Education pays off: mean incomes rise with educational level.
‘Education is the greatest investment we can make in our future’, says the National Party on its website.
What, exactly, is an investment? The Oxford on-line dictionary isn’t much use on this score for the word ‘investment’ other than to say it involves people investing (gasp). But then look up ‘invest’ and we see the words “in the hope of making a profit”. Now we’re in business literally as well as figuratively.
The difference between the publicly-funded education sector and other sectors such as healthcare is that we should be able to realise a profit on moneys we spend on the former. How?
There is nothing new about spending money on education with a view to making a profit at the private level. Families bend over backwards to get their younger members through programmes such as medicine and engineering with a view to lucrative returns once the graduates have entered the labour market.
Education creates human capital. This moniker is often used rather loosely as a synonym for human resources but it is in fact a very precise economic concept that originated in the 1950s. Human capital is the ‘value added’ contribution that knowledge, skills and attitudes acquired through education make to worker productivity. This is measured through the premium that the labour market attaches to given knowledge and skill levels (easier to quantify than attitudes). So when we plot earnings (a proxy measure of human capital) against age by educational level, we tend to get a graph that looks like the one above taken from Indian data.
It is obvious how the individual benefits – more rupees/dollars/yen/whatever in the pocket and a higher standard of living. But society too benefits. Highly educated/skilled people provide specialist services – medical, legal, architectural, etc etc – that improve quality of life indicators. They create employment while doing so, and pay more tax than most people.
All this seems obvious enough when dealing with a surgeon or an electronics engineer, but what about the lower levels? In Western societies, everyone completes primary schooling and so the contribution to human capital made by education at that level does not appear in the graph. It does, however, in countries where not everyone finished primary school. Numerous studies by agencies such as the World Bank show that the literacy equivalent of about Year 4 improves rural worker productivity. Subsistence farmers who can read instructions on a can of fertiliser or pesticide make more effective use of the substance, leading to higher incomes. Factory workers who can read and write are more productive than those who can’t, and research in emerging industrial economies suggests that the completion of lower secondary schooling (in NZ terms, Year 10) makes factory workers more receptive to technological innovations and change.
At the higher levels of schooling, we tend to leave the ‘general education’ model behind in favour of programmes that track students into tertiary education and training leading to specific career pathways. We tend to find the most able 16- to 18-year-olds in science-intensive tracks at upper secondary school aiming for admission to competitive-entry biomedical degree programmes. Just as specialised and just as important as an indicator of an education system’s effectiveness are vocational and technical upper high school tracks leading to associated programmes in techs and/or through apprenticeships.
Teenagers who appear to be drifting aimlessly in the school system represent a loss of potential human capital formation with adverse effects for both them (lower incomes, lower living standards) and for society as public money that should be being spent on building up the human capital base is frittered away on the babysitting of teenagers.
Some people are put off by the human capital approach to education as it emanates from the hard-nosed economic rationalist mindset to public financing. But we want to see everyone benefiting in material terms from educational expenditure so we don’t go in for penny-pinching when moneys being sunk into education are likely to pay us a dividend a few years later. The human capital approach is welfarist in its ultimate aim.
How close do the educational policies of the two main NZ political parties get to a human capital mindset?
National uses the term ‘investment’ (as noted above) but it is not clear whether they use the term in an expectation of a fiscal return from expenditure in schooling. They have made a big issue of basic education, particularly primary schooling and the associated basics of literacy and numeracy (https://www.national.org.nz/teaching_the_basics_brilliantly). This sits well with a human capital approach but we need to see more emphasis on the upper levels where the big decisions about young people’s future livelihoods are made.
Labour’s educational policy does just that through a focus on the transition from school to post-school education and training to work (https://www.labour.org.nz/education). Strip the policy of all the PC bullshit and race politics and you have the beginnings of a very sound educational policy. Not a word about human capital, of course – that sounds awfully ‘capitalistic’ so is best avoided. But National take note of the emphasis particularly on vocational and technical education.
Education will not be the main policy issue this coming election, but it will be in voters’ minds. What an irony that the two main parties’ policies actually complement one another rather well. We need a bipartisan approach to education, not a party-political one. The human capital paradigm provides such an approach.
Barend Vlaardingerbroek is a retired academic
who spent many years at universities in PNG, Botswana and Lebanon. He wrote his
doctoral thesis on applications of human capital theory to science education in
developing countries. One of his favourite published works is a paper on human
capital in the manufacturing sector of Gaborone (capital of Botswana). Feedback
welcome at bv_54@hotmail.com
8 comments:
It's not a sexy hit you instantly in the pocket issue but, make no mistake, education is incredibly important, for it is indeed our future. Do it poorly and we are on the road to perdition - and the economy of the country will run downhill and everything with it. The Labour party's piece you've 'linked' sounds wonderful (doesn't every party's manifesto), but behind the scenes it's heavily laden with ideological, identity politics bullshit. National's is better, but still not in itself good enough.
We used to be in the top echelon on this front, but we've slipped a very long way from that. You're right, Barend, we do need to take the politics out of it and we, as the public, need to demand a whole lot better from our politicians.
Does not assist the case for ever later retiremnt. I wonder how a plot of IQ would look. A plot of gross income vs number of offspring would also be of interest. The University graph is boosted by all those who have done Maori studies and now hold lucrative positons contrived for them.
Education is basic to the bones of society. We think of health as key, but without education, health and healthcare suffers. So yes, education is an investment in our future.
Robert Arthur, the data are from India where very few people get into things Maori. It might pay to check what information an article presents before commenting.
Excellent post, Barend. I have attempted to speak to local Labour and National MPs (here in Lower Hutt) about education. Despite promises of a meeting or two, no progress.
David Lillis
Hi Barend. Without fetching my magnifying glass the graph did seem a bit extreme! I recently heard a radio programme which claimed that the class system inbred a high IQ very capable class who tend to do very well. Whereas here we regularly dilute. Might explain in part the huge disparity in the graph.
Robert, what the graph does is to show the association between earnings (as a measure of human capital) and highest level of formal education undergone. There is certainly a correlation between IQ and earnings but that involves replacing the X-axis which in these age/earnings profiles is always age.
To use accountancy terms in connection with education is non-productive to say the least. Education covers the whole spectrum of human activity and is life itself, all of us are always learning until we die. Unfortunately education can be a weapon and used by unscrupulous forces to indoctrinate young people into following negative directions. We have seen this in Germany with the Nazis, in Russia with the Reds, and we are seeing it here in NZ with young people being encouraged to revere the "world view" of a Stone Age society, waste their time on a non-language and be deluded into thinking that tribal custom should take precedence over democracy. We seem to have lost our way and the revelations of those who are aware of this are being ignored. Barend is one of a growing number who are doing their best to get us back on the right track. They deserve wider public support.
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