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4-1
Public vs. Private Schools
• Public schools
– Operated by government and financed by tax
revenue
• Private schools
– Not operated by government and mainly
financed by student tuition
4-2
Benefits of Education
• Private benefits go to student and student’s family
– Able to earn higher wages
– Less likely to be frequently unemployed
– More likely to find a job that is intellectually rewarding
– May be exposed to wider variety of aesthetic experiences that
enrich life
• Also creates benefits for society
– Educated citizens more likely to vote and participate in public life
– Have more productive skills and contribute more to economy’s
output
– Earn more and may pay more income taxes
– Less likely to go on welfare and less likely to commit crimes
4-3
Externalities
• Costs or benefits of economic activity that spill
over onto rest of society
– Can be either negative or positive
• Positive externality provides benefit to society: spillover
benefit
– Classic example is education
• Negative externality imposes cost on society: spillover cost
– Classic example is pollution
• Tend to create inequity
• Cause society’s resources to be inefficiently
allocated
– Improper allocation of resources is an example of
inefficiency
4-4
Education’s Spillover Benefits
4-5
Global Comparisons of Educational Spending
4-6
Global Comparisons of Primary
Education Completion Rates
4-7
Educational Attainment in the United States
4-8
Financing Public K–12 Education
4-9
Property Taxes
• Local government spending on K–12
education heavily financed by local
property tax
– Creates a problem of many underfunded
schools in our nation and poor education in
these schools
– Amount of property taxes that can be
collected to support schools depends on tax
base and tax rate
• Tax base to support inner-city schools is relatively
small compared with tax bases in suburbs
4-10
State Aid
• Meant to enrich and equalize education
within a particular state
• Intended to provide more equal funding
and educational opportunities among rich
and poor communities
– Heavy reliance on local property tax to fund
K–12 education creates inequities too great to
be resolved by state aid
4-11
The Quality of K–12 Education
• As a result of poor test results, high
dropout rates, differential access to quality
schools, and disparities in funding of
suburban versus inner-city schools, our
nation has begun to debate issue of
education
4-12
Global Comparisons of Primary Education
Pupil per Teacher Ratios
4-13
Proposals for Improving K–12 Education
•
Two most common types focus on either:
1. Increase in competition among schools
– Charter schools
– Magnet schools
– Vouchers
2. Reform of tax system that supports public
schools
– Property tax reform
– Federal and state funding
4-14
Charter Schools
• Public schools that operate with freedom from
many regulations that apply to traditional public
schools
• Charter that establishes school is a performance
contract detailing the school’s mission, program,
goals, students served, methods of assessment,
and ways to measure success
– Many charters are granted for three to five years
• Typically sponsored by state governments or
local school boards
4-15
Magnet Schools
• Public schools that focus on some
particular type of curriculum in an attempt
to excel in that aspect of education
• Money for running schools depends on
enrollment
4-16
Vouchers
• Each student is given a voucher for amount of
money to apply toward tuition in qualified public
or private schools
• Student’s family chooses school it likes best
– If parents are satisfied with child’s public school, they
use voucher to keep child in that school
– Parents dissatisfied with local public schools can
enroll their children in private schools and tuition can
be paid with voucher
• Funding withdrawn from poorer-quality schools and
transferred to better schools through vouchers
4-17
Opposition to Charters, Magnets, and Vouchers
•
Although these alternatives provide more competition
in our nation’s schools, many believe these programs
will endanger our existing public school system
1.
2.
3.
4.
5.
Popular charters, magnets, and private schools must often
close enrollment early because they run out of space
Better schools may be located some distance from the
student’s home, making it difficult or impossible to arrange
transportation
Consumers of education (students and their parents) may not
be sufficiently informed about educational options for any of
these programs to result in an efficient market
Some argue that vouchers for private religious schools violate
our nation’s separation of church and government
These programs shift funds from public schools to private ones
4-18
Property Tax Reform
• Encourages economic development as
well as provides more equality in
educational opportunity by replacing the
property tax with a blend of tax sources to
finance education
– Involves some redistribution of funds from rich
to poor districts
– Property taxes to finance education are not
fully eliminated, but locally determined rates
are replaced by statewide tax rates that vary
for different types of property
4-19
Federal and State Corrective Funding
• An alternative to property tax reform is to
shift the major burden of financing public
education to state and federal government
levels
– Done through state equalization measures
and federal grants to poor school districts
– Property taxes would provide little if any
financing for public schools
– Problem of differential property tax bases
would disappear
4-20
Merits and Problems of Federal and
State Corrective Funding
•
Merits:
1. Unequal funding between poorer and richer school
districts would be eliminated
2. Larger expenditures for disadvantaged children
could be used to address their needs for the highest
possible corrective educational efforts
•
Problems:
1. State governments have been experiencing
worsening budget crises; therefore, most states are
in no shape to expand funding of public education
2. Common view that local citizens and school boards
should be making decisions involving their schools
4-21
No Child Left Behind
•
Four key principles:
1. Stronger accountability for results
2. Greater flexibility for states, school districts, and schools in the
use of federal funds
3. More choices for parents of children from disadvantaged
backgrounds
4. An emphasis on teaching methods demonstrated to work
•
All third and eighth grade students required to take tests
annually in reading and math
– Data disaggregated for students by income level, race, ethnicity,
disability, and limited English proficiency
•
Requires schools to report on safety issues and insists
on English-language proficiency for non-Englishspeaking children
4-22
Public and Private Higher Education
• Consists of:
–
–
–
–
Colleges
Universities
Community colleges
Technical-vocational schools
• Average cost of a private institution is over 2½
times average cost of a public institution
– Public schools generally have lower tuition because
state governments subsidize public universities
4-23
Higher Education as an Investment in Human Capital
•
•
Investment in human capital
– Spending designed to improve productivity of people
Government data show that earnings increase as education increases
4-24
Direct vs. Indirect Costs
•
•
Direct costs
– Actual paid expenses
Indirect costs
– The opportunity costs of forgone earnings
4-25
Investment in Human Capital Theory
•
Criticized for being overly simplistic and for its implicit
assumption that the only reason we obtain an education
is to increase our lifetime earnings
•
Has considerable explanatory power, however, by
offering an explanation for the young age of most
people in college
1. Young people have many years to earn higher salaries that
result from education
– Increased earnings over their lifetimes are therefore greater
2. Young people will have smaller opportunity costs than older
workers who have some labor market skills and who probably
earn at least slightly higher wages
•
Helps explain effects of financial aid to students
4-26
The Public Postsecondary Education System
• Consists of:
– One major research institution (the flagship)
• A major, doctoral degree-granting institution
– A number of comprehensive universities
• Four-year teaching institutions that may offer a few
master’s degree programs
– A number of community colleges
• Two-year schools that offer associate’s degree
programs and serve as feeder institutions to the
comprehensive schools
4-27
State Government Support of Public Higher Education
•
Education is subsidized by state government
•
Historically, subsidy has been justified with two reasons:
1. Existence of spillover benefits to the state of having an
educated citizenry means that higher education will be provided
at less than efficient levels if government does not intervene
2. Americans believe in concept of equal access to education
•
Although first of these two justifications (spillover
effects) is warranted, second one is not
– Most students in public colleges and universities come from
high- or middle-income families
•
If our purpose is to improve access to higher education by lowincome students, state subsidies are a very inefficient way to do it
4-28
Decreasing Government Support for
Public Higher Education
•
State support of public higher education
decreasing over time
– U.S. public universities and colleges have
reacted in the following ways:
1. Tuition increases
2. Enrollment caps
4-29
Enrollment Caps
• Maximum limit on number of students allowed to
enroll in a school
– Accomplished with increased admission standards
• Raising cutoff score on ACT or SAT college entry tests
• Increasing minimum high school class rank for entry into
college system
– Advantages:
• Eliminating students who might have poor risks for
completion of college, rather than simply excluding students
at random
– Disadvantages:
• Eliminating “late bloomers” who achieve mature study habits
in college instead of in high school
• Eliminating students of low income and/or diverse
backgrounds who have received poor quality K–12 education
4-30
Different Tuition for Different Programs
• Universities are slow to react to changing
demands for programs, since demand for
particular programs varies over time
– Schools’ adjustments to changes in demand
take time
– During adjustment, efficiency decreases and
there may be either surpluses or shortages of
class sections in particular majors
• Charge higher tuition for very popular, growing
majors and lower tuition for declining majors
4-31
Uniform Tuition vs. Different Tuition
4-32
Financial Aid
• Comes from:
– Federal government
– States
– College or university directly
• Comes in many forms:
–
–
–
–
–
–
Scholarships and fellowships
Employer assistance
Veterans’ assistance
College work study
Loans
Pell grants
4-33
Pell Grants
• Foundation of financial aid package for students
from low-income families
• Not received by high- and middle-income
students
• Has never covered all costs for poor students
– Other forms of aid have often been added to help
neediest students meet educational costs
• Most common aid package for those students is
a Pell grant and a loan
• Has lost considerable purchasing power in last
30 years
4-34
Financial Aid Data
Family Income
Financial Aid
Less than $20,000
$20,000–$39,999
$80,000–$99,999
$10,350
$10,551
$10,093
• Statistics show that financial assistance clearly
isn’t targeted to most needy students
4-35
Educational Attainment
4-36
The Economic Left and the Economic Right
• THE ECONOMIC LEFT
(Liberal)
– Emphasize tax reform and
redistribution of tax dollars
from rich to poor districts to
equalize opportunities
– Fear widespread use of
vouchers would endanger
public schools by transferring
funds away from poor schools
that need them most
– More likely to favor expanded
financial aid to low-income
students
– More likely to favor tax credits
for educational purposes
– More likely to support
remedies for inequity in
education for racial and ethnic
minority students
• THE ECONOMIC RIGHT
(Conservative)
– Favor policies to increase
competition in public K–12
system in form of private,
charter, and magnet schools
– Favor school voucher systems
– Do not favor extensive tuition
subsidies or financial aid for
students in higher education
unless spillover benefits result
– More likely to favor tax cuts
for educational purpose
4-37