21 CHAPTER Education PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe
21CHAPTER
Education
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-2
EducationEducation
Largest area of expenditure for state Largest area of expenditure for state and local governmentsand local governments One-third of all outlaysOne-third of all outlays
Public provision not necessaryPublic provision not necessary Many private schoolsMany private schools
Government financing does not imply Government financing does not imply public productionpublic production
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-3
The Growth in Education: The Growth in Education: Students and Students and ExpendituresExpenditures
YearHigh School Graduate
or MoreCollege Graduate or
More
1940 24.1% 4.6%
1950 33.4% 6.0%
1960 41.1% 7.7%
1970 52.3% 10.7%
1980 66.5% 16.2%
1990 77.6% 21.3%
2000 84.1 25.6
Table 21.1 Educational Attainment of the U.S. Population Over Time (Percentage of the Population Age 25 and Older)
Source: Statistical Abstract of the United States , 1961, 109 and 2002, 139.
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-4
The Growth in Education: The Growth in Education: Students and Students and ExpendituresExpenditures
Year Expenditures per Pupil
1940 $1,038
1950 $1,482
1960 $1,996
1970 $2,744
1980 $4,632
1990 $6,355
200 $7,066
Table 21.2 Expenditures per Pupil for Elementary and Secondary Education (Constant 2000 Prices)
Source: Author's calculations from data in the Statistical Abstract of the United States , various editions.
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-5
Rationales for Rationales for Government InvolvementGovernment Involvement Education produces a positive Education produces a positive
externalityexternality Everyone better off living in a more Everyone better off living in a more
educated societyeducated society May be inframarginalMay be inframarginal
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-6
Rationales for Rationales for Government InvolvementGovernment Involvement
SocializationSocialization Public education makes students into Public education makes students into
better citizensbetter citizens Instill common valuesInstill common values Private schools homogenousPrivate schools homogenous
Although public schools can often Although public schools can often homogenous due to residential sortinghomogenous due to residential sorting
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-7
Rationales for Rationales for Government InvolvementGovernment Involvement FairnessFairness
Most students go to public schools regardless Most students go to public schools regardless of economic status, thus equalizing position of of economic status, thus equalizing position of students at the bottom of the economic ladder.students at the bottom of the economic ladder.
Even under public production wealthy receive better Even under public production wealthy receive better educationeducation
Government financing does not mean Government financing does not mean government productiongovernment production Even with government financing, education Even with government financing, education
can still be produced in private sectorcan still be produced in private sector
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-8
The Level of Government The Level of Government FinancingFinancing
Traditionally, education was the Traditionally, education was the domain of local governmentsdomain of local governments
Education becoming more Education becoming more centralizedcentralized School districts becoming largerSchool districts becoming larger School finance becoming centralizedSchool finance becoming centralized
Equalizing opportunityEqualizing opportunity
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-9
The Level of Government The Level of Government FinancingFinancing
Year Federal State Local
1940 1.8% 30.3% 68.0%
1950 2.9% 39.8% 57.3%
1960 4.4% 39.1% 56.5%
1970 8.0% 39.9% 52.1%
1980 9.8% 46.8% 43.4%
1990 9.2% 49.1% 41.7%
2000 6.9% 50.7% 42.4%
Source: Statistical Abstract of the United States , various editions.
Table 21.3 Percentage of Elementary and Secondary Educational Expenditures Financed by the Federal, State, and Local Governments
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-10
Competition, Vouchers, Competition, Vouchers, and School Choiceand School Choice
Alternative methods of providing Alternative methods of providing education becoming more commoneducation becoming more common
Rely on public funding because of Rely on public funding because of fairness argumentfairness argument
Create more competition for public Create more competition for public schoolsschools Incentive for improvementIncentive for improvement
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-11
VouchersVouchers Financing placed in parent’s handsFinancing placed in parent’s hands Parents choose the schoolParents choose the school AdvantagesAdvantages
ChoiceChoice CompetitionCompetition
DisadvantagesDisadvantages Admission standardsAdmission standards Quality ControlQuality Control Potential increase in costsPotential increase in costs
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-12
Public School ChoicePublic School Choice
Parents have the option of sending Parents have the option of sending their child to a public school other their child to a public school other than the one for which they are than the one for which they are zonedzoned
AdvantagesAdvantages Choice competitionChoice competition
DisadvantagesDisadvantages Avoids voucher disadvantagesAvoids voucher disadvantages
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-13
Public School ChoicePublic School Choice
K- 12 College
Public 88.6% 76.5%
Private 11.4% 23.5%
Source: Calculated from data in the Statistical Abstract of the United States , 2002, 138.
Table 21.4 Percentage of Students in Public and Private Schools, 1999
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-14
Charter SchoolsCharter Schools
Schools that receive public fundingSchools that receive public funding Are exempted from some regulationsAre exempted from some regulations
Public but operates like a private Public but operates like a private schoolschool
Relatively newRelatively new Small numbers of students and Small numbers of students and
schoolsschools
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-15
HomeschoolingHomeschooling
1999 - 1.7 % of school-age children 1999 - 1.7 % of school-age children were home-schooledwere home-schooled
Reasons:Reasons: Dissatisfaction with other optionsDissatisfaction with other options Religious reasonsReligious reasons
Homeschooling varies by stateHomeschooling varies by state
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-16
School Choice at the School Choice at the College LevelCollege Level
U.S. higher education system typically U.S. higher education system typically acknowledged as world’s bestacknowledged as world’s best
What makes U.S. higher education What makes U.S. higher education relatively better?relatively better? Complete school choiceComplete school choice State subsidies work like a voucher systemState subsidies work like a voucher system Market factors more strongly influence Market factors more strongly influence
instructor payinstructor pay
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-17
Income Advantages to Income Advantages to EducationEducation
Level of Highest Degree Mean Earnings
High School Dropout $16,121
High School Graduate $24,572
Some college, no degree $26,958
Associate degree $32,152
Bachelor's degree $45,678
Master's degree $55,641
Doctorate degree $86,833
Table 21.5 Mean Earnings by Highest Degree Earned, 1999
Source: Statistical Abstract of the United States, 2002 , 140.
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-18
Signaling Versus Human Signaling Versus Human CapitalCapital
Higher incomes may be a result of:Higher incomes may be a result of: Increased human capitalIncreased human capital Job market signalingJob market signaling Both increased human capital AND job Both increased human capital AND job
market signalingmarket signaling
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 21-19
Education and Education and ProductivityProductivity
Relationship not easily quantifiedRelationship not easily quantified Strong correlation across countriesStrong correlation across countries Could be higher income leads more Could be higher income leads more
educationeducation Education has an impact on Education has an impact on
productivity, but higher incomes cause productivity, but higher incomes cause people to demand more educationpeople to demand more education
Value of education as a consumption Value of education as a consumption goodgood