Economics of education grows from the same seed of economics which utilizes economic tools to study educational processes and solve its problems. It concerns itself with how society and educational managers use limited resources to satisfy unlimited wants of education.
Inputs of education consist of humans (students), materials (study resources), money, management, and time, time being the limited resource. The scope of education in a country is determined by manifold stakeholders that consist of the government, community, and the institutions of education.
Economics of education studies human behaviour and actions with regards to schooling. Many notions have been derived from labour economics, public sector economics, welfare economics etc. Renowned economists such as J.S.Mill and Adam Smith, advocated public investment in education, highlighting the positive relationship between education and economic growth. Education, if privatized, would leave a large section excluded from enjoying its benefits.
The education industry is the nucleus for production of educated personnel who inject themselves in the economy. Job opportunities available to these educated citizens are of higher quality. The economy reaps the benefits of these individuals, which lead to an increase in average earning, having a positive effect on tax revenue. The government then uses this additional revenue to better the standard of living in the country, leading to an increase in average life expectancy.
Higher educational development often overcomes the lack of natural resources available in the country e.g.: Dubai. Education offers advantages to the society by minimizing poverty and income inequality, as well as the individuals by increasing participation in the democratic process.
There are various reasons why students decide to take up higher education. Many do so because they enjoy learning, or it gives them access to better job opportunities. College graduates earn more than their counterparts, this phenomenon is known as the college wage premium. Income earned by them is almost double and the unemployment rate is a mere 3%. Pupils who get into college have received quality primary and secondary education, are from well-off families and face multiple hardships in the form of difficult tests, all of these factors allow them to have an upper hand. Students from lower-income backgrounds often have lower scores than others because they don’t have access to the above resources. Therefore, it is a staunch belief that the government should support education by doing the following. They must provide appropriate funds and aid to the weaker sections of the population. Exemptions could be made accessible in the form of charters, vouchers, scholarships etc. Teachers could be incentivised to improve student’s performance.
The cost of education is surging day by day; US student debts have reached a humongous level of $1 trillion because more students now avail student loans. Public universities cost $25620 (approx.) and private universities cost around $60000 per year, with students receiving minor scholarships. The increase in graduate enrolment causes a rise in student debts because they tend to borrow more than undergraduates. The surge in tuition fee can be attributed to the rising costs of running a college which requires the employment of additional administrators.
Two theories spell out why college graduates earn more. The human capital theory refers to the stock of knowledge, habits, social and personal attitudes embodied in the ability to perform labour, so as to produce goods of economic value. The signalling theory states that students show their hard work, socio-economic status thus validating their abilities to perform the job and earn a higher wage.
However, there exists an opportunity cost of education. To individuals, it is the income they could have earned by entering directly into the workforce. To the society, it is the resources that could have been utilized to fund social programmes.
The puzzling question of “Whether college is worth it?”, depends on the response to questions such as which degree did you get? Where did you get it from? How much did you pay? And finally, what are you going to do with that degree?
By Roshni Divecha
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