Education and Poverty

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Education and Poverty

• Social World I

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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

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• Links Education and
• Health care
• Homelessness
• Hunger
• Jobs
• Common link poverty

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Links, Education and Poverty

• Individual level
• Years of education vs. poverty rate
• Recessions job stability
• Frequency, duration of unemployment

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• 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

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• 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

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• Argument for
• Specific education/training
• General education/training
• Social, political framework appropriate for
  modern economic development

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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

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• Result
• education---gt productivity---gt earnings
• But note productivity also affected by other
  factors
• Quantity of capital per worker
• Organization of work

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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

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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

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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

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

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• 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

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• Family educational background
• Peers
• Community
• Possible reforms?
• More attention to
• Incentives
• Governance
• Management

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• 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

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• Interesting current choice
• Continue to increase quantity? 14 years of
  education for all
• Increase quality of
• Primary
• Secondary

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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

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

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

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• 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

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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

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• 1980s data and
• Increases in real wages, 16 years of education
• Decreases in real wages, lt 12 years of education
• Education/skill premium, and widening income
  disparities

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• Policy implication
• Education important but also look at
• Barriers to skill acquisition
• Ways to increase attachment to labor markets

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In The End . . .

• Poverty, income differences due in part to
  differences in education
• Due also in part to differences in
• Ability
• Effort
• Luck
• Inheritance

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

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

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