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CHAPTER OUTLINE
I. Whereas Chapter 7 dealt with the quantity of labor, Chapters 8 and 9 focus
on the quality of human resources and the investment in human capital. The
introductory section looks at stylized facts on education by introducing termi-
nology. While stocks refer to the total amount of schooling in a population,
o w s refer to the net change in those stocks. Educational data such as gross
enrollment rates, net enrollment rates, and grade survival rates are presented
for different regions. Further division clearly indicates gender differences.
Finally, a distinction is drawn between schooling and education, that is, the
capabilities individuals acquire from time spent studying and learning.
II. The use of cost– bene t analysis in education planning is treated in more detail.
The text displays Nicaraguan age– earnings pro les for men and women and
details differences between levels of education. The text then explains the
divergence between private and social rates of return on education and impli-
cations for education policy. Empirical studies indicate that rates of return on
education are generally high in developing countries, especially for basic lit–
eracy and numeracy. The text also explains why cost– bene t analysis and rate-
of– return computations cannot be used mechanically as tools for planning
educational investments.
III. Why is the increased schooling not promoting development? Some of the
reasons are underinvestment in schooling overall, governments misallo cating
resources across levels of schooling, and inef cient use of resources within
schools. Much of the recent research in development economics has focused
on this last issue and has used randomized trials to test hypotheses. Recent
research covers topics such as deworming students, incentivizing parents to
send their children to school, and reducing teacher absence from classrooms.
Education
CHAPTER 8
54 | Chapter 8
Though promising, these studies may fail to correctly identify causality and
may not be replicable for all countries. The authors conclude there is no “one-
size– ts- all” answer to engineering educational attainments across all nations.
Boxed Examples
Box 8–1: Estimating Rates of Return from Wage Equations
Box 8–2: Returns to Schooling and Income Opportunities
Box 8– 3: Mexico’s Programa de Educación, Salud y Alimentación
(Progresa)/ Oportunidades
There are three boxed examples in this chapter. The rst case study shows how
rates of returns are econometrically estimated through wage equations and points
out the number of assumptions and pitfalls when making these calculations. The
second study outlines recent research by Foster and Rosenzweig, who nd that
schooling has returns primarily when new income- generating opportunities arise.
The third case study provides a summary of the well- known PROGRESA pro-
gram from Mexico. This program introduced a set of conditional cash transfers to
poor families if their children were enrolled in school and family members visited
health clinics for checkups.
In the New Edition
This chapter has been revised and updated from the sixth edition, and bene ts from
recent revisions to the Barro- Lee data set on school attainment and from recent
results of the Organisation for Economic Co- Operation and Development (OECD)’s
Programme for International Student Assessment (PISA). Fuller use is made of
econometric approaches, including natural experiments and randomized controlled
trials (RCTs) in determining rates of return to schooling and the effectiveness of
alternative interventions to improve learning outcomes.
Class Notes
In terms of technical analysis, this is an easy chapter for students. It is helpful to
highlight the concept of education as investment in human capital and demon-
strate that education can be a matter for economic analysis like any other policy
decision affecting investment and resource allocation. Scarcity and the need to
choose ef ciently are hard realities that poor countries can ill afford to neglect
when considering costly education decisions. In this regard, the divergence between
private and social rates of return on education is of major importance. You can
explain the issue neatly using supply– and- demand analysis, augmented to show
externalities and subsidies.
The application of cost– bene t analysis to evaluating education investment is
the analytical crux of Chapter 8. You can cover this material at a broad intuitive
Education | 55
level or provide a more thorough technical treatment. The latter approach takes
more time but is necessary if you want students to understand the techniques.
This chapter can introduce students to the revolution in microeconomics of
development. Both Esther Du o and Michael Kremer have some very accessible
articles on their websites regarding the state of research on education and its policy
implications. These articles provide good material for discussion. The Copenha-
gen Consensus website also has a long article by Lant Pritchett on the global chal-
lenge of education, which students can evaluate. It is important to instill in students
that education is an area where recent research helps us in terms of policy. The
OECD website also contains useful information about education and the PISA.
QUESTION BANK
Concept Map
Stocks and Flows
Boys Versus Girls
Schooling Versus Education
Education as an Investment
First– Generation Estimates
Making Schooling More Productive
Misallocation
Inef cient Use of Resources
Multiple- Choice Questions
1. Grade survival rates estimate:
a. how many children actually complete a certain grade level.
b. how many children die from disease and malnutrition at each grade level.
c. how many grades of school the country can afford to offer.
d. whether the grades earned continue to be valid, due to rampant grade
in ation.
2. The greatest gains in secondary education, mea sured by gross secondary
school enrollment rising from 38 percent in 1975 to 90 percent in 2005, have
occurred in:
a. Southeast Asia.
b. Latin America.
c. sub- Saharan Africa.
d. the Middle East.
56 | Chapter 8
3. Which education indicator refers to enrollments of those in the relevant age
group?
a. gross enrollment rates
b. net enrollment rates
c. grade survival rates
d. learning outcomes
4. Using standard methods to mea sure bene ts and costs, the private rate of
return on education cannot be less than the social rate of return because:
a. bene ts of education accrue to the individual, not to society.
b. individuals otherwise would choose not to go to school.
c. social costs include public- sector outlays as well as private costs of
schooling.
d. all of the above.
5. In the past 50 years, what has happened to the gender gap in education?
a. It has been declining.
b. It has been rising.
c. It has stayed the same.
d. It has had a mixed response, rst declining, then rising.
6. The goal of the Programme for International Student Assessment is to assess
how well 15- year– olds, who are approaching the end of their compulsory
schooling year, can:
a. read and write at a fourth- grade level.
b. successfully acquire a paying job at home or abroad.
c. meet the challenges of today’s societies.
d. be willing and able to move onto the next level of education.
7. In low– income countries, the demand for education:
a. remains high across all segments of the population.
b. is con ned mostly to urban areas.
c. is con ned mostly to social elites, both urban and rural.
d. is not very strong, due to poverty and hopelessness.
Education | 57
8. For the students’ families in developing countries, the main implicit cost of
secondary education is:
a. required school fees.
b. earnings or work at home forgone when the student attends school.
c. the cost of textbooks.
d. incidental costs like school uniforms and transportation.
9. In low– income countries, the social rate of return generally is highest for
investment in:
a. university education.
b. primary education.
c. vocational education.
d. adult education.
10. The social return to educating women may exceed that of educating men for
all of the following reasons EXCEPT:
a. educating women reduces child mortality.
b. educating women reduces fertility.
c. educating women reduces the spread of HIV/AIDS.
d. educating women leads them to earn a higher income than men.
11. Rates of return on schooling depend on what happens in:
a. the demographics of marriage in the country.
b. secondary and tertiary educational outcomes.
c. both school and the labor market after students graduate.
d. regard to the average student’s body mass index by 18 years of age.
12. High unemployment rates among school leavers, including graduates of
universities, often re ect failures in promoting economic growth rather than
failure in schools— this is especially true in nations such as:
a. Argentina and Egypt.
b. Costa Rica and China.
c. India and Korea.
d. Brazil and Singapore.
13. When the private rate of return on education is much higher than the social
rate of return:
a. it is not eco nom ical ly ef cient to expand education to the point of fully
satisfying private demand.
b. school tuition charges need to be raised.
c. funds should be reallocated from other types of investment to more
investment in education.
d. the market wage exceeds the shadow price of labor.
14. Which of the following is NOT true concerning the deworming study in
Kenya?
a. Deworming is more cost– effective than free school uniforms.
b. Deworming increased attendance.
c. Deworming increased student learning as mea sured by test scores at the
time of treatment.
d. Deworming increased student concentration levels when they were in
school.
15. The introduction of textbooks improved reading scores for all students in:
a. Jamaica.
b. the Philippines.
c. Kenya.
d. all of the above.
Education | 59
IDs and Paired- Concept Questions
These terms can be used individually as short- answer identi cation questions, or
they can be used in pairs. In the latter case, ask students to explain (1) the meaning
and signi cance of each of the two terms and (2) the relationship between them.
1. Theodore Schultz, human capital investment
3. Gross enrollment rates, Millennium Development goals (MDG)
5. Social rate of return, educated unemployment
7. Uniforms, students
9. Deworming, attendance