The Benefits of Education

Productivity

There is controversy regarding whether schooling directly enhances productivity on the job, or merely transmits signals to employers regarding the potential ability, trainability, adaptability, of an employee. In addition, such information may be imperfect and sometimes even inaccurate or misleading (is your current or undergraduate GPA truly your potential? Must it be your destiny?). It is also not clear whether the advantage of schooling is due to just the quantity (as measured in years) or to the improving quality (as measured by improving faculty and technology resources, for example) of higher education. Finally, attending college has become such a huge expense that access to funds and credit is crucial to realize one's intended human capital investment. Many families cannot incur the direct, let alone the larger indirect, cost of college. Paying-as-you-go requires a huge time and energy commitment to work for pay, which in turn may hurt students' performance and skill-acquisition during college so much as to undermine the future return on the initial investment. Even without a college degree (complete program of courses as opposed to an incomplete, perhaps varied selection of courses), there are people who earn more than those who decided not to go to college at all.

Externality Benefits of Education

Education has properties of a public good, which means it yields spillover benefits (an externality) to those who have not directly invested in education. This means the "social" return to expenditures on education exceeds the simple private return realized just by the individuals receiving it. This justifies at least some public expenditures on education, even at the cost of raising tax revenues, and explains why so many parties—workers, non-employed, corporate employers and government officials—tend to agree on the importance of subsidizing education. (Higher levels of education indirectly benefit all because education has been linked to lower unemployment rates, healthier behaviors, greater amount and quality of civic participation (voting, for example). Within a household or among parents, greater education leads to further child development and likelihood of the next generation to seek higher education. Finally, in more subtle ways, it leads to more research or discoveries that eventually yield benefits to society or at least, fellow employees.

Many believe the social rate of return, and not just the private rate of return, to education is escalating, particularly as more and more workplaces and jobs rely on ever more sophisticated technology and complex systems. These may require a greater range of skills than workplaces of the past. Some believe this is behind the growing college wage premium. Indeed, if skills with technology are becoming more general than specific in nature, and there is greater turnover and job hopping as a result, we expect that private employers will cut back on such training, leaving universities and the public sector to step in, if workers are to have their skills enhanced and labor productivity is to improve generally.