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Education often yields higher earnings, opens career opportunities, improves health, widens social circles, and increases political activity. Although education can play a central role in the economic development of a society, there is no consensus about measuring quality, nor even assurance that more effort will necessarily yield positive results.
Counts of inputs like teachers and classrooms or, more broadly, spending per student, have been used to challenge school segregation and unequal school financing. Measures of outputs, however, are necessary for judging effectiveness. More years of schooling is a simple measure of output that is effective as long as the skills developed have value. When time spent in school builds pointless skills, years of schooling is a poor measure of educational quality. Indeed, there comes a point at which further schooling is not worth its cost, and that point differs among students, reflects the character of the schooling, and depends on the opportunities for people with different kinds of schooling.
A better measure of output, then, is the gain in earnings over a lifetime due to education. Because each person can have only one level of education and lifetime earnings, estimating the gains from added education involves comparing averages for otherwise similar people with different levels of education well after graduation.
The average gain in earnings from a baseline level of education to a higher level can be summarized as a financial flow. Consider an amount in a mutual fund before the education begins (earning interest at market rates) that would pay out the gain in earnings due to better education each year over a lifetime with the balance in the fund dropping to zero when the person retires. The initial amount needed in such a fund is called the present value of the gain in earnings from the added education. The student’s cost of the schooling is the present value of any tuition, transportation, and, for older students, earnings foregone to attend school. When the present value of the added earnings exceeds the present value of the cost of the schooling, the expenditure on education increases wealth. This is a benchmark for educational quality. The higher the present value net of cost, the higher the quality of education. Just as financial capital yields future payoffs, education creates human capital with its own future payoff.
Measuring quality as the gain in earnings often means that, compared to white males, women and underrepresented minorities have higher returns. Education can narrow the gap in earnings from wide differentials with low education to smaller gaps with more education. A larger gain often means a higher financial return for women and minorities than for white males.
Since 1980, the return to education has been high in the United States, about a 10 percent increase in earnings for each added year of schooling with the implication that the schooling is of good quality. The gains arose primarily because the earnings of workers with only a high school education or less have fallen remarkably.
Looking beyond gains in earnings, many students add the value of improved health, more effective participation in politics, and personal fulfillment as additional dimensions of benefit. In addition to developing skills, education identifies talents that allow a better match of individuals to opportunities. A better match may yield both higher earnings and more personal fulfillment. It is difficult to distinguish the degree to which measured gains in earnings from education reflect learning versus simply identifying talent.
Educational gains extend beyond the individual student. Less-educated workers are more productive when working with more-educated workers. For this reason, each of us is affected by the educational achievement of other people’s children. Voters and taxpayers, even those without children, often support expenditures on education to promote the general welfare.
Education may, however, be wasteful when the goal is only to gain relative position. When a second-rank student applies more effort to top the first, the first responds with more effort to retain place. The result can be that every student down the hierarchy gets more education to gain place, but when all do so, the rank order and pattern of earnings are unchanged. An educational system that promotes hierarchy to the exclusion of other goals will be enervating for all.
Measuring quality as the financial value of education involves using information from many people observed years after the completion of their education. Such measures are of limited value in judging the details of educational services. Analysts turn to tests to measure educational performance that is specific to school and class size, teacher characteristics, peer students in the classroom, and attendance. Each affects test scores. The increase in test score this year over last year measures a student’s gain in knowledge during a school year. The difference in test score is a measure of the value added during the school year, an indicator of educational quality. The analysis, however, must account statistically for other influences like native talent and family background to isolate the effect of the school. Because some attributes of schools are not subject to management’s control, an analyst may seek to isolate features of the school that the school can control from those it cannot. For example, a school may have little influence on student turnover as families migrate.
Moreover, test scores are limited measures of educational quality. Standardized tests ask the same questions (or questions calibrated to have the same expected pattern of results) each time they are given. Many such tests have a limited scope, often aimed at judging the performance of average students. Some tests do a poor job of measuring gains among students who learned this year’s material the previous year. They also do a poor job of measuring gains among students who are far below average. Test scores support insightful analysis of educational quality in carefully devised statistical studies, but they are not foolproof.
Standardized tests are particularly problematic when used as the basis of incentive systems for schools. Such systems rarely attempt to control for sources of differences in test scores that are beyond the control of the school. Schools may systematically game the tests. Drilling students on the specific items on the test may cause test scores to rise as learning falls. Rewarding schools on the basis of average test scores will focus a school’s attention on the middle students, with less attention given to others. A focus on tests also diminishes educational outcomes that are not monitored by tests.
Standardized tests play a pivotal role in efforts to privatize the provision of elementary and secondary education. Private operators might have sharper incentives to provide more quality for a given expenditure per student through contracts, charters, or by scholarship and vouchers. The performance of independent operators receiving public funds may be judged unevenly, however, when other factors that influence test scores are not taken into account. Whether private operators yield consistently better performance when other attributes of students are accounted for remains controversial.
Clever teachers and effective principals turn their students’ curiosity into discovery. Quality schools engage students, promote community, develop abstract thinking skills, and raise aspirations. Students develop talents they did not know they had and acquire valued skills. Physical, social, and visual skills grow with mathematical, language, and problem-solving skills. Quality schools are grounded in the lives of their students and challenge them on many levels. Social science can inform judgments about quality but cannot provide formulae that substitute for insightful leadership.
- Akerlof, George A., and Rachel E. Kranton. 2002. Identity and Schooling: Some Lessons for the Economics of Education. Journal of Economic Literature 40 (4): 1167–1201.
- Donovan, M. Susan, John D. Bransford, and James W. Pellegrino, eds. 1999. How People Learn: Bridging Research and Practice. Washington, DC: National Academy Press.
- Krueger, Alan B., and Mikael Lindahl. 2001. Education for Growth: Why and for Whom? Journal of Economic Literature 29 (4): 1101–1136.
- Wolf, Alison. 2002. Does Education Matter? Myths about Education and Economic Growth. London: Penguin.
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