ECONOMICS OF EDUCATION: What are costs and benefits of Education?

 

CHAPTER TWO

THEORY OF HUMAN CAPITAL

2a iii). Give an examination on the measurement of education’s costs and benefits

Measurement of Education’s Costs and Benefits

i). Education Costs

Costs incurred on education fall into two broad categories: Private and Social costs.

a). Private Costs.

Private costs are those incurred by the individual, family or organization in the course of purchasing education or additional education. These costs can be direct or indirect.

Examples of direct private costs include expenditures on fees, tuition, books, uniforms, transport, room, and board etc.

Indirect private costs include foregone earning by learners, i.e., the opportunity cost of schooling including loss of labor for the family concerned.

b). Social costs.

These are the costs that are incurred by the society/public/government is providing education. They are also categorized into direct and indirect social costs.

Examples of direct social costs include salaries (teaching and non-teaching staff), government grants, scholarships, bursaries etc.

Indirect social costs mainly take the form of productivity and tax revenue foregone. Pre-tax earning are usually used as a proxy for productivity foregone.

ii). Benefits

Educational investments yield benefits to individuals and society, i.e., private and social benefits.

Educational benefits accruing to individuals, families or organizations investing in education are known as private benefits.

Private benefits could be direct (e.g. higher lifetime earnings of income) or indirect (e.g. psychological satisfaction, movement up the socioeconomic ladder etc).

Educational benefits enjoyed by the society or government from educational investment are referred to as social benefits.

Similarly, social benefits could be direct (e.g. increased productivity, high tax revenue, economic growth etc) or indirect.

Indirect social benefits are also referred to as externalities, neighborhood effects, spillover effects and include:

  • Reduction in petty crime
  • National integration/social cohesion
  • Improved health and nutrition
  • Population control
  • Poverty reduction
  • Inculcating of productivity related habits such as hard work, punctuality, self-reliance etc.

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 Comparison of costs and benefits

The comparison of costs and benefits of an educational investment can be captured by rates of returns computations (social rates of return for society and private rates of return for individuals)

i). Private rates of return:

They denote the net benefits (benefits less cost) that educational investments yield to concerned individuals. Private rates of return have generally been found to be highest at the tertiary level of education and to fall down the educational ladder. This is often taken to imply the profitability of higher education to individuals and to justify the financing of this level from largely private funding sources.

ii). Social rates of return

They serve as an indicator of the net benefits to society from the educational investment. Social rates of return are highest at basic level of education and fall with rising levels of education. This implies that basic levels of education are more profitable to society and deserve priority in public allocation of educational resources. For example, in Kenya, we have FPE and FSE but not free university education.

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