IRM 503 ECONOMICS OF EDUCTION
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IRM 503 ECONOMICS OF EDUCTION (8) Are There Social Returns to Education (9) Education and Economic Growth PROFESSOR: DR. MARIANO DE JESUS PhD STUDENT : DR. ROSEMARIE S. GUIRRE 3RD SEMESTER AY 2019-2020
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IRM 503 ECONOMICS OF EDUCTION
- 2. TOPICS
- 3. The concept of social return can be defined as the sum of the private and external marginal benefits or costs of a unit of human capital.
- 11. SOCIAL RETURNS TO EDUCATION IN A DEVELOPING COUNTRY Filiztekin, Alpay Sabanci University 2011 have a similar size as in developed economies, around 3-4%, when measured as average years of education, but much smaller when measured as the share of university graduates in the region.
- 12. College level returns are higher than those for elementary and high school levels. The returns are higher for individuals receiving higher wages, which may imply an inconsistency between education and earnings.
- 13. COUNTRY YEAR PRIMARY SECONDAR Y HIGHE R GINI ARGENTINA 1989 8.4 7.1 7.6 42.70 BRAZIL 1989 35.6 5.1 21.4 63.30 CHILE 1989 8.1 11.1 14.0 57.25 CHINA 1989 14.4 12.9 11.3 42.83 COLUMBIA 1989 20.0 11.4 14.0 53.59 COSTA RICA 1989 11.2 14.4 9.0 46.69 EL SALVADOR 1990 16.4 13.3 8.0 53.95 ETHIOPIA 1996 14.9 14.4 11.9 44.56 JAPAN 1976 9.6 8.6 6.9 32.11 PHILIPPINES 1988 13.3 8.9 10.5 40.75 URUGUAY 1989 21.6 8.1 10.3 42.37 =>Psacharopoulos, Patrinos, 2004 =>World Bank Gini Index
- 15. Education in every sense is one of the fundamental factors of development. No country can achieve sustainable economic development without substantial investment in human capital. It plays a very crucial role in securing economic and social progress and improving income distribution.
- 16. Academic achievement of student is important in achieving economic growth and development Education is required not only for its own sake, but it is also an important factor in economic development.
- 17. Education plays an important role in providing basic skills to the people. Education helps people to participate in developmental activities. Education improves the quality of life. It is considered a necessary input for better living. It raises the level of understanding of the people
- 18. regarded as the most significant economic and social challenge faced by mankind today. narrower concept than economic development. It is an increase in a country's real level of national output which can be caused by an increase in the quality of resources (by education etc.), increase in the quantity of resources, value of goods, services & improvements in technology by every sector of the economy
- 19. The term of economic growth has been conceptualized to two part of individual : a)highly skilled individuals and professional in academic; and b) professional degree beyond high schools or university
- 20. Adam Smith David Ricardo Karl Marx John Stuart Mill states that the efficiency of labor is important to economic growth. states the theory of distribution and capital accumulation. states that a capitalist profit attained from the utilization of labor, a profit oriented organization. use of economic theory in political decision-making, and a politics oriented by human happiness rather than natural rights or conservatism.
- 21. Adam Smith Viewed that growth process as strictly endogenous and there are two factors contribute to economic growth. a) Division of labor b) Capital accumulation on labor productivity These two factors have a positive relationship that could lead to a higher labor productivity.
- 22. David Ricardo States that economic growth depends on supply of land, capital stock, labor and agricultural technology. The assumption of this model is that agricultural sector contributes most consumption from land (variable) The motive of profit influenced the outcome of the market and allocation of resources.
- 23. Karl Marx Marx believes that growth does not move on continuously. Labors productivity, labors skill, knowledge in science and technology and environment are the factors contributes towards economic development Marx view economic development in a view of social and history.
- 24. John Stuart Mill John Stuart Mill was heavily influenced by David Ricardo. Concentrates in the following: 1. capital accumulation, and 2. population growth and technology He agrees on the existences of diminishing return, division of labor and government’s role in contributing towards economic growth.
- 28. Education directly affects economic growth insofar as it is essential to improve human capital. An increase in workers' educational level improves the human capital, increasing the productivity of these workers and the economy's output.
- 29. STUDY OBJECTIVES Role of education in promoting economic growth…there is strong evidence that the cognitive skills of the population – rather than mere school attainment – are powerfully related to long-run economic growth. The effect of skills is complementary to the quality of economic institutions. Growth simulations reveal that the long-run rewards to educational quality are large but also require patience.
- 30. “Education is indispensable to economic development. No economic development is possible without GOOD EDUCATION. A balanced education system promotes not only economic development, but productivity, and generates individual income per capita. Its influence is noticeable at the micro level of an individual family” -Ilhan OZTURK-
Editor's Notes
- The concept of social return can be defined as the sum of the private and external marginal benefits or costs of a unit of human capital. -Michelle The central point is an exploratory analysis on the relationship between the characteristics of societies and the type of returns to education. The societies can be more or less heterogeneous according to determined aspects, as ethnic, linguistic and religious divisions, distribution of income and wealth. In more heterogeneous societies, it is more difficult, in general, for people interacting and, more in particular, the relation between more educated individuals and the less educated happens less often.
- THERE ARE THREE MAIN STRANDS IN THE THEORY ON EXTERNALITIES DUE TO EDUCATION: 1. positive private returns (signaling) to education and negative social returns to education. 2. positive both private and social returns to education 3. positive social returns to education that do not apply directly to the production process (Lange, Topel, 2006).
- THERE ARE THREE MAIN STRANDS IN THE THEORY ON EXTERNALITIES DUE TO EDUCATION: 1. positive private returns (signaling) to education and negative social returns to education. 2. positive both private and social returns to education 3. positive social returns to education that do not apply directly to the production process (Lange, Topel, 2006). In the first case, private returns are positive due to the fact that education improves the possibilities in the job market for an individual, but it doesn’t increase the productivity of the society. When an entrepreneur wants to hire some worker, he looks to personal attributes of the job applicant. Among the observable attributes of an applicant worker, there could be fixed characteristics and alterable characteristics. The level of education is a characteristic of individuals that can be modified by workers through investment in study. On the other hand, race and sex are difficult to be modified and so they can be considered fixed. We can refer to unchangeable characteristics of individuals as indices, while the term signals can be used with the attributes that can be manipulated by workers. We can include the attributes that change by themselves and not by the will of the individual in the group of indices; one example of these is age. The employer will learn the employee’s productive capabilities when he can observe the individual working in his firm. On the basis of previous experience of workers in the production, the employer will have conditional probability estimations over productive capacity of determined combinations of signals and prices. In any recruitment of a worker, the employer’s decision is defined by these conditional probability distributions over productivity confronted with new data (Spence, 1973). On the employee side, the applicant cannot modify his indices, but he can alter his signals. Education is one of the main instruments through which an individual can improve his signals. Nevertheless these alterations are costly: theory refers to these costs as signaling costs. Each individual will invest in education only if it will maximize the difference between offered wages and signaling costs (Spence, 1973). In this theory on returns to education, the private returns do not lead to social returns. This conclusion is due to the fact that every individual will invest in the signal in the same way of the others, so that the employer cannot distinguish them basing on the signals. In this way, education is not directly linked with increase in productivity, since signaling leads to the fact that worker are not hired in an efficient way and so education reduces social output by using resources, most of times public, that can be used to other aims.
- THERE ARE THREE MAIN STRANDS IN THE THEORY ON EXTERNALITIES DUE TO EDUCATION: 1. positive private returns (signaling) to education and negative social returns to education. 2. positive both private and social returns to education 3. positive social returns to education that do not apply directly to the production process (Lange, Topel, 2006). In the second case, persons with greater skill may raise the productivity of others with whom they interact, so accumulation of human capital may increase total factor productivity in an economy. This second case is important because it can be understood if the government participation in education has a rationale of efficiency. In general, it is reasonable to think that one person’s human capital is more productive when other members of society have a higher level of schooling. The benefits of such complementarities will be internalized when they occur within firms. Workers acquire skills through wealth maximizing investment decisions: they improve their productivity through schooling, training and learning by doing. The main question is whether human capital spillovers lead to a market failure (externalities) or not. It depends on whether the spillover occurs within or outside the company. If there are spillovers of human capital within the company, these may be internalized in the wages of the workers with a higher level of education or in the wages of those workers that are the font of the spillovers, while spillovers that go outside the company can be considered pure externalities (Braakmann, 2009). Those spillovers that are external to companies are produced by other interactions in the society beyond working environment. The first type of relations that occurs outside the firm is linked to market interaction, especially in the job market. The optimal amount of schooling of an individual depends on what type of job will be available in the market and on what kind of physical capital will be in contact. On demand side, companies’ choices of jobs and physical capital depend on the level of schooling of the individuals offering their work. The immediate consequence of this fact is the willingness of the firm to invest more when its potential workers are increasing their education. Therefore, some of the workers, who have not increased their level of schooling and have entered jobs where more physical capital is now used, earn an increased rate of return on their human capital. So, the return on human capital of a worker is increasing in the human capital stock of the workforce, due to job market interaction in this case and not to the aggregate technology, as in the case of spillovers within the firm (Acemoglu, 1996). A second type of returns of education that occurs outside the firm is linked to the role of the cities. Dense urban agglomerations provide a faster rate of contact between people and so, every time a less skilled individual comes into contact with high schooling people, knowledge passes from an individual to the other. Business clusters can be a good example of this type of spillover, especially clusters of technological firms. A third strand of literature highlights potential external benefits of education that do not apply directly to the production process. In fact, they are not reflected in factor payments, and so they are more difficult to measure through researches. The role of education in reducing criminal behavior is the first example of this type of external benefits. Some explication of the role of education in reducing criminal acts are the evidences that schooling raises the opportunity cost of crime and the cost of the time spent in prison, and it increases the patience and the risk aversion of individuals (Lochner, Moretti, 2004). The empirical evidence on this assumption shows that education has a significant direct effect on crime, but also an indirect one attributed to the increase in wages associated with schooling. It can also be affirmed according to the data that the impact of high school graduation on crime implies that there are benefits to education that are not considered by individuals, so the social return to school is greater that the private return (Lochner, Moretti, 2004). Another group of potential external benefits of education that do not apply directly to the production process is linked to the fact that education enables individuals to participate more efficiently in the political process. The empirical evidence points out that education increases citizens' consideration to public affairs and to the importance of politics. Citizens with more schooling appear to have larger information on candidates. Overall, these data suggest that education has social externalities through the production of a better allocation of public resources, due to the presence of more honest politicians (Miligan et al, 2003).
- There are three main strands in the theory on externalities due to education: 1. positive private returns (signaling) to education and negative social returns to education. 2. positive both private and social returns to education 3. positive social returns to education that do not apply directly to the production process (Lange, Topel, 2006). A third type of social return external to the production process is consumption externalities due to education. In this group we can include a reduction in health costs of government due to healthier alimentation of the population and to fall in the number of smokers.
- Conclusion This study is one of the first to estimate SOCIAL RETURNS TO EDUCATION IN INDONESIA. In addition to studying a new country context at a more disaggregated level, our paper also contributes to the literature on social returns by developing a slightly different empirical strategy to estimate returns. Methodologically, we abstract away from using an instrument variables approach and instead exploit the richness of our data to overcome omitted variable bias. Unlike some studies in the context developed economies where social returns are found to be negligible, we find that social returns in a developing economy like Indonesia are positive and 15 There are very few siblings who are both male, report annual income, completed schooling and of which one migrates to an area that is within the IFLS sample. 22 statistically significant.
- Further we observe that social returns vary by type of location and sector of employment. Our results show that social returns are higher in urban areas as compared to rural areas. Similarly returns are higher in the secondary and tertiary sector as compared to the manufacturing sector. Finally, using a sub-sample of respondents who moved to another location, we show that social returns to education remain positive and statistically significant. Our results have important implications for public policy relating to investment in education, especially in developing economy
- The presence of social return thus provides a strong rational for public sector investment in provision of education. Given that social returns are higher in urban areas and in the secondary and tertiary sector, economic theory suggests that the spillover effect of higher education would be more pronounced in these sectors due the higher level of capital intensity. This in turn may perhaps have an impact on the kind of education the public sector should subsidize.
- Social returns to education in Turkey, on the other hand, have a similar size as in developed economies, around 3-4%, when measured as average years of education, but much smaller when measured as the share of university graduates in the region. At an early stage of development, degrees lower than university degrees may play more important role. Given that the estimates from developed countries also vary, new research on why and how externalities are internalized by employees, and what is the role of institutional factors and existing levels of technology in the country is required. This paper estimates social returns in Turkey. Human capital has been shown to have an important effect on the economic growth of countries. However, 18 whether it contributes through increasing the efficiency of individuals who acquire higher levels of education or through externalities that also increase the wages of those who have lower human capital is a subject that has been investigated only very recently. The paper finds a strong correlation between the aggregate level of education and wages regardless how local human capital is measured, or the methodology used to estimate the magnitude of spillovers.
- We revisit fundamental concepts introduced by Becker (1964) and Mincer (1974) in assessing the returns to education and run a two-stage Heckman process and Quantile Regression to correct for selection bias and to analyze returns to education across the wage distribution. We find that returns to education are highest when the university level is completed, supporting results of earlier studies, and emphasizing the importance of ensuring that the right incentives are in place for families to invest in completing education. Higher demand for labor with higher and more specialized education might also result in higher returns for university graduates. If we assess the returns to education across the wage distribution, even if we find that returns are higher upon completion of high school and college, the returns are higher for the higher quantiles, with the difference between the lowest and highest deciles being larger for the high school level. This raises the issue of wage inequality and the inconsistencies between education and earnings.
- In the following table (Table 2) we can compare private and social returns to schooling with Gini index in various countries of the world at different levels of education (primary, secondary and higher). Unfortunately, the social returns of this table are defined on the basis of private benefits, but total (private plus external) costs; social benefits are not considered. This is a consequence of the public subsidization of education and the fact that social rate of return estimates are not able to include social benefits (Psacharopoulos, Patrinos, 2004). Psacharopoulos, Patrinos, 2004; World Bank Gini Index, 1989 * Year 1990 ** Year 2008 *** Year 1991 What Is the Gini Index? The Gini index or Gini coefficient is a statistical measure of distribution developed by the Italian statistician Corrado Gini in 1912. It is often used as a gauge of economic inequality, measuring income distribution or, less commonly, wealth distribution among a population. The coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect equality and 1 representing perfect inequality. Values over 1 are theoretically possible due to negative income or wealth. Gini Coefficient = A / A + B When A=0, the Gini index is 0. In case A is a very large area and B is a small area, the Gini coefficient is large. It indicates there is huge income/wealth inequality
- Education in every sense is one of the fundamental factors of development. No country can achieve sustainable economic development without substantial investment in human capital. Education enriches people's understanding of themselves and world. It improves the quality of their lives and leads to broad social benefits to individuals and society. Education raises people's productivity and creativity and promotes entrepreneurship and technological advances. In addition it plays a very crucial role in securing economic and social progress and improving income distribution.
- Academic achievement of student is important in achieving economic growth and development. With higher learning, an individual well equipped with great and noble information, skills and better interpretation of information or something they get to economic for their country.
- It contributes to economic development in various ways: It raises the level of understanding of the people Education plays an important role in providing basic skills to the people. Education enables people to acquire skills and talents. Education helps people to participate in developmental activities. Educated people are more conscious of their responsibility towards society and development of the country. Greater participation of people in the process of development promotes economic development. Education improves the quality of life. It is considered a necessary input for better living. Education helps in bringing about improvement in health, hygiene, productivity, and other components of quality of life.
- narrower concept than economic development. It is an increase in a country's real level of national output which can be caused by an increase in the quality of resources (by education etc.), increase in the quantity of resources & improvements in technology or in another way an increase in the value of goods and services produced by every sector of the economy. Economic Growth can be measured by an increase in a country's GDP(gross domestic product). The standard method of estimating the effect of education on economic growth is to estimate cross-country growth regressions where average annual growth in gross domestic product (GDP) per capita over several decades is expressed as a function of measures of schooling and a set of other variables deemed important for economic growth. Philippine GDP grows 6.1 percent in the fourth quarter of 2018; 6.2 percent in 2018. Gross Domestic Product (GDP) posted a 6.1 percent growth in the fourth quarter of 2018, resulting in the 6.2 percent full-year growth for 2018....
- A.)highly skilled individuals and professional in academic; and TESDA focused into putting in efforts on non-physical infrastructure that includes human capital development such as skills development b) strong innovation capabilities. Therefore, government is implementing a holistic approach to strengthen education and training system, from early childhood to tertiary level. =>Technical and vocational training is being provided as an alternative for individuals in strengthening full potential. b) professional degree beyond high schools or university Academic achievement is essential key that has relation in contributing towards the economic growth. • The requirements of high skill development and knowledge are needed by firms to fulfil national economic growth. B.)professional degree beyond high schools or university
- Adam Smith David Ricardo Karl Marx John Stuart Mill
- Adam Smith David Ricardo Karl Marx John Stuart Mill
- Adam Smith David Ricardo Karl Marx John Stuart Mill
- Adam Smith David Ricardo Karl Marx John Stuart Mill
- Adam Smith David Ricardo Karl Marx John Stuart Mill
- GDP = GROSS DOMESTIC PRODUCT Public spending on education, total (% of GDP) in Philippines was reported at 2.653 % in 2009, according to the World Bank collection of development indicators, compiled from officially recognized sources. Philippines - Public spending on education, total (% of GDP) - actual values, historical data, forecasts and projections were sourced from the World Bank on April of 2020. Public expenditure on education consists of current and capital public expenditure on education includes government spending on educational institutions (both public and private), education administration as well as subsidies for private entities (students/households and other privates entities). CLAIRE DENNIS S. MAPA, Ph.D. Undersecretary National Statistician and Civil Registrar General
- Public spending on education, total (% of GDP) in Philippines was reported at 2.653 % in 2009, according to the World Bank collection of development indicators, compiled from officially recognized sources. Philippines - Public spending on education, total (% of GDP) - actual values, historical data, forecasts and projections were sourced from the World Bank on April of 2020. CLAIRE DENNIS S. MAPA, Ph.D. Undersecretary National Statistician and Civil Registrar General
- Public spending on education, total (% of GDP) in Philippines was reported at 2.653 % in 2009, according to the World Bank collection of development indicators, compiled from officially recognized sources. Philippines - Public spending on education, total (% of GDP) - actual values, historical data, forecasts and projections were sourced from the World Bank on April of 2020. CLAIRE DENNIS S. MAPA, Ph.D. Undersecretary National Statistician and Civil Registrar General
- This article reviews the role of education in promoting economic growth, with a particular focus on the role of educational quality. It concludes that there is strong evidence that the cognitive skills of the population – rather than mere school attainment – are powerfully related to long-run economic growth. The relationship between skills and growth proves extremely robust in empirical applications. The effect of skills is complementary to the quality of economic institutions. Growth simulations reveal that the long-run rewards to educational quality are large but also require patience