
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Course goals
I have four-and-a-half main objectives in the class
3.5.Increase your comfort level in reading technical
evaluations of education
 If you want to understand the educational system
and educational policy evaluation beyond sheer
punditry, you’ve got to be able to understand the
studies of the system
 Involves data, statistics, experiments, surveys,
etc.
 There are other classes that teach these things in
detail – I want to take away the “fear” of jumping
into the data. We’ve got to be reality-based!
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Course goals
I have four-and-a-half main objectives in the class
4. How does the mechanism of markets interact with,
and potentially improve, the educational system?
 The market for teachers
 School choice: the market for schools
 The market for college quality
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Next:
Human capital theory of education
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