“Where Has all the Education Gone?

1. “Where Has all the Education Gone? Session 1National Graduate Institute For Policy Studies IDPTP Spring 2014 John Page

2. Education and Growth • For at least forty years the development community has believed that expanding education promotes economic growth • Universal primary school completion is an MDG supported by the “Education for All” initiative. • Since 1960 average developing country (gross) primary enrollments have risen from 66 to 100 percent and (gross) secondary enrollments from 14 to 40 percent

3. Education and Growth • Numerous empirical studies show that individuals with more education earn more in the labor market • From this micro evidence it is argued that more education will boost growth • But the macro-econometric evidence on the relationship between educational attainment and growth is inconclusive at best • Do we have a “faith-based” MDG?

4. Education and GrowthThe Micro Evidence • The micro story begins with a Mincer-type earnings function of the form: lnY = a + b S + c EXP + d EXP2, where S is the individual’s schooling and EXP is post-schooling experience. • The regression coefficient b is the “Mincerian rate of return.” on schooling • But it is not a “rate of return” in a conventional sense. It is the increase in earnings resulting from an additional year of schooling.

5. Education and GrowthThe Micro Evidence • These wage regressions generally show that earnings are higher for: • workers with more schooling • workers with more labor market experience • men compared with women • formal sector workers, compared with informal sector workers • Reviews of the “rate of return” results across a wide range of economies support three stylized facts (Psacharopoulosand Patrinos, 2004) : • they are higher in developed than in developing countries; • they are highest for primary education, next highest for secondary education, and lowest for higher education

6. Education and GrowthA Plausible Story • People with more education have higher wages. • Higher wages reflect higher productivity due to more “human capital”. • More human capital – like physical capital – per worker results in higher output per worker. • As more individuals are educated average income will rise • If there are positive externalities to education average income should rise by more than the sum of the individual effects

7. Education and GrowthThe Macro Evidence

8. Education and GrowthThe Macro Evidence

9. Education and GrowthThe Macro Evidence • Macroeconomic evidence from standard growth models suggests: • There is no systematic relationship between growth of education per person and growth of output per person • The estimated growth impact of education is consistently less than would be expected from the individual impacts • That implies negative externalities to education • And presents a “micro-macro” paradox • Solid evidence at the micro level doesn’t “add up”

10. Looking for AnswersMicro-econometric Problems • Wage regressions are correlations; they are not necessarily causal • Responses • Econometric models (treatment models) of returns to education (Heckman, etc.) • RCTs • Both ask “what would have happened to those receiving the intervention if they had not in fact received the program” • Both tend to support the micro result that more education increases private earnings • Neither solve the micro-macro dilemma or tell us much about public policy

11. Looking for AnswersMacro Econometric Problems • Errors, errors, errors • Specification error • Low signal in the education variable • Errors in measurement • Cross-country education regressions suffer from the same catalogue of ills as all other cross-country regressions

12. Looking for AnswersA Labor Market Story • Micro-econometric evidence answers a micro-level question: • If an individual were to get additional education, by how much would her earnings increase? • It does not answer the “macro” question: • If sizeable numbers of individuals were to get additional education, how would the economy as a whole respond? • The answer to the macro question depends on the labor market

13. Two Views of the Labor Market • The human capital model (Becker, 1964; Mincer, 1974) assumes: • educated workers are more productive than less educated workers • better-educated workers earn more because of the additional education they have received • the difference in productivity can be approximated by the difference in earnings • there is full employment • This is a very neo-classical view of the labor market

14. Two Views of the Labor Market • Under the assumptions of the human capital model, if an individual gets more education • Society will have one more employed better-educated person and one less (employed) uneducated person • The individual will be more productive because of the additional education received. • The amount of the productivity gain to society is the difference between the earnings of those with and without the education level in question • The social return to education is close to the private return

15. Two Views of the Labor Market • The screening model (Fields, 1972, 1974; Stiglitz, 1975, 2002) assumes: • the wage is set according to the job, • employers seek to fill each job with the most productive worker available • workers with more education are on average more productive than workers with less education • Employers use education as a screening device, because they end up with workers who are more productive on average as a result.

16. Two Views of the Labor Market • Screening models assume that educated workers are more productive but take no strong position why educated workers are more productive. • Consider signaling (Spence) • Schools selectively admit the best students • These are likely to be the best workers • Workers get additional education to signal their superior ability • Education signals innate (or at least unobserved) differences in productivity it does not create them.

17. Two Views of the Labor Market • In the screening model • Employers judge that the better-educated individuals will be more productive and hire them preferentially • There is no assumption that the difference in productivity is caused by human capital produced in schools rather than by differences in ability • The social return to education is not (necessarily) close to the private return

18. Two Views of the Labor Market • Both models are plausible • The question is: which set of assumptions best approximates country conditions? • The assumptions of the screening model appear at least as plausible for developing economies as those of the human capital model • And, if the screening model holds there is no causal link between more education and more growth

19. Looking for AnswersSchooling Did Not Create Skills • If schools do not create skills, year of education are a meaningless measure of “human capital”. • Direct evidence from internationally comparable exams shows substantial variation in school quality • In 11 of the 14 countries for which the data are available—Albania, Brazil, Colombia, Egypt, Ghana, Indonesia, Morocco, Peru, the Philippines, South Africa, and Turkey— the share of fully cognitively literate students in recent cohorts is less than a third. • In Ghana, South Africa, and Brazil, only 5–8% of each cohort reaches cognitive literacy • Recent surveys in Ghana and Zambia revealed that fewer than 60 percent of young women who completed six years of primary school could read a sentence in their own language.

20. Schooling Did Not Create Skills • One question asked to eighth-graders in TIMSS 2003 was: “Alice ran a race in 49.86 seconds. Betty ran the same race in 52.30 seconds. How much longer did it take Betty to run the race than Alice? (a) 2.44 seconds (b) 2.54 seconds (c) 3.56 seconds (d) 3.76 seconds.” • The correct answer is (a) • 88% of eighth grade students in Singapore, 80% in Hungary, and 74% in the United States got it, • Only 19% in Saudi Arabia, 29% in South Africa, and 32% in Ghana got the correct answer. • Random guessing would have yielded a 25% average.

21. Educational Quality and Growth • Since the mid-1960s, international agencies have conducted many international tests of student performance in cognitive skills such as mathematics and science (eg Third International Mathematics and Science Study (TIMSS)) • The variation in the quality of education among OECD countries is substantial. • It is even greater among developing countries that have engaged in the tests • The difference between developing countries and the OECD dwarfs within-OECD differences. • Evidence from the OECD shows measured achievement has a clear impact on earnings, controlling for differences in the quantity of schooling.

22. Educational Quality and Growth • When (test score) measures of cognitive skills are introduced into cross country regressions (Hanushek and Woessmann, 2007): • Test-score measures have a statistically significant effect on the growth of real GDP per capita in 1960–2000 • The quantityof schooling is statistically significantly related to economic growth in a specification that neglects educational quality • The association between years of schooling and growth is insignificant (and close to zero) once the quality of education is included • This suggests that the quality of education is substantially more important for economic growth than the quantity of education

23. Educational Quality and Growth

24. Educational Quality and Growth

25. What Does this Mean for Education Policy? • There is no question that additional education benefits the individuals who receive it, but there is persuasive evidence that the whole is less than the sum of the parts. • Quality – the ability of the education system to develop cognitive skills – may be the solution to the micro-macro paradox. • Reducing disparities in access and in quality are goals that should be pursued simultaneously for education to have a growth payoff.

26. What Does this Mean for Education Policy?More Resources? • Providing more resources while retaining the fundamental structure of schools has not improved quality • Increased spending per student, does not lead to substantial increases in learning achievement • There is no relationship between spending and student performance in middle- and higher-income countries • Adding resources does not have much effect on teacher quality • “Throwing money at the problem” is unlikely to be effective

27. What Does this Mean for Education Policy?Better Teachers? • Teacher quality strongly influences student outcomes • Simple measures such as teacher experience, teacher education, or even meeting the required standards for certification are not closely correlated with actual ability in the classroom. • Effective reforms require • Getting better performanceout of existing teachers • Improving the selection and retention of high-quality teachers • Teachers unions often oppose these efforts

28. What Does this Mean for Education Policy?New Incentives? • There is growing evidence that changing the incentives in schools has an impact on quality. • Choice and competition: • Parents, interested in the schooling outcomes of their children, will seek productive schools. • Parental choice will pressure schools to ensure high-quality staff and a good curriculum. • In cross country comparisons, students in countries with a larger share of privately managed schools tend to perform better.

29. What Does this Mean for Education Policy?New Incentives? • Decentralization and autonomy of schools • Evidence from a few developing countries shows positive effects of decentralization, school autonomy, and community involvement. • Local scrutiny can improve teacher attendance and practice. • Question: how do parents distinguish good from bad outcomes? • Local autonomy over teacher salaries and course content is only effective in school systems with external exams.

30. Conclusions • More education is good for individuals but not necessarily for the economy. • Decisions about education policy at the country level cannot be based on the existing micro evidence alone. • The impact of education has varied widely across the countries, but the macro evidence should not be a counsel of despair: • Most societies believe that basic education is a merit good • Schooling has a large number of direct beneficial effects beyond raising economic output, such(lower child mortality). • Quality of education may be the answer to the micro-macro paradox and deserves much greater attention than is embodied in the current MDG • Improving educational quality will require more than money.