Theoretical Models of Economics of Education - Essay Example

? Labour Economics Contents Contents 2 Introduction 3 Discussion and Analysis 3 Conclusion 6 References 7 Introduction Education is an indispensible part of social activities of mankind and in most of the countries of the world, the elementary and higher education are financed by the government. Unless the people of a country get educated, the country cannot grow and develop because the essential skills and expertise that the trained and educated people develop contribute to the national product of the country. Thus the policy makers of a country should be aware about the educational scenario and how the system can be run efficiently so that the country can develop a host of skilled labourers and educated professionals. Discussion and Analysis Theoretical Models of Economics of Education The most frequently used model for the assessment of education economics is the schooling model. The model perceives education as a form of investment by which the people who are taking the services get themselves trained with certain skills that in future help them to work and earn wages. For example, workers who had not taken specialised training for making pins would not be able to deliver the products and earn money. On the other hand, the person who has technical training would be able to work for some organisation that would add to his living. Hence it is extremely essential to acquire skills. In the same way, both of a high school pass-out and a graduate would be able to earn money, but the former would have less specialised education and thus would always earn less than the graduate unless he upgrades himself with the necessary education. Thus the return out of higher education is definitely positive and it adds value to the earning capacity of a person in the later stages of life. The second most popular theory regarding the economics of education is the signalling model. This theory states that when a person completes his education it signals for the labour market that he is capable of doing work efficiently and therefore the person can be employed. It determined the employability of the person. The Marxist approach to education is somewhat different from the approaches discussed above. According to Marx, skill development and education were two different phenomena. The capitalist society would encourage the development of skills so that more and more workers get specialised skills and help to increase in the total productivity. This would only benefit the capitalists by increasing their profits. Instead Marx emphasises on education and states that proper education would liberate the individual from the exploitation of the bourgeois and would make the economy a socialist one (Carneiro and Heckman, 2003, p. 4). The following graph describes the relationship between the age of a person and the return on investment. The opportunity cost of funds is constant over the entire period of time. It must also be noted that there is a trade of between the time that a person engages himself for education and the time that is spent for earning some income. In the figure we find that the marginal rate of return on investment decreases over the life of the person. At the preschool level the return is the highest it is the lowest at the post school level where the curve becomes asymmetric. Hence if the person is engaged more in higher education, then he has to bear a lot of opportunity cost because the time that the person spends in educating himself could have been used for earning a livelihood. Instead the person has to bear an expense. Empirical Approaches and Difficulties in Measuring Rate of Return on Education Most of the empirical researches have proved that in all cases of high enrolment in particular countries, the growth rate has increased. Thus a positive correlation is found to exist in the level of education, rates of educated and the growth rate of the economy (Boser, 2011, p. 8). There is also a noticeable corollary along with this. The countries that have shown the least difference in the male and female literacy rates have recorded the highest rates of growth. However, in some communities education is considered to be a luxury good and only those who have enough wealth educate themselves from institutions charging high amount of fees (Harberger and Peon, 2012, p. 12). Therefore for those individuals education is simple a status symbol. Often the literacy and education if measured by the changes in the rate of productivity of the participating labour force. At times the Net Present Value and the Internal Rate of Return are calculated how the investment would generate returns for the individual. The present value of the initial investment and what return it would generate for the life of the individual is estimated and accordingly a cost benefit analysis is done. An ageing schedule supports this kind of exercise. These kinds of analyses show that the return that the person gets from preschool phase and the middle school phase is much less than that of the graduate schooling. For a graduate the return on education is the highest. However, beyond graduation, the return on educational investments starts going down. Conclusion The return of education is primarily calculated on how many students are getting enrolled in a particular year the number of students passing out in a year, the level of education imparted and the results are analysed based on the dropout rates, enrolment in higher education and the employment rate in the economy. There are several difficulties that researchers may face while computing the return on education. This is because education is a qualitative variable and it is difficult to capture it quantitatively. The conditions and the consequences of education are varied and in trying to get into too much numerical exercises while doing the empirical analysis, the main essence of might be lost in the process. There might also be bias in the selection of the sample. The educational levels of region and communities vary. So heterogeneity has to be ensured while collection of the sample, otherwise the research would not yield true results. Thus it is important to consider the criteria from a 360 degree point of view and across all regions to get a true picture. References Boser, U., 2011. Return on Educational Investment: A district-by-district evaluation of U.S. educational productivity. Washington, DC: Center for American Progress. Carneiro, P. and Heckman, J. J, 2003. Empirical Estimates of the Returns to Schooling. Chicago: University of Chicago and The American Bar Foundation. Harberger, A. C. and Peon, S.G., 2012. Estimating Private Returns to Education in Mexico. Latin American Journal of Economics. Vol 49(1). Read More