{"id":84,"date":"2020-04-18T02:25:38","date_gmt":"2020-04-18T02:25:38","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/accbertelsen\/chapter\/who-learns-what-and-why-the-economics-of-education\/"},"modified":"2023-10-27T01:34:30","modified_gmt":"2023-10-27T01:34:30","slug":"who-learns-what-and-why-the-economics-of-education","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/accbertelsen\/chapter\/who-learns-what-and-why-the-economics-of-education\/","title":{"raw":"Chapter 9 - Who Learns What and Why: The Economics of Education","rendered":"Chapter 9 – Who Learns What and Why: The Economics of Education"},"content":{"raw":"
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Global importance of education<\/h2>\r\n

One of the great successes of recent human history has been the expansion of education. Throughout the globe, we have seen enormous progress in terms of human knowledge and skills. These increases in human capital, which in turn increase productivity, have played a critical role in poverty reduction and human progress. However, education does not just affect how productive workers are and their own earnings. Education contributes to economic growth and poverty reduction.[footnote]Sala-i-Martin, Doppelhofer, and Miller, 2004; Wedgwood, 2007.[\/footnote]<\/sup> Education has an important role in reducing inequality, particularly across generations.[footnote]Assaad and Saleh, 2018; Celhay and Gallegos, 2015.[\/footnote]<\/sup> Education can help reduce crime,[footnote]Lochner and Moretti, 2004; Temple and Reynolds, 2007.[\/footnote]<\/sup> increase political participation,[footnote]Milligan, Moretti, and Oreopoulos, 2004; Dee, 2004.[\/footnote]<\/sup> improve health and child health,[footnote]Glewwe, 1999; Chou et al., 2012; Currie and Moretti, 2003.[\/footnote]<\/sup> as well as reduce child marriage, childbearing, and mortality.[footnote]Ali and Gurmu, 2018; Din\u00e7er, Kaushal, and Grossman, 2014; Breierova and Duflo, 2004; Lleras-Muney, 2002.[\/footnote]<\/sup> Education is also instrumental to individuals\u2019 (and especially women\u2019s) empowerment.[footnote]Mocan and Cannonier, 2012; Friedman et al., 2016; Samarakoon and Parinduri, 2015; Dursun and Cesur, 2016.[\/footnote]<\/sup><\/p>\r\n

Education\u2019s vast potential impact has an important role in how education markets function. Globally, the public sector has a central role in providing education. In this chapter, we will explore why leaving education to the private sector alone will not be economically efficient. We will also examine how the public sector performs in comparison to the private sector in providing education, including issues of quality, efficiency and equity in schooling. The chapter frames debates about education within current global development goals.<\/p>\r\n\r\n

Global progress in expanding education<\/h3>\r\n

Historically, very few individuals could read or write. Literacy<\/strong> is the ability to read or write. Illiteracy is when someone cannot read or write. Individuals living in the 1800s were more likely to be illiterate than literate (Figure 7.1[footnote]Roser and Ortiz-Ospina, 2017; Roser and Ortiz-Ospina, 2018.[\/footnote]<\/sup>). In 1820, just 12% of the world\u2019s population was literate. Illiteracy was due, in large part, to limited access to schooling. In 1820, just 17% of people had at least some formal basic education (had been to school). As Figure 1 shows, there has been an enormous shift in schooling and literacy. By 2015, 86% of the world\u2019s population had been to school and as of 2016, 86% of the world\u2019s population could read and write. Some countries made enormous improvements in the span of a single generation. For example, Algeria\u2019s elderly (ages 65 ) have a literacy rate of 28% compared to 97% among youth (ages 15-24).[footnote]Roser and Ortiz-Ospina, 2018.[\/footnote]<\/sup><\/p>\r\n \r\n\r\n[caption id=\"attachment_331\" align=\"aligncenter\" width=\"1024\"]\"\" Figure 7.1. Share of the world population that had at least some formal basic education (percentage) and share of the world population that is literate (percentage)[\/caption]\r\n

Improvements in literacy and attending school have been uneven across regions. Figure 7.2 shows gross enrollment ratio by region. Gross enrollment ratios <\/strong>(GERs) compare the number of students enrolled at a school in a level (such as elementary, also known as primary schooling) to the number of students who should be in that level. Because the number of students that should be in a level assumes on time progression and no grade repetition, the GER can be greater than 100% if students are delayed in their schooling. Figure 7.2[footnote]World Bank, 2020.[\/footnote]<\/sup> shows GERs for pre-primary (kindergarten), primary (elementary education), secondary (middle (lower secondary) and high school (upper secondary)), as well as tertiary (higher) education for four regions of the world that encompass primarily developing countries. No region has universal pre-primary, although Latin America & the Caribbean and East Asia & the Pacific come close. Sub-Saharan Africa and the Middle East and North Africa lag far behind, with GERs for pre-primary of 31-33% in 2018.<\/p>\r\n

At the primary level, regions have converged towards GERs at or above 100%, although Sub-Saharan Africa still falls a bit short of 100% as of 2018. Secondary education GERs have expanded substantially in every region except Sub-Saharan Africa, where there has been less of an increase with a secondary GER of only 43% as of 2018. Although Sub-Saharan Africa has the lowest enrollments in secondary, other regions still do not have universal secondary access. Recently, particularly since the 1990s, tertiary education access has expanded rapidly in the developing world, with between 41-51% GERs in Latin America & the Caribbean, East Asia & the Pacific, and the Middle East and North Africa in 2018. Sub-Saharan Africa\u2019s tertiary GER is only 9% at the same time.<\/p>\r\n\r\n\r\n[caption id=\"attachment_330\" align=\"aligncenter\" width=\"914\"]\"\" Figure 7.2. Gross enrollment ratios by level and region (percentage)[\/caption]\r\n

Reductions in inequality<\/h3>\r\n

Expanding access to education has also reduced some forms of inequality. Figure 7.3[footnote]Lee and Lee, 2016.[\/footnote]<\/sup> shows the ratio of years of schooling for women to men, as a percentage, for adults ages 15-64. Although in the 1800s, no country had gender equity, by 2010 Latin America and the Caribbean, Eastern Europe, and the Advanced Economies had all achieved gender equity in years of schooling. Other regions had made major progress as well, with women having, on average, between 82% and 87% the amount of schooling of men.<\/p>\r\n\r\n\r\n[caption id=\"attachment_329\" align=\"aligncenter\" width=\"1024\"]\"\" Figure 7.3. Gender ratio (years of schooling for women\/men) as a percentage, by region, 1870-2010. Notes: For adults ages 15-64.<\/span>[\/caption]\r\n

Problems with education quality<\/h3>\r\n

There has been an enormous expansion in access to education throughout the world, with the potential to dramatically increase human capital and improve a wide variety of economic and social outcomes. The payoffs to education depend, crucially, on how much students learn in school. In this regard, there has been less progress than enrollment trends suggest. Figure 7.4[footnote]World Bank, 2018.[\/footnote]<\/sup> shows the percentage of students in grade two who are unable to read even one word in a short text. The share unable to read is as high as 90% in Malawi, 85% in India, and 83% in Ghana. Only in one country\u2014Jordan\u2014of the countries examined is the share unable to read below 25% (11% are unable to read in Jordan). The failure to learn to read\u2014even one word\u2014after two years of school is a symptom of a global \u201clearning crisis.\u201d[footnote]Ibid.[\/footnote]<\/sup> Enrollment\u2014being in school\u2014is not the same as learning. Learning, acquiring human capital, is what contributes to economic and social outcomes, so the learning crisis means that globally education is falling short of its potential.<\/p>\r\n\r\n\r\n[caption id=\"attachment_328\" align=\"aligncenter\" width=\"1024\"]\"\" Figure 7.4. Percentage of grade 2 students not able to read a single word of a short text. Notes: Among countries with available Early Grade Reading Assessment data.<\/span>[\/caption]\r\n

The shortfall in education\u2019s potential is an issue not only in developing countries but developed ones as well. Figure 7.5[footnote]Mullis et al., 2015.[\/footnote]<\/sup> shows countries\u2019 average scores on the Trends in International Mathematics and Science Study (TIMSS). The TIMSS is an international standardized test. Scores range from 0 to 1,000. The tests also have benchmark scores for different levels of achievement, from low (400) to advanced (625). There are a number of countries, such as Saudi Arabia and Botswana, whose average scores do not even meet the low benchmark. The United States, with an average score of 518, is just two points above Slovenia, and passes the intermediate but not the high benchmark. Only a few countries, including Japan (586), Hong Kong (594), Taipei (599), South Korea (606), and Singapore (621) surpass the high benchmark. The TIMSS results show that there is substantial room for improvement in the quality of education in both developed and developing countries. How<\/em> to improve quality is a thorny question we will examine in subsequent sections.<\/p>\r\n\r\n\r\n[caption id=\"attachment_327\" align=\"aligncenter\" width=\"966\"]\"\" Figure 7.5. Eighth grade TIMSS mathematics scores versus benchmarks, 2015[\/caption]\r\n

Global development goals for education<\/h3>\r\n

The progress in expanding enrollments, coupled with the deficit in learning, has been reflected in global development goals for education. In 1990, the international community committed to Education for All<\/strong>, a principle subsequently updated in 2000 to expand access, reduce inequality, and improve quality in education.[footnote]UNESCO, 2006.[\/footnote]<\/sup> The first set of global development goals were the Millennium Development Goals<\/strong> (MDGs), approved in 2000, which set targets for 2015. One of the goals of the MDGs was universal primary education<\/strong> (UPE), ensuring every child completes primary. These goals often framed education as a human right\u2014but primarily focused on access to education, not its quality. The MDGs were replaced in 2015 by the Sustainable <\/strong>Development Goals<\/strong> (SDGs), goals to achieve by 2030.[footnote]UNESCO, 2017.[\/footnote]<\/sup> The SDGs shifted the focus from enrollment to learning. For example, one of the indicators for the SDGs is the proportion of children in grade 2 or 3 who have achieved minimum proficiency in reading\u2014one of the deficits shown in Figure 7.4.<\/p>\r\n\r\n

How do families and societies make decisions about education?<\/h2>\r\n

To unlock the potential of education, we need to understand how education decisions are made, before we can think about policies that might change the current landscape. We will first examine the way families make decisions about education. Then we will examine why society might want to have different levels of education than families would choose on their own.<\/p>\r\n\r\n

Supply and demand for education in a private market<\/h3>\r\n

The typical model for the market for a good or service is supply and demand. A supply and demand model of the \u201cmarket\u201d for education will be our starting point for understanding the economics of education. Figure 7.6 shows supply and demand for education in Peru, where the currency is the Peruvian sol. We are starting with a case of just a private market for education. In this private market, families pay tuition each year in Peruvian sol. How many years of school they will buy at each tuition rate is shown by the demand curve. You can think of this as the case for an \u201caverage\u201d or \u201crepresentative\u201d family. Although the idea of demand is the same as for other goods and services, in this model we delve a bit deeper into what demand is. Although families may get some enjoyment out of education, a major motivation for sending kids to school is the benefit of school. One of those benefits, earning higher wages as an adult, is called the return to education<\/strong>. Globally, the return to education is an approximately 9% increase in wages for each additional year of school.[footnote]Psacharopoulos and Patrinos, 2018.[\/footnote]<\/sup><\/p>\r\n

Since demand is based on the benefits of education\u2014whether enjoyment or wages\u2014we can rename the demand curve to be the marginal private benefit<\/strong> (MPB). The benefit is \u201cprivate\u201d in the sense that the family decides how much education to demand based on their benefits\u2014not the benefits to society. Demand, as is typical, increases as the price of schooling drops. Since we know that demand is affected by a variety of factors, such as income, different families are likely to have different demand depending on their income, preferences, expectations for the future, or alternatives for their children. For example, families may have lower demand for formal schooling when alternatives such as apprenticeships are more lucrative.[footnote]Krafft, 2018.[\/footnote]<\/sup> Demand will also depend on the quality of schooling. Students are likely to drop out earlier when education quality is poor.[footnote]Lloyd et al., 2003.[\/footnote]<\/sup><\/p>\r\n

We can now rename supply to be the marginal private cost<\/strong> (MPC). Since we are operating (for the moment) in a world with a purely private market, you can think of for-profit schools deciding how much to charge for different amounts of schooling. The MPC rises with years of schooling because it is more expensive to deliver additional education; teacher\u2019s wages must be raised to attract more teachers, more schools must be built in remote locations, and at higher levels teachers need more qualifications and training. Thus, supply is upward sloping. Supply here is related to the usual factors, including input costs (for example, teachers and textbooks).<\/p>\r\n\r\n\r\n[caption id=\"attachment_326\" align=\"aligncenter\" width=\"578\"]\"\" Figure 7.6. Supply and demand for education in a private market: Education in Peru[\/caption]\r\n

In the example in Figure 7.6, the education outcome that occurs is determined by equilibrium, where D=S or MPB=MPC. In this example, equilibrium is six years of school costing 2,000 sol per year. As the next section shows, although this is the equilibrium, it is not necessarily efficient.<\/p>\r\n\r\n

Why the private market is inefficient<\/h3>\r\n

There are a number of reasons the private market in education is not efficient. First, families are making decisions for their children about education. Parents pay the costs: tuition, as well as the opportunity cost of children\u2019s time taken away from other activities, such as the family business or caring for siblings. Parents do not receive all the benefits of education. They will not be the ones receiving additional future income, their children will. In contexts where girls are more likely to die, less likely to work, where girls earn less, or where girls leave the family or community at marriage, families will receive lower benefits for girls\u2019 education than boys\u2019 education. As a result, there will be lower demand for girls\u2019 education and gender inequality.[footnote]Aslam, 2009; Jayachandran and Lleras-Muney, 2009; Jayachandran, 2015.[\/footnote]<\/sup><\/p>\r\n

Not only do benefits often accrue to children rather than their families, but also some benefits of education go to neither the children receiving the education nor their families. Benefits of education include improved health for the educated individual\u2019s children.[footnote]Currie and Moretti, 2003; Glewwe, 1999.[\/footnote]<\/sup> Especially since women disproportionately care for the next generation, this benefit is greater for educating girls than for boys. However, it is not a private benefit. This benefit is an externality<\/strong>, also called a spillover, specifically an externality in consumption. An externality in consumption<\/strong> occurs when the person consuming (demanding) a good does not receive the full benefits[footnote]Or, as we will see in later cases, with pollution, the costs.[\/footnote]<\/sup> of that good. When a girl going to school improves her future children\u2019s health, this is an externality in consumption. The benefits to society of reduced crime, increased political participation, and reduced intergenerational inequality are just a few of the externalities to education. These externalities are additional benefits on top of the direct, private benefits to families.<\/p>\r\n

Figure 7.7 incorporates the externalities that occur in education into our supply and demand model. The externalities in education are benefits added to the MPB. The MPB the externality is what we call the marginal social benefit (MSB). MSB is the total benefit to society, including to the individual, his or her family, and society as a whole. For now, we are going to assume that marginal private costs and marginal social costs<\/strong> (MSC) are the same. We will revisit that assumption in the next chapter, when we examine pollution. We can now define a new concept: the social optimum<\/strong>, where the MSB=MSC. On Figure 7.7, this point is ten years of school at a cost of 2,285 sol. This is the point where the benefits to society are equal to the costs. The social optimum is efficient for society, because if there were more education than ten years, the costs would exceed the social benefits. If there were less than ten years of schooling, for instance the six at the equilibrium, there would be unrealized benefits that would be worth additional investment in schooling\u2014up to ten years.<\/p>\r\n\r\n\r\n[caption id=\"attachment_325\" align=\"aligncenter\" width=\"540\"]\"\" Figure 7.7. Education externality[\/caption]\r\n

In a market without externalities, such as that for wheat, from Chapter 2, the market equilibrium is efficient and socially optimal. For education, because of the externality, the market equilibrium is inefficient. Cases where the market equilibrium is inefficient are referred to as market failures<\/strong>. Public goods, discussed in the crime chapter, are another example of market failures, where the private market will not provide the efficient or optimal amount of a good or service.<\/p>\r\n

In Figure 7.7, the externality is shown as a constant additional 952 sol worth of benefits to society. It is, however, entirely possible that the externality varies by level of education (the MSB line may not be parallel to MPB). Private benefits may also vary by education (the MPB line may not be straight). For example, researchers have argued the return to investing in pre-primary education is higher than for other levels.[footnote]Heckman, June 30, 2006.[\/footnote]<\/sup> One study of the impact of a pre-primary education program on disadvantaged children in Chicago found that the benefit of investing in the preschool program was $74,981 for $7,384 of average costs, a benefit\/cost ratio of $10.15.[footnote]Temple and Reynolds, 2007.[\/footnote]<\/sup> Most of the benefit was an externality, benefits to society beyond those to individuals, specifically $6.87 of the $10.15 benefit\/cost ratio. Externalities can be very large\u2014but they are difficult to measure and quantify.<\/p>\r\n\r\n

How can policy help solve education market failures?<\/h2>\r\n

Now that we know how and why the private market fails to deliver a socially optimal level of education, we can better understand the role of the public sector in education, and in particular different potential approaches to addressing the externality. Our goal with these policies is to achieve the socially optimal level of education.<\/p>\r\n\r\n

Subsidizing education<\/h3>\r\n

The first approach we will consider for education is one of subsidizing education. A subsidy<\/strong> reduces the cost of a good or service, by the government paying for part of that cost. A subsidy does not mean a good is free, just that its price is lower for consumers. The government must pay the difference between what suppliers receive and what consumers pay. Figure 7.8 shows how an education subsidy would work for education in Peru. The government must pay the amount of the externality\u2014the gap between the social optimum (MSB) and MPB. Since the amount of the externality is 952 sol and the MPC(=MSC) is 2,285 sol per year for 10 years of school, the subsidized price will be 1,333 sol (=2,285-952). At this price, families will choose to consume ten years of school based on their demand (MPB). An education subsidy will achieve the social optimum, so long as the government knows the size of the externality and sets the subsidy accordingly.<\/p>\r\n\r\n\r\n[caption id=\"attachment_324\" align=\"aligncenter\" width=\"540\"]\"\" Figure 7.8. Education subsidy for externality[\/caption]\r\n

Free education<\/h3>\r\n

Countries do subsidize education, but more commonly, they offer education free of charge. Figure 7.9 analyzes the economic results of free education in Peru. With our assumptions about the externality, we know that the socially optimal level of education is ten years of school. When the price of school is lowered to zero for families, they will still choose the quantity where the price equals their demand (MPB). In this example, at a price of zero, families demand 18 years of school (all the way through six years of primary, six years of secondary, four years of university, and two years of a master\u2019s degree). Although this education is free to families, it is not<\/em> free to society. Society has to pay 2,857 sol per year, for 18 years. Free education is not <\/em>socially optimal in this case; it is inefficient. For years past ten, the additional years of schooling have social benefits that are less than their costs.<\/p>\r\n \r\n\r\n[caption id=\"attachment_323\" align=\"aligncenter\" width=\"540\"]\"\" Figure 7.9. Free education[\/caption]\r\n

If free schooling is inefficient, as Figure 7.9 suggests, why is it so common to have free education? One reason is that we do not actually know the exact, total size of all the externalities to education. It is entirely possible the externalities are so large that free education would lead to (close) to the social optimum. It may also make sense to make certain levels of education free. In this case for Peru, although society would bear the costs rather than families, free education through grade 10 (age 16) would lead to the optimal amount of education. Society would have to fund this education through taxes, but it might be more politically feasible to have compulsory (required) free education through age 16 financed by taxes. A similar argument could be made for free education past compulsory schooling if the private benefits could be recouped through taxes on additional wages that result from education. Although directly taxing graduates of education is not common, it is another potential approach to funding education.[footnote]Garc\u00eda-Pe\u00f1alosa and W\u00e4lde, 2000.[\/footnote]<\/sup><\/p>\r\n\r\n

Separating education financing from education provision<\/h3>\r\n

In the preceding discussion, we did not specify who provided education. Although there is a strong economic argument for subsidizing education, that does not (necessarily) mean that the public sector has to provide education. However, publicly provided education is the norm for many countries, including the United States. Figure 7.10[footnote]Roser and Ortiz-Ospina, 2017.[\/footnote]<\/sup> shows public and private institutions\u2019 spending on education as a percentage of GDP in the U.S. There was a substantial increase from the 1950s through 1970s for both public and private spending. Yet, public institutions remain dominant, at 5% of GDP, compared to 1% for private institutions.<\/p>\r\n\r\n<\/div>\r\n\r\n[caption id=\"attachment_322\" align=\"aligncenter\" width=\"800\"]\"\" Figure 7.10. United States spending on education as a percentage of GDP by institution type (public or private)[\/caption]\r\n\r\n

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Is public provision of education the best option? Public financing can, potentially, co-exist with private provision of education. For example, school<\/strong> vouchers<\/strong> are public funding that can be used in (participating) private schools to pay for education. Charter schools<\/strong> are publicly-funded but privately-run schools. They typically have more flexible regulations than standard public schools. School vouchers and charter schools are part of what is referred to as \u201cschool choice.\u201d The arguments in favor of school choice are that more choice makes families happier, that more options foster competition that improves all schools, and that private providers are better. The second two arguments can be assessed empirically. First, although some research from the U.S. and abroad suggests that having additional school options can improve educational outcomes, including learning, this result is hotly contested and not a consistent or consensus finding.[footnote]Rothstein, 2007; Hoxby, 2000; Thapa, 2013; Henig, 1995; Plank and Sykes, 2003; Alves et al., 2015; Anand, Mizala, and Repetto, 2009; Ashley et al., 2014; Chudgar and Quin, 2012; Fennell and Malik, 2012; H\u00e4rm\u00e4, 2019; H\u00e4rm\u00e4, 2013; H\u00e4rm\u00e4, 2016; Nishimura and Yamano, 2013; Pal and Saha, 2019; Power and Taylor, 2013; Rao, 2010; Siddiqui and Gorard, 2017; Singh and Bangay, 2014.[\/footnote]<\/sup> Policy design, such as having high standards, may be particularly important.[footnote]Ferreyra and Kosenok, 2018.[\/footnote]<\/sup><\/p>\r\n

Second, whether private providers are better or worse, in terms of costs, quality, or equity, is uncertain.[footnote]Aslam, Rawal, and Saeed, 2017.[\/footnote]<\/sup> There are major tradeoffs that occur in private provision. An experiment with school vouchers in Louisiana, which targeted low-income students in low-performing schools, allowed numerous students to enroll in private schools. Initial effects on learning were negative, although in the long run the differences were not statistically significant.[footnote]Mills and Wolf, 2017.[\/footnote]<\/sup> Liberia recently began an experiment with a number of private providers (and public funding) for its education system. Although learning improved, the costs were also higher than public schools, and varied substantially across different private providers.[footnote]Romero, Sandefur, and Aaron, 2017.[\/footnote]<\/sup> Two of my papers, examining higher education in Egypt and Jordan, showed that private higher education was no better (and no worse) in terms of either quality or labor market outcomes.[footnote]Assaad, Badawy, and Krafft, 2016; Assaad, Krafft, and Salehi-Isfahani, 2018.[\/footnote] <\/sup>School choice can, potentially, worsen racial segregation.[footnote]Ukanwa, Jones, and Turner, 2022.[\/footnote]<\/sup><\/p>\r\n\r\n

Inequalities exacerbated through education financing<\/h3>\r\n

In addition to debates about public versus private funding and provision of education, there are important debates around how schools are publicly funded and what that means for equality. Figure 7.11[footnote]Roser and Ortiz-Ospina, 2017.[\/footnote]<\/sup> shows how the United States funds public schools, specifically the percentage of GDP that goes towards schools from local, state, and federal sources. Historically, funding for schools was predominantly local, but since the 1970s there have been equal local and state shares in overall funding (around 2% each in 2010). Federal funding remains very low, less than 1%. Local funding in particular may contribute to inequality.[footnote]Biasi, 2021.[\/footnote] When children live in low-income communities, they will already be at a disadvantage due to community poverty (and often family poverty as well). When local property taxes fund their schools, and the tax base that votes on school matters has lower income and lower property values, schools will be underfunded. Local property taxes as the basis for school funding translate into students already at risk for poorer outcomes attending schools with fewer resources and lower quality. Although state and federal policies may direct some money towards low-income schools or children, spending is not equal, much less learning. Spending equalization has the potential to narrow test score gaps that depend on family background.[footnote]Card and Payne, 2002.[\/footnote]<\/sup> Box 7.1 discusses another idea, \u201cbaby bonds\u201d targeted to low-income families.<\/p>\r\n\r\n\r\n[caption id=\"attachment_321\" align=\"aligncenter\" width=\"800\"]\"\" Figure 7.11. United States source of funding for public schools as a percentage of GDP[\/caption]\r\n\r\n<\/div>\r\n \r\n

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Box <\/strong>7.<\/strong>1<\/strong>. Economists in action: <\/strong>William <\/strong>Darity<\/strong>, Jr. and Darrick Hamilton <\/strong>propose \u201cbaby bonds<\/strong>\u201d<\/strong>[footnote]Hamilton and Darity Jr., 2010; Darity Jr., Hamilton, and Stewart, 2015; The Ohio State University, 2020.[\/footnote]<\/strong><\/sup><\/p>\r\n\r\n<\/header>\r\n

E<\/span><\/span>conomists play a key role in the field of public policy, as the proposal for \u201cbaby bonds\u201d by William Darity Jr. and Darrick Hamilton illustrates. Dr. William Darity Jr. is the Samuel DuBois Cook Professor of Public Policy, African and African American Studies and Economics, as well as the director of the Samuel DuBois Cook Center on Social Equity at Duke University. Dr. Darrick Hamilton is an economist and executive director of the Kirwan Institute for the Study of Race and Ethnicity and a Professor at the John Glenn College of Public Affairs at Ohio State University. They received PhDs in economics \u201cto study the problems of poverty and inequality and to develop policies to combat them,\u201d and now work in the field of public policy, believing that \u201ceconomic justice is a moral imperative.\u201d <\/span>The two are pioneers in developing the field of \u201cstratification economics,\u201d which focuses on the causes and remedies of intergroup disparities (for instance, differences in wealth and education by race). One of their proposals to address persistent racial disparities is to offer \u201cbaby bonds,\u201d investments that become available to children from low-income families when they turn 18, which would allow them to afford college as well as address persistent racial wealth gaps. Former presidential candidate and Senator Cory Booker has even drafted this idea into legislation.<\/div>\r\n<\/div>\r\n
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What works to improve education?<\/h2>\r\n

What works to improve education? This section examines two key issues in education: enrollment and learning. Distinct interventions work for these different challenges, however, interventions tend to be one of a few different types: resources (money, school buildings, more teachers, etc.), pedagogy (how teachers teach), incentives (how schools are managed, how teachers are evaluated and paid), or supporting students\u2019 well-being (lunch programs, school nurses, etc.).<\/p>\r\n\r\n

Enrollment and Attendance<\/h3>\r\n

Once a local school exists (a key prerequisite!), what helps families enroll their children in school and children attend school? Family resources are particularly important for enrollment. Especially in contexts (families or countries) where income is a major constraint on enrollment, cash transfers can be very effective for increasing enrollment.[footnote]Gitter and Barham, 2008; Benhassine et al., 2015.[\/footnote]<\/sup> Transfers may be conditioned on attending education, but there are also benefits to unconditional transfers. In contexts where enrollment is low and food security is particularly a challenge, school feeding programs (meals eaten at school or taken home from school) improve enrollment.[footnote]Alderman and Bundy, 2012.[\/footnote]<\/sup> Not every resource makes a difference in ensuring attendance. For example, policy makers had identified menstruation (a girl having her period) and lack of sanitary products as a barrier to girls\u2019 schooling. However, a study in Nepal showed menstruation had little impact on attendance and a random experiment giving out sanitary products had no effect on attendance.[footnote]Oster and Thornton, 2011.[\/footnote]<\/sup><\/p>\r\n\r\n

Learning<\/h3>\r\n

What improves learning when students are in school? Cash transfers are not <\/em>effective for improving learning (although they help with enrollment).[footnote]Ponce and Bedi, 2010.[\/footnote]<\/sup> Educational technology, such as giving a laptop to every student (\u201cone laptop per child\u201d) may sound promising, but is not effective.[footnote]Cristia et al., 2012; Escueta et al., 2017.[\/footnote]<\/sup> Narrower applications of education technology are more effective. Specifically, computer-adaptive technology for math, where questions are adjusted and explanations offered at the student\u2019s current level, does improve learning.[footnote]Muralidharan, Singh, and Ganimian, 2017; Lai et al., 2013.[\/footnote]<\/sup> Reducing class size can improve learning, particularly in early grades, but is also costly.[footnote]Schanzenbach, 2014; Urquiola, 2006; Angrist and Lavy, 1999.[\/footnote]<\/sup><\/p>\r\n

When it comes to learning, pedagogy is particularly important. Teaching at the right level (addressing children where they are at, rather than adhering to the official curriculum) causes substantial gains in learning.[footnote]Banerjee et al., 2016.[\/footnote]<\/sup> Remedial tutoring, particularly in addition to regular school, rather than as a substitute, can help children who have fallen behind catch up.[footnote]Banerjee et al., 2007.[\/footnote]<\/sup> Teacher training, so long as it is ongoing and supportive, not one-off, can help improve teachers\u2019 skills and students\u2019 learning.[footnote]Kerwin and Thornton, 2020; Popova, Evans, and Arancibia, 2016; Popova et al., 2018.[\/footnote]<\/sup><\/p>\r\n

There is mixed evidence about the role of teachers\u2019 incentives in learning. Some policy makers argue that it should be easier to hire and fire teachers, and that their pay should be based on performance. Contract teachers are less expensive and equally effective as regular civil-service teachers in India.[footnote]Muralidharan and Sundararaman, 2013.[\/footnote]<\/sup> Paying teachers based on student test scores sometimes improves test scores and other times does not. Performance pay may increase \u201cteaching to the test.\u201d Providing stronger local control of schools (school-based management) does not consistently improve learning outcomes.[footnote]Carr-Hill et al., 2016.[\/footnote]<\/sup> School-based management works better in middle-income countries when parents are more able to engage in the process.<\/p>\r\n

Although the evidence suggests what interventions are likely to be more (or less) effective, an important part of addressing learning is assessing what the barriers are for a particular context or country. For example, if rigid adherence to a curriculum that leaves students behind is common, then teaching at the right level may be more effective. Therefore, as well as evaluating \u201cwhat works\u201d education economics can play a role in first evaluating \u201cwhat\u2019s the problem?\u201d[footnote]Bates and Glennerster, 2017.[\/footnote]<\/sup><\/p>\r\n\r\n

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Box <\/strong>7.<\/strong>2<\/strong>. Economists in action: <\/strong>Esther <\/strong>Duflo<\/strong> and the Poverty Action Lab<\/strong>[footnote]Massachusetts Institute of Technology, 2017; Banerjee et al., 2007; Benhassine et al., 2015; Duflo, 2000; Duflo, 2019.[\/footnote]<\/sup><\/p>\r\n\r\n<\/header>\r\n

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Esther Duflo is a Professor of Poverty Alleviation and Development Economics at the Massachusetts Institute of Technology (MIT). She got her undergraduate degrees in History and Economics at Ecole Normale Superieure, Paris and her PhD in Economics from MIT. While working at MIT, she cofounded (and currently co-directs) the Abdul Latif Jameel Poverty Action Lab (J-PAL), which undertakes evaluations of programs to reduce poverty\u2014including in the education sector.<\/p>\r\n

Dr. Duflo has studied education topics such as the expansion of education in Indonesia, the impact of remedial education on learning in India, and the impact of cash transfers for education on enrollment in Morocco. She has been particularly prominent in increasing the role of impact evaluations\u2014to figure out what works and why\u2014in development economics. Her innovative work earned her the Nobel Prize in Economics, along with Abhijit Banerjee and Michael Kremer.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n

Summary and conclusions<\/h2>\r\n

Education has enormous potential to improve individuals\u2019 well-being and countries\u2019 development. Education benefits individuals, who earn more as they learn more. However, education also has externalities, spillovers that benefit society as a whole. Due to externalities in education, it is inefficient to leave education to private markets alone\u2014education will be under-provided. The public sector must intervene to ensure there is enough education. Whether the public sector should provide, as well as fund, education is a hotly debated issue. The balance of evidence is that private provision will not be sufficient for improving education access, quality, or equality. A growing body of research indicates what policies are more (or less) likely to work in education, but much more research is needed to ensure education achieves its full potential.<\/p>\r\n\r\n<\/div>\r\n

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List of terms<\/strong><\/p>\r\n\r\n<\/header>\r\n

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