Majumdar, Tapas

IDS Bulletin

English

Crossref

2 Economics and the Production Benefits of Education

IDS OpenDocs

2 Economics and the Production Benefits of
Education
Economists of education should find at least one
good reason to feel quite pleased about, and per-
haps several to be rather alarmed by, the evidence
which continues to accumulate from such inter-
country, inter-disciplinary studies as the ones
recently undertaken by the IDS for their collec-
tive research project on qualification and selec-
tion. The idea of the measurability of the
production benefits of education has by itself, at
least for the infant discipline of the economics of
education, proved to be the very engine of pro-
gress! Thus in 20 years, we have had data put
together by now-standard procedure, for perhaps
20 countries of the three worlds, to provide the
basis for calculating these benefits through the
comparison of the 'average life-time age-earning
profiles' of groups of persons of different levels
of schooling. What can be more pleasing than
that all this has caused (or at least been accom-
panied by) a growing intellectual interest in the
relationship between education and economic pro-
ductivity among management theorists, psycho-
logists, sociologists and indeed educationists in
general.
The IDS studies are, therefore, important pri-
marily because they help to expand the methodo-
logical options for deciding upon the central
question involved in the relationship between
education and productivity: how does the
employer who, after, all, has to value it and pay
for it, actually identify it? Economists know only
enough of this question to be able to set down
the boundary conditions, so to say. They know,
for example, that whatever be the employer's
perception. he can be quite wrong about the
relationship, and if he pays a higher wage to the
better-educated whose productivity has not
improved, then he has paid the extra out of his
own pocket. They can also prove that the market
does not allow the employer to make this kind
of mistake for long, and that eventually, there is
always retribution. However, in the short run,
and therefore at almost every important point
of decision concerning hiring or fixing the pay,
it is the employer's 'opinion' about the relation-
ship that matters.
It is because of this, if not for any other reason,
that we must learn from the psychologists, the
sociologists and the plain educationists what they
have been able to find out, sometimes only by
conversing with the poor unsophisticated
employer who holds the trumps in his hand. But
there is also one other thing, almost always,
63
which should make economists feel a little
diffident in this matter. Economics will not teach
the poor employer not to make mistakes, even
if he were eager to learn. Particularly if, for
example, certification either through schooling or
in-service training did indeed add to productivity
(though in different ways and by different
degrees), and if, nevertheless, the employers
chose to back their 'opinions' and always prefer
school graduates to apprentices, then neither they
nor the economists would ever find out what they
were missing! Economists of the day can also
not see far enough ahead to advise on how
productivity might be related in the long run to
education. Today they need to ask others, perhaps
because they can no longer claim the vision (or
afford the foolhardiness) of an Alfred Marshall,
who of course foresaw it all and said, 'our aim
should be to add the scientific training, in which
the countries of Western Europe are ahead of
us, to that daring and restless energy and those
practical instincts, which seldom flourish unless
the best years of youth are spent in the workshop'
[1927: 208].
The IDS studies, or similar ones, even when not
foolproof in their own terms (very few primary
studies can afford to be, the data being either too
raw or too cooked), still raise some doubts about
past and current measurement of the production
benefits of education, because, in the first place,
similar doubts have been raised by economists
themselves long before the conversation between
the other social scientists and the subject had
started. Arrow [1968] suggested, it may be
recalled, that 'while this type of calculation has
proved to be an exciting beginning of analysis,
it clearly overlooks some important elements'.
Anticipating his later filter theory, he made the
point that 'those with more education are surely
abler'. The consideration of the relative ability
factor led to the use of the so-called G-f actor
for discounting the rates of return to education.
It remains an unknown so far as the tools of
economics are concerned and can only be hope-
fully given alternative arbitrary values for carry-
ing out sensitivity tests. If, as the IDS studies
over five countries suggest, employers tend to use
the certificate, not even for identifying differential
ability as Arrow suspected, but actually for the
convenience of short-listing alone, then the ave-
rage life-time earnings profiles tell even less, what-
ever the correction made on account of the
G-factor.
64
Finally, Arrow also spoke of a second aspect of
educational input, its quality. 'This', he said, 'is a
matter of major importance for educational expen-
diture policy; what are the returns to improved
education? For this purpose, it might be desirable
to classify incomes according to the expenditures
on the education of the individual rather than
the number of years in school'. If employers
were found to be aware of the importance of
looking at the quality of the education imparted
whether in school or out of school, then we
would expect them to hold the opinion, as the
IDS studies indeed found them to, that certifi-
cates did not, as a matter of course, imply
enhanced productivity. But if they had made their
recruitments on the basis of a) shortlisting first
by the criterion of the certificate, as a matter of
convenience, and b) then weeding out the
suspects in the list through other probes (class
background, interview etc), the earnings profiles
would still match the different educational levels
in broadly the way the economists had expected,
without their also suspecting that they told rather
less now about the relationship between educa-
tion and productivity.
All in all, these and other similar studies, par-
ticularly when they span many countries, and
use the tools of other social sciences, alert the
economists of education at least to the possibility
that their sums might in part have been done
wrong, and might therefore have to be done all
over again. Presented with such intimation, only
the bravest among them can afford to rest con-
tent, determined to take no notice of mere gossip
that seeks to undermine the trusted tool of rates
of return to education fashioned with such care
over two long decades!
Tapas Majumdar
Zakir Husain Institute
Jawarhalal Nehru University
New Delhi
References
Marshall, Alfred, 1927, Principles of Economics,
8th ed, Macmillan
Arrow, K. J., 1968, 'Criteria for social invest-
ment', in M. J. Bowman, M. Debeauvais,
V. E. Komanov and J. Vaizey (eds), ReadinRs in
the Economics of Education, UNESCO, Paris


https://opendocs.ids.ac.uk/opendocs/bitstream/20.500.12413/10777/1/IDSB_11_2_10.1111-j.1759-5436.1980.mp11002011.x.pdf

2 Economics and the Production Benefits of Education

Abstract

Similar works

Full text

Available Versions

Crossref

IDS OpenDocs