Holcombe 21

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


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.


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.


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


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


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


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


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


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


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 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 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


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


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


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


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.


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


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

Holcombe 21

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