ECONOMICS OF EDUCATION: Can you give a cost-benefit Analysis of Education?8a iii).



8a iii). Give the cost-benefit analysis of Education.

Cost-benefits Analysis of Education

Cost benefits approach at each level of education as an investment in human beings with the purpose that the returns will help to improve the whole economy.


  1. The wages/salaries paid to worker reflect difference in their productivity.
  2. Variations in productivity result from different amount and kind of education people receive.

It is a mode of analysis of current relationship between education and income. Education is perceived by the approach from two angles, namely:

  • The social rates of return
  • Private rates of return the Social Rates of Return;

The social rates of return

  • These stresses the benefit to be derived by the state of investing in a particular form of education.
  • The cost of education is usually borne by the society as a whole, and can be calculated by equating the total present value earnings of an average educated person before tax with benefits to be gained from alternative investments, E.G. in physical capital.

The Private Rates of Return

This is the investment by private individual and the expected benefits for acquiring a particular type of education.

This is calculated by equating the direct and out of pocket costs of students plus earnings foregone by them while studying to the present value of earnings after tax e.g. direct cost pocket money +foregone earning

Advantages Of Cost-Benefits And Lysis Approach

  1. By looking at the age-earnings structure of the educated person, it is possible to measure or quantify the increase in productivity of an educated person.

  2. The analysis can show or suggest the directions in which education systems in a  society should expand so as to maximize the earning capacity of their products.

  3. It shows the relationship between cost of gaining more education in the course in payment which results from additional education.


    1. In African states, it is wrong assumption to say that salaries reflect productivity.
    2. It is difficult to measure the indirect benefits, which derives from investing in any type of education.
    3. In developing countries, differentials in earnings of workers cannot be attributed to additional education acquired but to other things such as habits, customers family background, primordial factor etc.
    4. Primary education gives the highest return to society, according to some studies done one the calculation of the social rates of return for all levels of education in Nigeria.
    5. The salaries of civil servants are more influenced by economic variables than by productivity considerations.
    6. A financial return from education has been inflated in Africa by past scarcity of people with particular type and level of education
    7. Civil servants salaries owe much to economic context of the country but little to productivity considerations.

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