Higher Education Returns Are High But We Need To Fund It Better Education

Higher education: returns are high but we need to fund it better, Education

Higher education: returns are high but we need to fund it better

This week I was invited to speak at The Economist’s Higher Education Forum in New York to share my thoughts on how higher education can be expanded. I believe that we need a fair and sustainable cost-recovery model at the university level using future earnings to finance current education.

There are significant wage returns associated with investments in education. Yes, this is the case, even though the benefits of higher education are hotly debated. Private returns to schooling has many benefits:

  • The global average private rate of return to schooling is 10 percent per year of schooling (with the highest returns in Sub-Saharan Africa!);

  • The returns to schooling are higher for women; and

  • The private returns to university education are now higher than the returns to primary schooling.

However, these are private returns. For society’s well-being, one should calculate the ‘social rates’ of return, which include benefits accruing to the country beyond the individual’s wages and corrected for the substantial public cost of providing education. Typically, social rates of return to higher education are much lower (as a result of high public costs) and the returns to primary are higher (given lower public costs).

Harry thank you yet again for

Harry thank you yet again for interesting analysis on the public/private return to investment in the education sector. Your blogs are always thought provoking. However on this occasion as the application of your RoI approach to higher education funding not massively undervalued the public good (rather return of investment) of higher education a more sociological rather than economic (roI) analysis would show a wide range or correlated social gains in societies which have higher level of higher education graduates including better health outcomes, reduced crime and violence, potentially higher tax revenues (based on higher graduate earning). An purely economic approach to place a value on something as complex as the social transactions related to education can limits are understanding but when combined with other forms of analysis it can be very informative. One key example in your blog you state \“High returns to tertiary education may be the result of increased regressive funding, whereby the poorer finance the education of the rich. For society, it is much better to improve cost-recovery and use future earnings to finance current higher education.\” This leads me to make a point I have made on your pervious blog which is a redistribute progress tax system would ensure the access to higher education does not involve the poor subsidies the rich but would promote great social equality. Thank John C.

Thank you John. There are

Thank you John. There are certainly social benefits associated with investments in education. We have reported on those elsewhere and others have done very good work. But I haven’t been able to figure out how to apportion the social benefits by level of education. On your point about taxes, there may very well be other reasons for a more progressive tax system, but in terms of financing higher education one needs more funding, and if we are to further expand access, then the only fair option is to use future earnings. Income contingent repayment programs have been very good at generating resources for higher education while not penalizing the poor. It has worked very well in Australia, for example, see among others: http://www.universityworldnews.com/article.php?story=20150305123821344. Thank you, Harry

good post - got me thinking of something Paul Romer wrote recently, on how the biggest advance of his 1990 paper was separating out human capital and knowledge for growth theory (with human capital leading to knowledge and vice-versa). This is implicit in your post, but you could expand on it a bit more. Any ideas on how policy makers set it up to maximise knowledge not private capital?

Paul, Thanks. To maximize

Paul, Thanks. To maximize knowledge, finance public goods production. Harry

Returns of higher education

Returns of higher education are certainly high.But basic foundation education of primary and secondary level with employable skills is mass employment provider.Almost 70-80 percent population can not go for higher studies due to non-monetary reasons and they need skills.Privates and NGOs are efficient at primary & presecondary schooling.

Private rate of return to

I am glad to meet you here in your blog since the brief encounter at Incheon last May. Certainly,

HE is burgeoning in developing countries but also with lots of unemployed graduates from colleges, universities, and TVET institutions. I am interested how the unemployment is considered in the RoI of the HE. Bong from Seoul National U

Hi Bong. Thanks for your

In our analysis, we do not control for unemployment, since we are simulating a lifetime earnings profile albeit based on a cross-section of the population. Nevertheless, at the individual level, periods of unemployment will reduce lifetime earnings. There is great variation in earnings of university graduates. Attempts to “control” for unemployment should be included alongside the addition of other benefits of higher education. We will address some of these issues in future blogs.

Hello Harry. Thank you for

Hello Harry. Thank you for your post, it is very informational. I came across it as I was researching for a paper I am writing for my Business Economics course in my MBA around the impact that technology has had on universities being able to provide online/distance learning education to students in developing countries and how this has affected the market equilibrium and the subsequent impact on the global economy. I would appreciate if you can point me in the direction of other resources that may be helpful.