Publiclyfinanced education

1
Publicly-financed education

• Today
• Why is K-12 education provided by the government
  for free?

2
Important announcements

• Test 1 on Monday
• Reminder on calculators
• Basic or scientific calculator only
• No memory
• Exception One- or two-number memory is okay
• No graphing ability
• No calculators with communicative ability
• No blue book needed

3
Timeline

• On Monday, we went through topics related to
  direct and indirect governments
• Today
• We finish Unit 2 by looking at Chapter 7
• Topics in education
• Time for review
• Your questions

4
Publicly-provided education

• Real annual spending per pupil on elementary and
  secondary schooling has increased by 68 from
  1980 to 2004
• Why is this so?
• Citizen preferences?
• Positive externalities of education?
• Generates more taxes as adults
• Socialization reasons

5
Citizen preferences

• Some people believe that each person has a right
  to a minimum level of education
• Recall social utility function
• At low levels of education, social welfare could
  be mineduci
• Basic education needed to be functional in
  society
• Equitability issues
• Prevention of de facto caste system if only the
  rich can afford education

6
Positive externalities

• An economist would go further, claiming that
  there are positive externalities in education
• Less likely to have civil unrest
• More income to tax later in life
• Ability to understand public policy
• Debate exists as to the level of positive
  externalities
• Empirical findings are not conclusive

7
What about higher education?

• In-state students at Californias public colleges
  and universities have their educations
  substantially subsidized
• Are there positive externalities from higher
  education?
• Argument against
• Diminishing externalities from education
• Arguments in favor
• Research externalities
• Inefficient loan market for students

8
Diminishing marginal returns argument

• The diminishing marginal returns argument claims
  that the positive externalities are greatest for
  the early years of education
• With this argument, the amount of subsidized
  higher education may be above the optimal quantity

9
Research externalities

• Higher education in some fields provides
  substantial amounts of externalities
• Research that benefits many people in society
• This leads to the question Should different
  fields of study in college have different
  subsidization levels?
• Hard sciences may deserve a higher subsidy
• Fields with no research externalities would get
  small subsidy by this argument

10
Potential negative consequences

• Although there may be positive externalities with
  college education, there is another consequence
• Increased income inequality
• Subsidized education results in the rich getting
  richer, leading to increased income inequality
• With increase in income inequality, social
  instability can occur

11
Government provision of education

• It appears that the government is justified in
  subsidizing education
• How should education be provided?
• Public
• Private
• Some public and some private

12
Public provision of education

• Assume a simple model of education
• Each student goes to public or private school
  (but not both)
• Parents try to maximize utility
• Public school quantity is fixed
• Public school price is free
• Per-hour quality of public and private school is
  equal
• This assumption will be relaxed later on
• Total taxes collected on each family does not
  change with publicly-provided education
• See Figure 7.1, Panel A, p. 139
• Total education could decrease when public
  education is introduced

13
Reality check on education

• In reality, most people maximize utility by
  sending their kids to public school
• If desired education level is above ep, parents
  can supplement education with after-school and
  weekend activities
• Music lessons
• Learning a second language
• Private tutoring

See also Figure 7.1, Panels B and C, p. 139
14
Quality of public education

• Quality of education is hard to quantify
• Besides the obvious aspects of class size and
  total spending, there are different criteria that
  affect education
• Unionization of teachers
• Parents choices of their kids curriculum
• Size of school
• School-sponsored sports and activities

15
Unionization of teachers

• Many public school districts have unionized
  teachers
• Pro
• Keep standards of educators high
• Cons
• Higher wages than in competitive market
• Less money for other spending
• Layoff order
• Usually based on seniority, not quality, of
  educator

16
Parents choices of their kids curriculum

• Parents are heterogeneous in the wants for their
  kids education
• Private schools often provide more specialized
  choices
• Religion
• Montessori
• More challenging curriculum than public school
  (in some cases)

17
Parents choices of their kids curriculum

• Pros of private school
• More choices
• No big bureaucracy to deal with
• Cons of private school
• Less public oversight
• Additional cost

18
Size of school

• Pros of big schools
• Lower administrative cost per student
• Ability to offer more classes
• Example Tagalog class in a school with a
  significant Filipino population
• Fewer school sites needed
• Cons of big schools
• Some students have longer distances to travel
• Getting lost in the crowd

19
School-sponsored sports and activities

• Pros of big schools
• More sports and activities offered
• Higher quality for spectators
• Cons of big schools
• Fewer students make the team
• Competition to make the team can be fierce
• Wanda Holloway
• Daughter tried out for cheerleading at age 13
• Asked brother-in-law to kill another girls
  mother
• Convicted of solicitation of capital murder

20
Total spending

• The United States is near the top of per-pupil
  spending
• Test scores of US students is not near the top in
  many internationally-administered tests
• See also Figure 7.2, p. 140

21
Class size and total spending

• A common assumption is that as more money is
  spent, school quality goes up
• Is this always the case?

22
Class size and total spending

• Example Increased spending to reduce class size
• Pro
• Fewer students per teacher
• Con
• New teachers ? Lower average quality than current
  teachers

23
Class size and total spending

• Does increased spending actually lead to higher
  school quality?
• Evidence is mixed
• Some programs in some schools appear to use
  additional resources well
• There is evidence that some schools may not use
  additional resources well

24
Empirical work on education

• Be careful while reading through the Empirical
  Evidence subsections in the textbook
• Make sure that you understand the difference
  between correlation and causation
• Refer to Chapter 2, if needed

25
Example of empirical work

• How much does education increase earnings?
• Recall diminishing marginal returns
• Greatest returns to disadvantaged children in
  early years
• Justification for programs like First 5
  California and Head Start
• Low returns from increased K-12 educational
  spending on the margin
• Each year of schooling increases earnings by an
  estimated 5-11 percent

26
Cost-benefit analysis of spending

• We can calculate the direct costs and benefits of
  additional school spending
• Card and Krueger (1996) estimate that a 10
  percent reduction in class size results in
  increased earnings between 0.4-1.1 percent
• Peltzman (1997) uses Card and Kruegers results
  to do a cost-benefit analysis
• Various assumptions made
• 3 percent and 7 percent discount rates used

27
Results from Peltzman (1997)

• Net present value of costs are higher than the
  benefits
• Are there other benefits that are not measured
  here?
• Only increased earnings are accounted for below

28
How are schools changing?

• By many measures, public school quality in the US
  is decreasing
• Three ways to try to reverse this trend
• Charter schools
• School vouchers
• School accountability

29
Charter schools

• Increased independence in spending and hiring
• Allows for competition between charter and
  regular public schools
• Some evidence shows that the introduction of
  charter schools increases quality of ALL public
  schools

30
School vouchers

• Each parent or guardian of a child receives a
  voucher
• The voucher is redeemed by the school in exchange
  for providing education

31
School vouchers

• Pro
• Competition
• Poor public schools ? Improve or go out of
  business
• Cons
• Information gathering of schools is costly
• Reduction of positive externalities of education
• Rich families may use vouchers more than poor
  families
• Some poor families may not be able to afford
  private school with vouchers
• Vouchers effectively increase income of
  middle-class and rich families that already send
  their kids to private schools

32
School vouchers

• Replies to cons
• Vouchers can be geared toward low-income students
• Private schools would still need to meet
  curriculum guidelines ? Positive externalities
• Current research will help shape the debate on
  vouchers
• The main question Who benefits and who loses
  from school vouchers?

33
School accountability

• Schools are monitored
• No Child Left Behind (2001)
• Some schools get report cards evaluating their
  performance
• Some schools have financial incentives linked to
  test outcomes

34
School accountability

• Pros
• Reduction in bureaucracy
• Increased focus on core learning
• Gives easy access of each schools performance to
  the entire population

35
School accountability

• Cons
• No incentive for certain types of learning
• Art, music, physical education, emotional
  development
• Teaching to the test
• Arbitrary mandates make some good schools look
  bad
• Gaming the system
• Increased suspensions
• Increased use of special education
• Cheating

36
Education and employment

• There are different theories about the direct
  effectiveness of education
• Direct learning
• Screening
• Employers need to try to determine how much of
  education is direct learning, and how much is
  screening

37
Education and employment

• Various messages are sent to employers by
  finishing a certain level of education
• I have learned everything needed to finish this
  level of education
• I am intelligent enough to finish this
  education, which probably means I am smarter than
  somebody without my level of education
• I am using this level of education to send a
  signal that I have other good qualities that you
  are looking for others that do not finish this
  level of education can say the same thing

38
Education and employment

• Many jobs require a minimum level of education to
  be considered for a job
• M.D. degree to be hired as a medical doctor
• License for many specialized fields
• Real estate
• Pilot
• High school or college diploma for many
  entry-level jobs

39
Summary Publicly-provided education

• There are arguments in favor of providing basic
  education to all children free of charge
• Crowding out predicted for some families
• Public spending on education has increased in
  recent decades, but some indications of student
  performance have decreased
• Recent proposals for reform try to increase
  public school performance
• Financial incentives and competition

40
Timeline

• This concludes Unit 2
• Monday Test 1
• Wednesday, April 29 Snyder lecture
• Meet here at 200
• I will return Test 1 if graded
• We will go to Corwin Pavilion together about 210
  pm
• Monday, May 4 Begin Unit 3
• The role of insurance in health care, part 1
• Read pages 179-196