2. Education and Poverty Social World I

3. Observations Strong consensus, education as important determinant of individual earnings; economic growth Exists controversy around policy issues –Resources vs. outcomes –Appropriate incentive structure to improve educational outcomes

4. Links: Education and –Health care –Homelessness –Hunger –Jobs Common link: poverty

5. Links, Education and Poverty Individual level –Years of education vs. poverty rate –Recessions; job stability –Frequency, duration of unemployment

6. Aggregate level: What do poor countries lack? –Ideas –Incentives to use ideas in transforming resources from low to high-valued uses –That is: an environment for encouraging Innovation Scientific discovery

7. –Also note: How to improve? Invest in basic –Literacy –Numeracy –Result: Increases in “size of pie” More resources to reduce hunger, homelessness; improve health care Less spending, crime; public assistance

8. Argument for –Specific education/training –General education/training Social, political framework appropriate for modern economic development

9. Human Capital Theory Skills, knowledge, abilities of people How acquired? –Quantity of schooling –Quality of schooling –On-the-job training/experience –Family –Ability –Continuing education

10. Result: –education---> productivity---> earnings But note: productivity also affected by other factors –Quantity of capital per worker –Organization of work

11. The Human Capital Decision Compare expected –Marginal benefits (most in future) Higher wages, linked to more years of education Rate of return on education? 5-15% per year Recent increase in skill premium –Marginal costs Direct spending Opportunity cost of time

12. Human Capital Theory and Public Policy Toward Poverty Implication: Public investment in human capital formation would reduce poverty Education the centerpiece of War on Poverty Why necessary? Tendency for individuals to underinvest in education –Pay costs, not capture full benefits –Difficult in borrowing: problem of collateral

13. Does It Work? What about the really poor: any difficulties in increasing quantity, quality of education? –Individuals at lowest income levels often least well-served by schools –Resulting disadvantage in competing for jobs –Demand for education as depending on expected return vs. opportunity cost

14. –Application to Young, single mothers Young, urban, non-white males –Does compensatory education work? –Does education eliminate Low-paying jobs? Economic dislocations? Macroeconomic failures?

15. Is more spending on education the answer? –Ambiguity regarding relationship between spending, student performance (test scores): negative relationship??? –What seems to affect student achievement? Schools Student ability, motivation

16. Family educational background Peers Community Possible reforms? –More attention to Incentives Governance Management

17. –Strict accountability, principals, teachers Clarify goals (measurability issues) Hold schools accountable for student success or failure in reaching goals Align incentive structures with goals Examples: Chicago; Dallas Morning News, 11-15- 98; Austin May require much experimentation with alternatives

18. –Interesting current choice: Continue to increase quantity? “14 years of education for all” Increase quality of –Primary –Secondary

19. Other Critiques Education as “Screening Mechanism” –Education as recognizing, rather than creating occupational skills –Schools identify people with natural ability for employers –That is: educational attainment signals (provides reliable information about) relative productivity of individual workers

20. Does it matter which hypothesis we believe? Different implications for public policy –Social rate of return may be zero under signaling hypothesis => government subsidies to increase human capital as socially wasteful –Even though private rate of return may be positive

21. Is education productive? –Provides a (socially useful) sorting mechanism: gets people in the right jobs –Does seem to increase human capital

22. Marxist critique: Education as –Promoting social control –Socializing the poor into accepting the legitimacy of the existing order –Not educate the poor for upward mobility

23. Does Education Reduce Poverty? Long-run perspective: Changes the numbers of the poor Short-run perspective: Changes who is poor –Schooling, work experience seem to account for about half of earnings variation

24. –1980s data; and Increases in real wages, 16+ years of education Decreases in real wages, < 12 years of education –Education/skill premium, and widening income disparities

25. –Policy implication: Education important; but also look at Barriers to skill acquisition Ways to increase attachment to labor markets

26. In The End... Poverty, income differences due in part to differences in education Due also in part to differences in –Ability –Effort –Luck –Inheritance

27. –Discrimination –Willingness to take risks –Past savings Education as a necessary but not sufficient condition for reducing poverty

28. Leave with: –How much to spend on education vs. other public policy initiatives to reduce poverty? –Where should the dollars to education go?