Economic Issues & Policy
- Jacqueline Murray Brux
Education
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We will transform our schools and colleges and universities to meet the demands of
a new age.
—President Barak Obama, Inaugural Address, January 19, 2009
PowerPoint slides prepared by:
Andreea Chiritescu
Eastern Illinois University
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Education
• Public schools
• Operated by the government
• Financed by tax revenue
• Private schools
• Not operated by the government
• Mainly financed by tuition and endowments
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
2
Education’s Spillover Benefits
• Education
• Private benefits
• Benefits for society
• Spillover benefits
• Externalities
• The costs or benefits of an economic activity
that spill over onto the rest of society
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
3
Education’s Spillover Benefits
• Spillover benefit
• A positive externality
• The benefit that is shifted from the private
market onto society
• Spillover cost
• A negative externality
• The cost that is shifted from the private
market onto society
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
4
Education’s Spillover Benefits
• Inequity
• Unfairness
• Inefficiency
• Using resources in such a way as not to
maximize the desired output from them
• Externalities
• Create inequity and inefficiency
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Figure 4-1: Effects of the Spillover Benefits of Education
Because the private market does not reflect the spillover benefits of education, the number
of students enrolled (5 million) is less than the socially optimum number (6 million).
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Education’s Spillover Benefits
• Spillover benefits
• The market under-allocates resources
• Justify the government’s:
• Provision of K–12 education
• Subsidization of college education
• Grants and financial aid to students
• Public colleges and universities
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Education’s Spillover Benefits
• Socially optimum amount of education
• If the government’s contribution toward the
student’s education
• Is just equal to the spillover benefits that
society receives from education
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Education’s Spillover Benefits
• Spillover benefits of K–12 education
• Tremendous
• Free primary and secondary education justified
• Benefits of postsecondary education
• Mostly private
• Few spillover benefits
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Global Comparisons of Educational
Spending and Literacy Rates
• Government spending on education
• 5.7% of GDP
• Adult literacy rate
• An outcome of educational systems
• Inputs into education
• Numbers of schools
• Dollars spent on education
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Table 4-1: Global comparisons of public direct expenditures on education; %
of GDP; highest to lowest; selected Western industrialized countries, 2007
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Table 4-2: Adult literacy ratesa by gender; selected Western industrialized
countries, Eastern industrialized countries, and Developing countries, 2007
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Table 4-2: Adult literacy ratesa by gender; selected Western industrialized
countries, Eastern industrialized countries, and Developing countries, 2007
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Educational Attainment in United States
• US Census Bureau
• Population age 25 years or older: 196 million
•
•
•
•
•
•
•
•
26 million - less than high school education
61 million - high school diploma
34 million –some college but no degree
17 million - associate’s degree
38 million - bachelor’s degree
15 million - master’s degree
3 million - professional degree
Over 2 million - Ph.D.
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Figure 4-2: Highest educational attainment in U.S. among
people age 25 or over as a percent of the total, 2008
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Kindergarten Through Grade 12 (K–12)
Education
• Funding of K–12 education
• Academic year 2005–2006, $521 billion
• Federal government - very small share
• Local and state governments bear the
principal burden for funding primary and
secondary education
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Kindergarten Through Grade 12 (K–12)
Education
• Local government spending on K–12
education
• Heavily financed by the local property tax
• Tax base
• Value of income, earnings, property, sales, or
other variables to which a tax rate is applied
• Tax rate
• Percentage of the tax base that must be paid
to the government as tax
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Kindergarten Through Grade 12 (K–12)
Education
• Heavy reliance on the local property tax
• Inequities
• State aid: aid to all, not only poor, school
districts
• Low spending
• Shoddy facilities, inadequate supplies, and
understaffed classrooms
• High dropout rates and functional illiteracy
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Figure 4-3: Financing public K–12 education, 2005–2006
The above chart shows the percentages of funds provided by each level of government
to public elementary and secondary schools in the United States.
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Quality of K–12 education
• 1983, A Nation at Risk
• Falling test scores, schools were asking less
and less of their students
• U.S. pupils - performing worse than their
European counterparts
• 1992, Jonathan Kozol
• Savage inequalities: children in America’s
schools
• Terrible conditions, 6 inner-city school systems
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Quality of K–12 education
• Other problems
•
•
•
•
•
•
•
Fewer teachers specialize
School year – shorter
SAT scores – below 1970 levels
Overcrowding
High school drop-out rates
Differential access to quality schools
Disparities in funding of suburban versus
inner-city schools
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Table 4-3: Global comparisons of primary education pupil per teacher ratios,
selected Western industrialized countries, Eastern European countries, and
Developing countries, 2007
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Table 4-3: Global comparisons of primary education pupil per teacher ratios,
selected Western industrialized countries, Eastern European countries, and
Developing countries, 2007
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Proposals for Improving K–12 Education
1. An increase in the competition among
schools
2. Reform of the tax system
• Through which we support our public schools
3. No Child Left Behind
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Proposals for Improving K–12 Education
1. Proposals to increase competition among
schools:
• Aim to increase choice
• Charter schools
•
Greater autonomy in exchange for
accountability
• Magnet schools
•
Focus on some particular type of curriculum
• Tuition vouchers
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Proposals for Improving K–12 Education
2. Proposals for tax reform
•
•
•
•
To reduce inequity
Property tax reform
Federal and state corrective finding
Issue of poverty
• Programs to alleviate poverty are also needed
to improve the academic performance of
inner-city students
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Proposals for Improving K–12 Education
3. No Child Left Behind
• Stronger accountability for results
• Greater flexibility for states, school districts,
and schools in the use of federal funds
• More choices for parents of children from
disadvantaged backgrounds
• Emphasis on teaching methods that have
been demonstrated to work
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Proposals for Improving K–12 Education
• President Obama’s proposals
• Dramatically expanded early childhood
education and improved its quality
• Made college affordable for nearly seven
million more students
• Provided resources necessary to prevent
severe cuts and teacher layoffs
• Expanded funding for Headstart
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Proposals for Improving K–12 Education
• President Obama’s proposals
• Future reform
• Incentives for teacher performance
• Commitment to charter schools
• Promise of affordable higher education for
those who are willing to volunteer in their
neighborhood or community or to serve their
country
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Higher Education
• Economic problems
• Costs have risen
• State governments - decreased their support
in real terms
• Federal support has stagnated
• Deduction for tuition - eliminated in 2006 for
the federal personal income tax
• Local governments contribute very little
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Higher Education
• Economic problems
•
•
•
•
Higher tuition in public institutions
Endowments of private institutions – reduced
Financial aid rules - changed
Value of Pell grants – declined
• Endowments
• Income-earning investments of a school or
other institution
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Higher Education
• U.S. postsecondary (higher) education
•
•
•
•
Colleges
Universities
Community (junior) colleges
Technical-vocational schools
• Private schools
• Not operated by the government
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Higher Education
• Public schools
• Run by state governments and occasionally by
municipalities
• Costs
• $13,424 for public schools
• $30,393 for private schools
• Public schools – lower tuition than private
schools because state governments subsidize
the public universities
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Higher Education
• Subsidize
• The payment of some of the costs of an
economic
• Education
• Investment in human capital
• Spending designed to improve the productivity
of people
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Higher Education
• Median
• The value that is exactly in the middle of a list
of all values of some variable, such as
earnings, when ranked from highest to lowest
• Mean
• Average
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Table 4-4: Median annual earnings by highest educational attainment
of full-time, year-round workers, 25 years and older, by gender, 2007
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Higher Education
• Educational investment
• Expected benefits
• Increased earnings after graduation
• Expected costs
• Direct cost
• Actual paid expenses
• Tuition & fees, books & supplies
• Indirect cost: opportunity cost of forgone
alternatives (earnings)
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Figure 4-4: The decision to invest in college education
The investment will be made only if the increase in lifetime earnings justifies the direct and
indirect costs of education.
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Higher Education
• Cost-benefit analysis
• Compares the costs and benefits of a policy or
program
• Rate of return
• The “benefit rate”
• Divide the net benefit by the amount invested
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Higher Education
• Government support of public higher
education
• Justifications:
• Spillover benefits (positive externalities)
• Equal access to education
• Most of the students we are subsidizing are
not from poor families
• Decreasing federal and state support
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Higher Education
• Raising Tuition
• To make up the missing funds
• Average public university tuition has more
than doubled since 1990
• Students – need greater financial aid
• Students who feel the negative effects most
• Are from low- and middle-income families
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Higher Education
• Enrollment Caps
• Maximum limit on the number of students
allowed to enroll in a school
• Rationing of openings: increase admission
standards- eliminate students:
• Poor risks for completion of college
• “late bloomers”
• Of low-income and/or diverse backgrounds
• Received poor quality K–12 education
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Higher Education
• Differential Tuition
• Charge different tuition for different programs
to increase efficiency
• Surpluses or shortages of class sections
• Charge higher tuition for very popular, growing
majors
• Charge lower tuition for declining majors
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Figure 4-5: Improving resource allocation by charging
different tuition for different programs
At uniform tuition ($6,000), there will be a shortage for pre-law students and a surplus for philosophy students.
Different tuition ($8,000 and $4,000) eliminates the shortage and surplus and improves resource allocation.
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Higher Education
• Financial Aid
•
•
•
•
•
Scholarships and fellowships
Employer assistance
Veterans’ assistance
College work study, Loans
Pell grants
• Low-income students
• Financial assistance isn’t targeted to the most
needy students
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Higher Education
• Affirmative Action
• K–12 educational attainment and quality
• Varies considerably by race and ethnicity
• Higher educational attainment
• Varies considerably by race and ethnicity
• Disparities in financial aid levels
• To different categories of college students
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Table 4-5: Highest educational attainment, by racea and
ethnicity, share of total group (%), age 18 years and over, 2008
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
47
Conservative versus Liberal
Liberal economists
Conservative economists
• Tax reform; redistribution of • Policies to increase
competition in public K–12
tax dollars from rich to poor
system
districts
• School voucher systems
• Widespread use of school
• Give parents and students
vouchers would endanger our
more choices of schools
public school system
and curricula
• Transferring funds away
• More competition among
from the poor schools
schools
• Expanded state and federal
• Private schools, charter
spending for K–12 education
schools, and magnet
schools
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
48
Conservative versus Liberal
Liberal economists
Conservative economists
• Expanded financial aid to low- • Spending on K–12 education
income students
by local governments
• Tax credits for educational
• Do not favor extensive tuition
purposes
subsidies or financial aid for
students in higher education
• Remedies for inequity in
education for racial and ethnic
• Unless spillover benefits
minority students, including
can be shown to result
affirmative action
from this postsecondary
education
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