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Abstract

In this paper we offer an appraisal of the economics of education research area, charting its history as a field and discussing the ways in which economists have contributed both to education research and to education policy-making. In particular, we highlight the theoretical and methodological contributions that economists have made to the field of education during the last 50 years. Despite the success of the economics of education as a field of inquiry, we argue that some of the contributions made by economists could be limited if the economics of education is seen as quite distinct from the other disciplines working in the field of education. In these areas of common interest, economists need to work side by side with the other major disciplines in the field of education if their contribution to the field is to be maximised, particularly in terms of applying improved methodology. We conclude that the study of education acquisition and its economic and social impact in the economics of education research area is very likely to remain a fertile research ground.
Economics of Education Research:
A Review and Future Prospects
Lorraine Dearden*, Stephen Machin** and Anna Vignoles***
* Institute of Education, Centre for the Economics of Education and Institute for
Fiscal Studies
** Department of Economics, University College London, Centre for the Economics
of Education and Centre for Economic Performance, London School of Economics
*** Institute of Education and Centre for the Economics of Education
Corresponding author: Anna Vignoles, Institute of Education, 20 Bedford Way, London,
WC1H 0AL.
Abstract
In this paper we offer an appraisal of the economics of education research area, charting
its history as a field and discussing the ways in which economists have contributed both
to education research and to education policy-making. In particular, we highlight the
theoretical and methodological contributions that economists have made to the field of
education during the last 50 years. Despite the success of the economics of education as a
field of inquiry, we argue that some of the contributions made by economists could be
limited if the economics of education is seen as quite distinct from the other disciplines
working in the field of education. In these areas of common interest, economists need to
work side by side with the other major disciplines in the field of education if their
contribution to the field is to be maximised, particularly in terms of applying improved
methodology. We conclude that the study of education acquisition and its economic and
social impact in the economics of education research area is very likely to remain a fertile
research ground.
Acknowledgements
This work was supported by the Centre for the Economics of Education.
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1. Introduction
Recently there has been a resurgence of research by economists on education and
education policy. It follows a relatively fallow period when UK research in this area was
much less active, compared to the initial heydays of the field in the 1960s and 1970s. We
explore these trends, asking why there has been a recent increase in interest and
highlighting key theoretical and methodological contributions in the field.
The economics of education is about how best to allocate scarce resources in
education. It can help us understand how education might best be produced, who gets
more (or less) education and the economic impact of education on individuals, firms and
society as a whole. There are many key economic ideas that have become commonplace
in education, in both research and policy-making. These include: the idea of education
as an investment (the human capital approach of Becker, 1964); the notion of economic
returns to education in the form of improved labour market outcomes (the earnings
function of Mincer, 1958, 1974); the evaluation of education policy in terms of cost
effectiveness; and many others.
Overall we conclude that the economics of education has seen a resurgence,
linked to the increasing dominance of quantitative methods in policy oriented research
and potentially the decline in quantitative sociology of education research during this
period, as discussed in the chapter by Lauder et al. in this volume. We make the case that
the economics of education is a rapidly advancing field with significant influence on
policy-making in many countries. Nonetheless it remains the case that some aspects of
economics of education research need closer integration into the other disciplines of
education.
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The rest of the paper is as follows. Section II places the economics of education
field into its appropriate historical context. We also show bibliometric evidence on the
increased numbers of economics of education publications in top economics journals.
Section III discusses some key theoretical advancements, while Section IV considers
methodological innovations. Section V considers wider impacts of the economics of
education field. Section VI concludes.
2. The Origins and Resurgence of Economics of Education Research
Historical Context
Many of the principles of the economics of education can be traced back at least as far as
Adam Smith in his Wealth of Nations treatise published in 1776. Certainly, he alluded to
the idea that one might invest in education to increase the productive capacity of society.
However, the founding father of the economics of education is arguably Gary Becker,
who wrote the hugely influential book Human Capital in 19641, in which he purported to
explain why individuals invest in education and training in a manner analogous to
investments in physical capital, i.e. to earn a financial return. Human Capital Theory has
become and remained the dominant paradigm in the economics of education, despite
challenges along the way from commentators who were concerned with the notion that
people (like machines) can be viewed as capital, and from economists who claim that the
main role of education is not to enhance productivity per se but to sorting individuals of
differing skills and abilities into jobs (Spence, 1973; Blaug, 1976).
1 Commentators on the origins of the economics of education (e.g. Teixeira, 2001) also refer to Theodore
Schultz’s presidential address to the 1960 American Economic Association (Schultz, 1961) and to the
Special Issue of the 1962 Journal of Political Economy edited by Schultz entitled ‘Investment in Human
Beings’.
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The heyday of the economics of education is seen as the 1960s and 1970s, given
some of the classic writings that emerged at that time (like Blaug, 1972, 1976; Freeman,
1976; Layard and Psacharopoulos, 1974; Psachoropoulos, 1973; and Schultz, 1961,
1963). Significant developments were also made on the empirical side during this time.
Mincer’s (1958, 1974) highly influential work developed the earnings function that
relates log(earnings) to schooling and experience and is one of the most widely used tools
amongst empirical economists (see Card’s (1999) discussion on the causal impact of
education on earnings). That said it is during recent decades that the principles of the
economics of education have been so widely applied in education policy-making.
The Current Upsurge
Following the 1960s and 1970s, there was a significant decline in research
activity in the economics of education, especially outside of the United States. More
recently this decline has been reversed and there has been an upsurge of interest in the
field: in the UK and US at least, accompanied by an increase in the use of economic
evaluation in educational reform and policy-making.
Table 1 illustrates these trends using bibliometric evidence.2 The Table shows the
number of publications per year with the word education, schooling or school in the title
of papers published in leading mainstream economics journals across six decades
beginning in the 1950s.3 The Table shows a very clear pattern. In the 1950s hardly any
education papers were published. In the 1960s 3.4 papers per year appeared in the most
2 Another way of measuring activity in the field would be student numbers. However, the optimal training
path for an education economist remains a mainstream economics degree and Masters with specialisation
occurring at PhD level. Therefore it is problematic to count the number of researchers trained specifically
in the economics of education.
3 The journals are the following: American Economic Review; Economic Journal; Econometrica;
Economica; Journal of Political Economy; Quarterly Journal of Economics; RAND Journal of Economics;
Review of Economic Studies.
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prestigious journals and this almost doubled to 6.3 in the 1970s. After this, however,
there was a sharp fall in the 1980s (down to 2.5 papers per year), something of a pick up
in the 1990s (up to 5.2 a year, although with a lot of these towards the end of the decade)
and then a very sharp increase to 9.7 a year in the 2000s.4
-table 1 to go here –
Whilst the upsurge in interest in education amongst economists in the 1960s and
1970s can partially be explained by key theoretical advances, the policy context may also
explain trends in academic activity. Whilst the decline in the economics of education in
the 1980s (at least in terms of the volume of academic work published) may be
attributable to trends within the profession, it also coincided with a period of laissez-faire
economic policy. Public policy was less interventionist in this era and there would have
been less demand for the tools of the education economist (or indeed the education
sociologist). The resurgence of the field in the 1990s can, at least in the UK, be partially
explained by the trend towards regulated markets in the public domain. The introduction
of market principles into education in the late 1980s called for both active policy
intervention (i.e. regulation) alongside the application of economic principles of markets.
In the 2000s in the UK there was also an increase in the number of education
interventions, prompting a rise in the demand for economic evaluation of these policies.
Trends in the economics of education may also be linked to other disciplines of
education. As explored by Lauder et al. in this volume, there has been a period of decline
4 Of course, the number of papers per journal has also risen through time (especially in those journals that
now have more issues per year than in the past), but not by enough to explain the scale of the recent
upsurge. Similarly specialist journals that were set up in this time period and that have published a lot of
economics of education papers (e.g. the Journal of Human Resources, the Economics of Education Review
and the Journal of Labor Economics) were not considered in this suggestive analysis.
6
for quantitative sociology, just as there was increased interest in economic analysis of
education.
From Table 1 another key trend of interest is the growth in the economics of
education outside the US. The second row of the Table shows the number of papers with
authors from outside of North America and the trend upwards over time is striking.
Hardly any education papers were published by this group until recently and the 2000s
sees 3.2 papers per year published. Given that the majority of the journals in the list are
American, this is very striking, suggesting that the economics of education is currently a
thriving field.
3. Theoretical C ontributions to the Field of Education
Economics has contributed to the field of education theoretically, introducing economic
ideas and the principles of the market. Economics has also made significant
methodological contributions, particularly in the area of quantitative education policy
evaluation, which are considered in Section 4.
A key strength of the economics of education is that it has clear theoretical
underpinnings and a well utilised framework (supply and demand) for theory
development and quantitative testing. Economists can utilise and apply robust theoretical
models to questions that are of policy relevance. Economics can also generate testable
hypotheses in the field of education that can be subjected to rigorous quantitative
analysis. Indeed one explanation as to why economics has increased its influence as a
discipline in a wide range of fields and in particular in education, is that it provides
answers to policy questions in quantifiable terms. This is clearly appealing to policy-
7
makers who have to justify resource allocations. Furthermore, since economics is the
science of scarcity, it is no wonder that its influence in fields such as education and health
has been huge. In the public sector, with limited resources, the analytical tools of
economics are enormously useful in providing answers that help policy-makers decide
where to invest next.
It is, of course, difficult to select specific examples from the economics of
education literature to illustrate the contribution of the discipline without appearing
partial. However, there are several areas where economics has made a clear theoretical
contribution. The first is in improving our understanding of the impact of education on
individuals and the economy as a whole. Certainly most practitioners in the field
subscribe, at least partially, to the notion that individuals and governments invest in
education to earn a return on their investment. This return is generally in the form of
higher earnings but may be in the form of non-monetary benefits, such as job quality.
With the right data, and the right methods, economists can measure this rate of
return to different types of education investment. This area of research has burgeoned and
has shown that more education significantly raises individuals’ wages (Card, 1999;
Harmon and Walker, 1995; Dearden et al., 2002; Blundell et. al., 2005), although there is
less agreement on the contribution of education to economic growth (see Sianesi and Van
Reenen, 2003). The rate of return literature has also moved beyond estimating the impact
of an additional year of schooling on individuals’ earnings (5-10%) to establish how
economic returns vary by qualification type, level subject area and over time (see, for
example, Dearden et al., 2002, Blundell et. al., 2005, and Machin, 2003, 2008b) and in
8
particular the extent to which early investments are potentially more valuable than those
made in later in adulthood (Heckman, 2007).
Economists have also made an impact in modelling education production (see,
inter alia, Todd and Wolpin, 2007, or Haveman and Wolfe, 1995). Although this may be
anathema to some, the process of producing education can be analysed in a similar way to
the production of other goods and services. If we accept the premise that the production
of education is a process with inputs and outputs, we can consider issues about efficiency
(i.e. the amount of input produced from a given level of input), as well as distributional
issues, such as how education is distributed across the population. There have been a
number of major contributions in this area, including estimates of the impact of additional
resources (for example, smaller class sizes) on pupil achievement and/or the impact of
teachers on pupil achievement (e.g. Angrist and Lavy, 1999; Dearden, Ferri and Meghir,
2002; Rivkin, Hanushek and Kain, 2005). This evidence suggests that, unless the
reductions are sizable and hence extremely costly, reducing class sizes has little effect on
achievement and that spending money on improving teacher quality is likely to be more
effective than reducing class sizes. Economists have also recently started to recognise and
provide theoretical models explaining the importance of the production of non-cognitive
skills as well as education achievement (Heckman et al. 2001).
Another important and closely related theoretical contribution from economics
has been models of the potential role of markets to improve the efficiency of education
production (and in particular schools) and the implications that this marketisation of
education might have for equity considerations (Epple and Romano, 1998, 2003; Hoxby,
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2000). This is an issue we return to later when considering the practical impact of the
economics of education on policy-making.
Further, there has been a growing (sometimes controversial) literature on the role
of education in promoting or preventing social mobility and inequality (Blanden et al,
2005; Blanden et al, 2007, 2008; Ermisch and Nicoletti, 2007; Eriksson and Goldthorpe,
2008). This work on educational inequality tends to show education has had a
disequalising impact on mobility since it has disproportionately benefited individuals
from richer families and therefore reinforced, rather than countered, inequalities (Blanden
and Machin, 2005). These findings have been of great policy importance and continues to
be a theme pursued by all major political parties in the UK and indeed elsewhere.
We have been necessarily selective (and UK-centric) here but, in summary, a
major way that economics has contributed to the field of education has been by clarifying
and measuring the effect of state and private investments in education on pupil outcomes.
A key strength of the economics of education, namely that it produces
quantifiable evidence, may also constitute its greatest weakness. One illustration of this is
in the application of human capital theory to the analysis of education investments. This
theory analyses education investments in an analogous way to investments in physical
capital. However, education investments are of course not exactly the same as physical
capital. Education has potentially unquantifiable benefits, such as giving individuals a
greater sense of self-worth. These benefits would be missed in standard economic
analysis. Economists have responded by trying to quantify non-monetary benefits, e.g.
studies have investigated the impact of education on crime rates or levels of civic
participation (for crime see Lochner and Moretti, 2004, Feinstein and Sabates, 2005, or
10
Machin and Vujic, 2005; for civic participation see Brehm and Rahn, 1997, Bynner and
Egerton, 2001, Bynner and Parsons, 1997, or Dee, 2004). Such exercises may aid policy-
makers in making the case for different types of education investment and have the
appeal that they produce quantifiable impacts. However, they force the analyst to put
monetary value on all benefits arising from education. This is of course a difficult (likely
impossible) task. Too narrow an approach to the potential benefits of education can then
alienate economists from researchers in other disciplines, such as sociologists, who take a
broader (albeit less focussed) perspective.
4. Methodological Innovations from the Economics of Education
A second contribution of the economics of education has been methodological.
Economists bring with them techniques that improve the quantitative rigour of analyses
(see, for example, Heckman et al. 2007). There is, of course, a long tradition of
quantitative research in education and the development of quantitative methods in
education has increased with the availability of high quality survey data, particularly
longitudinal data. More recently, quantitative education research has made use of
administrative data sets that are available in a large number of countries. This is
particularly the case in the UK, which has world class data in this regard.
The economics of education also places particular emphasis on establishing
causality in analyses. The key question for economists is generally: what is the causal
impact of a particular education policy or ‘treatment’? That is: what is the outcome if a
person receives a particular educational treatment versus the outcome if they had not?
The problem is that we never observe the missing counterfactual, that is the outcome a
11
person would have got if they had not experienced a particular policy or education
investment.
In medical research, and sometimes in social research, randomised control trials
are used to estimate the causal impact of an intervention. But in education it is more
difficult to use randomised control trials. The notion of randomly allocating pupils to
schools or to universities is not credible. In economics there are a range of other
analytical methods that estimate this missing counterfactual in a convincing manner. In
many circumstances just using multivariate regression techniques will not be sufficient to
do this.
Why are economists so concerned with finding causal impacts? It is simply the
fact that unless one can establish a causal impact, rather than a simple correlation,
incorrect policy conclusions will be drawn. If participants in an educational intervention
are systematically different from non-participants in observable and/or unobservable
ways and these factors also affect the outcome of interest, then the outcome observed for
non-participants does not represent a good approximation to the counterfactual for
participants. For instance, if students with challenging behaviour are allocated to smaller
class sizes, we will observe a positive correlation between class size and pupil
achievement. Larger classes will appear to be more effective. This is only because we
cannot take account of the fact that children in the smaller classes may be more difficult
to teach. Even if we have information on pupils’ prior achievement, this may not be
enough to allow for the unobserved characteristics of pupils in the smaller classes that
mean they have lower achievement. This is what economists call selection bias or
endogeneity and has been a particular focus of the economics of education.
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For instance in November 2002, Margaret Hodge, the then minister for Education
and Skills in justifying the introduction of fees for Higher Education stated that a
graduate earned a £400,000 premium over their working life. However, this figure was
obtained by just comparing the earnings of graduates versus non-graduates in the Labour
Force Survey and failed to take into account other differences between graduates and
non-graduates (such as ability and family background). The Department for Children,
Schools and Families now says “Over the working life, we believe that the average
graduate premium remains comfortably above £100,000 in today’s valuation, compared
to what a similar individual would have earned if they just had A levels.” In terms of
policy development whether the average lifetime return to undertaking HE is £400,000 or
£100,000 makes a big difference.
So how do economists deal with selection bias? There is no ‘one size fits all’
solution to finding the causal impact of an educational treatment on an outcome. The
most appropriate methodological approach will depend on a number of factors. There are
six distinct but related approaches that economists generally take (see Blundell et al,
2005, and Blundell and Costa Dias, 2009). These are
(i) Social experiments
(ii) Natural experiments/Difference in Difference Methods
(iii) Instrumental Variable methods
(iv) Control Function Methods
(v) Matching Methods
(vi) Regression Discontinuity Design
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Each of these approaches involves different assumptions and the decision of
which approach to use depends crucially on the question being considered.
The social experiment is the social scientists’ version of a clinical trial in that it
relies on some randomized assignment rule that determines whether people receive an
educational treatment. The most well known social experiment in education is the
Tennessee class size experiment which randomly allocated children in Tennessee to
different class sizes (and randomly allocated teachers to teach these classes). The results
from this experiment suggested that large class size reductions in early schooling would
yield small significant gains in terms of pupil achievement (Card and Krueger, 1992).5 In
the UK random experiments in education are rare. More common are pilot schemes,
where the results of an educational intervention can be compared to a control group that
did not experience the intervention (e.g. the Educational Maintenance Allowance scheme,
see Dearden, Emmerson, Frayne and Meghir, 2009). Social experiments could be used
more widely by combining pilot schemes with randomisation.
Natural (or quasi) experiments rely on some ‘natural’ randomisation to estimate
the impact of an educational intervention. It involves finding some naturally occurring
event which changes the policy environment for one group but not another (e.g. a change
in rules for one group of individuals but not another or in one jurisdiction but not
another). We can then estimate the impact of the policy change by comparing the two
groups before and after the change (the so called difference in difference estimator).
Machin and McNally’s (2008) study of the literacy hour in England, where children in
some schools had the literacy hour up to two years before other children in other schools,
5 The magnitude of the effects was such that this evidence does not contradict the general notion that
reductions in class size are not the most cost effective way of improving pupil achievement.
14
adopts a difference-in-difference type approach. The crucial assumption is that any
unobserved characteristics of the group that received the literacy hour treatment and that
might also influence outcomes (e.g. the quality of their school) remain unchanging over
time and are therefore taken account of in the modelling.
The instrumental variable approach has similarities to the natural experiment
approach in that it relies on finding something (an instrument) that causes a ‘natural’ or
random difference in the variable of interest i.e. an education experience or intervention.
For instance, Harmon and Walker (1995) use changes in the compulsory school leaving
age as an instrument to estimate the causal impact of education on earnings. The
correlation between education and earnings it is certainly positive. However, we may not
believe that having higher levels of education actually causes a person’s earnings to be
higher because of the education they experienced; rather it may be because clever people
who will earn more anyway also see themselves as having the most to gain from
education. As a consequence these individuals invest in more education than other
people. Thus some of the apparent correlation between education and earnings is actually
attributable to factors other than education, such as a person’s ability or perhaps their
motivation. So how can we measure only the causal impact of education on earnings?
Using an instrumental variable (IV) approach, Harmon and Walker exploit the idea that
because of the law change, individuals who left school at 15 in 1972 had to stay at school
until age 16 in 1973 (the year of the law change). This allows us to estimate the impact of
extra education for this group who were forced to stay on i.e. who experienced an
essentially random increase in their education level not because of their ability or
motivation but because of the law. If the impact of education is the same for all
15
individuals then this estimate will tell us the causal impact of an additional year of
education. If it is not, it will still tell us the return for those who were forced to stay on
and who would not have stayed on without the reform.
Control function methods allow for selection by explicitly modelling the selection
process. In other words, with the example above, they rely on modelling the decision that
individuals’ make to stay on longer in school or to acquire a degree. By modelling this
selection process, this method can then be used to determine the true impact of education
on earnings as opposed to the (non causal) correlation between these measures. For
control functions to work however, and analogous to the IV approach, they also require
an instrument something that determines the person’s decision to invest in more
education, but does not directly impact on the outcome of interest, namely earnings (see
Blundell et al., 2005, and Blundell and Costa Dias, 2009). Like the IV approach, the
difficulty in applying the control function method in practice is finding a suitable
instrument.
Matching methods involve comparing the group that gets the educational
intervention with a control group that is very similar, on the basis of characteristics
observed in the data. Matching may be a powerful approach but it relies on the researcher
being confident that s/he has data on all the important characteristics of individuals or
groups. So for example, if the researcher is evaluating the impact of an intervention such
as an after school club on pupil achievement, the data need to include information on all
the characteristics of pupils that affect both whether they make use of the after school
club and that might also determine their academic outcomes (e.g. their socio-economic
background). If there are unobservable characteristics that determine both whether the
16
pupils enrol in the after school club and their outcomes (e.g. their attitude towards
school) matching methods will not necessarily work. The evaluation of the Education
Maintenance Allowances scheme is just one example of the use of matching methods in
the UK (see Dearden, Emmerson, Frayne and Meghir, 2009).
Finally, Regression Discontinuity Design relies on some discontinuity in policy
design that provides a source of randomisation that can be explored to estimate the
impact of an educational intervention. Examples of this in the education field include
exploiting the rigid rules that operate in England as regards when a child starts school.
These rules can be used to look at whether it is better to start school younger or older
(children born on the 31st August start school up to a year earlier than those born a day
later on 1st September in England). From this research we see that in England it is much
better starting school at an older age than a younger age and this negative effect of
starting school young continues into Higher Education (see Crawford, Dearden and
Meghir, 2009).
So where have these distinct methods made a contribution in education? One
example is the issue of whether additional resources in schools lead to better pupil
achievement, as mentioned above. This has been subject to study for many decades,
largely by educationalists working on issues of school effectiveness and school
improvement (e.g. Nutall et al. 1989; Gray et al. 1996; Thomas et al. 2007, to name but a
few). In recent years however, economists have started to make a major contribution in
this area (Angrist and Lavy, 1999; Card and Krueger, 1992; Dearden, Ferri and Meghir,
2002). They have applied most of the methods outlined above to the same question and
come up with ways of trying to determine a genuinely causal relationship between
17
resources and pupil achievement. They have concluded that resources do not have a large
impact on pupil outcomes.
Economists have also used these techniques to evaluate particular education
programmes. For instance, in the US major education investment programmes, such as
HeadStart6 have been subject to rigorous evaluation by economists, using statistical and
econometric methods. Likewise here in the UK, economic evaluations of government
education investments are often carried out, such as for the Excellence in Cities
programme (Machin, McNally and Meghir, 2007), the Education Maintenance
Allowances scheme (Dearden, Emmerson, Frayne and Meghir, 2009) and the Literacy
Hour (Machin and McNally, 2008).
It is only after establishing genuine causal impact, that we are then able to assess
the true costs and benefits of a particular education policy or intervention and compare
the return with other investments. This is crucial for sound policy decision making.
5. W ider Impacts of the Economics of Education
The main route by which economics has recently been influential is via its
influence on policy. This is particularly the case in the US and indeed the UK, where
there has been greater emphasis on the economic aspects of education, both in terms of
designing policies and from the perspective of evaluating the impact of policy.
The increased marketisation of education in the UK (Adnett and Davies, 2002) is
just one example of the important role economists have played in education policy-
making. It is perhaps however, one of the most illuminating examples of the wider impact
6 An early year’s policy intervention to help children in poor families akin to Sure Start in the UK (see
Birkbeck College National Evaluation of Sure Start (2008)).
18
of economics in education. In the late 1980s, the then Conservative government of the
UK introduced some market mechanisms into the UK education system.7 These quasi-
market mechanisms included parental choice, parent representation on governing bodies
and linking school funding with student enrolment numbers. Alongside this, publicly
available test score information was made available with which parents could compare
the performance of one school with another. These quasi-market reforms were designed
to improve pupil achievement, drawing heavily on the economic principles of incentives
and competition. More recently, further legislation has been introduced, following the
White Paper, Higher Standards, Better Schools for All (2006), with the purpose of further
increasing school autonomy and parental choice.
Of course such economic concepts have not been applied without limits. For
instance, in the UK schools are generally not allowed to go ‘bankrupt’. Furthermore,
there continue to be many “market failures”. For example, many parents still lack full
information on the quality of schools. These limitations weaken the incentive for schools
to improve and may reduce the impact of economically motivated reforms designed to
raise standards. It is worth noting at this point however, that whilst it is certainly the case
that economic analyses have influenced policy-making, the quality of the policy-making
that has emerged as a result of economic thinking is hotly debated, no more so than on
the issue of markets in education. Indeed the evidence on the impact of marketisation of
education on pupil performance suggests only limited positive effects of choice and
competition on pupil achievement, at least in the UK (Bradley, Johnes and Millington,
2001; Gibbons, Machin and Silva, 2008). Yet despite this, policy-makers’ commitment to
7 Many of these policies were only introduced in England and Wales and the Scottish education system is in
any case differently structure. We refer to England and Wales where a particular policy does not apply to
Scotland.
19
the basic tenet that incentives and competition can improve school quality has remained
firm.
Of course policy-makers have also become increasingly aware of the need for
better understanding of the exact nature of the incentives faced by schools, recognising
that teachers and head-teachers often have conflicting objectives and that market
principles sometimes sit uneasily in schools. Thus, as Besley and Ghatak (2003) state,
the critical issue has been to work out the best means by which the economic principles
of competition, incentives and accountability can enhance educational outcomes in the
broadest sense. Economists and policy-makers have recognized the difficulties in
applying economic principles to education (Le Grand, 2003) but there has as yet been no
backlash away from the notion that the efficiency of the system can be improved by
applying such principles.
The evidence (mainly from the United States, e.g. Hoxby, 2000, 2003a, 2003b)
also shows that while increased competition among schools and moves to decentralize
school finance can enhance attainment, it can increase inequality because richer parents
are better able to take advantage of a more market-oriented system. This potential trade
off between efficiency and equity has long been recognized by economists (Le Grand,
2001, 2003). It is interesting however, that in response to concerns about inequality in the
UK school system, the current government has responded, not by reducing the
marketisation of education but by trying to mitigate its potentially negative effects on
equity. This is exemplified by major initiatives such as the Every Child Matters agenda
and The Children Act (2004), which seek to consider the achievement and welfare of all
children, including those who are most vulnerable and underachieving. Whether or not
20
such attempts are going to be successful remains an open question as such initiatives have
generally not been evaluated.
6. Key Contributions and Future Prospects
There are a number of challenges facing education as we move through the 21st Century.
Whilst economists certainly do not have all the answers, they can provide guidance on a
whole range of important issues. For example, educationalists continue to grapple with
the key question facing practitioners, policy-makers and parents, namely how do we raise
pupil achievement, particularly the achievement of those currently lagging behind?
Economists have contributed to the literature which shows that teacher quality is central
to any attempt to improve school quality and raise standards and that teacher pay in turn
plays a huge role in determining the quality of the teacher work force. Much more needs
to be done however, from a research perspective, to better understand the link between
teachers, teaching and pupil achievement and on what kinds of education policies
(whether targeted or universal) can deliver cost effective improvements in education
delivery and performance.
A question that is likely to become pressing in the face of the current economic
downturn and rising educational participation is whether our continued emphasis on
education and in particular qualifications really has a genuine positive effect on
individuals’ lives. For example, despite increased investments in education over time,
why does inequality in educational and cognitive achievement emerge so early (Feinstein,
2003, Bareau et. al. (2009), Dearden and Sibieta (2009)) and why, in the UK at least, do
we have more or less as unequal a society now as we did 20 years ago (Blanden and
21
Machin, 2004; Blanden, Gregg and Machin, 2005; Machin and Vignoles, 2004)? As we
encourage more and more young people to invest in degrees will this genuinely provide
them with economic benefits and a route to better quality jobs and greater life
satisfaction? Or will it simply lead to “qualification inflation” as it becomes the norm for
everyone to have a degree, even for lower level jobs? Indeed the most fundamental
question of all is whether our education investments always benefit society as a whole?
We have made the case that economists play a key role in the field of education
research as a whole. Statisticians and researchers from other disciplines also undertake
quantitative evaluation of education policy. However, the contribution of economists is
distinct. Firstly, economists take a different theoretical perspective and therefore may be
more focussed on incentives and other related issues, as well as trying to distinguish
between the benefits and costs of education. Furthermore, from a methodological
perspective, economists bring a different set of tools to bear on evaluations. For instance,
it is increasingly recognised that random control trials (RCTs) are not possible in all
circumstances and economists provide a range of methods that can be applied in a non-
experimental setting, as we outlined above.
It is also of note that such quantitative rigour was historically seen as lacking by
those working within the education research establishment (as summarised in Furlong
and Oancea, 2005). Whether economics has contributed to improved methodology in
education, for example by introducing more robust methods, or whether economists have
simply taken over parts of the education field is an arguable point. It is however, an
important distinction. Economics has the potential to offer theoretical models and
methodological rigour to the study of education. However, the contribution may be
22
limited if the economics of education is seen as distinct from the other disciplines in
education. Economists are often seen as positivist in their approach and relatively
simplistic in their analysis. Furthermore, since economists generally use quantitative
methods of analysis, antagonism towards quantitative methods is often inter-twined with
suspicion about the real contribution that economists can make. Economists need to work
in conjunction with the other major education disciplines (and vice-versa) if their
contribution to the field is to be maximised.
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30
Table 1: Education Publications in Mainstream Economics Journals
Decade
1950s 1960s 1970s 1980s 1990s 2000s
Papers Per Year 0.2 3.4 6.3 2.5 5.2 9.7
Non-North American Papers Per Year 0.0 0.4 0.7 0.5 1.2 3.2
Notes: Reproduced from Machin (2008a). Publications with the word Education, Schooling or School in
the title in the following list of journals: American Economic Review; Economic Journal; Econometrica;
Economica; Journal of Political Economy; Quarterly Journal of Economics; RAND Journal of Economics;
Review of Economic Studies. Source: JSTOR, Ingenta Connect, Business Source Premier, Blackwell
Synergy.
31
... En resumen, cuando más se ha aproximado la investigación al tema seleccionado de este estudio, mayor evidencia se ha encontrado de la escasa bibliografía y el alto margen para una mayor integración de otras áreas de investigación (Dearden, Machin & Vignoles, 2009). ...
... Nevertheless, different authors consider that some education research needs closer integration into the other disciplines of education (Dearden et a., 2009). ...
... In summary, as the research lens gets closer to the selected topic of this study, there is higher evidence of the scarce literature and the high scope for a closer integration between multiple areas of research (Dearden et al., 2009). ...
... Human Capital Theory assumes that a utilitarian approach to educational choices is taken, whereby qualifications are chosen by individuals to enable effective competition in the labour market which assumes that higher pay for employees will be the resultant outcome (Schultz, 1961; Becker, 1975 ). If benefits are not thought to outweigh the costs education will not be sought (Fevre et al., 1999; Machin and Vignoles, 2009). Thus, the choice process is described as a rational one where students invest in their futures (Maringe et al., 2011). ...
... (2004) and Crawford and Vignoles (2014) note how it is misleading to generalise the economic returns to higher education, returns are higher at institutions and courses with stronger reputations 15 (Dearden et al., 2002; Keep and Mayhew, 2004; OECD, 2004; Machin and Vignoles, 2009; De Vries, 2014). Although the expansion of HE has led to widening participation in terms of students from lower socioeconomic groups attending HE there is still underrepresentation in deprived areas and underrepresentation at the most selective universities where the proportion of lower socio-economic students attending these institutions has remained unchanged ...
Thesis
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... Far fewer reviews were written in the 1990s and 2000s (Halsey, 1994;Heath, 2000;Hugh Hugh Lauder et al., 2009;Lawn & Furlong, 2009;Levinson et al., 2002;Whitty, 2012), and we followed those as well. We also followed texts which were mentioned in these reviews, and which we felt are important to unpacking the explanations of educational inequality we focus on. 1 We also read some reviews of economics of Education (Berg, 2002;Dearden et al., 2009;Swift, 1966). 2 Below, we trace how 'inequality', with emphasis on class relations and educational inequality, was dealt with across three key moments of sociology of education. The first is 'Political Arithmetic' research during the 1950s and 1960s, which gave rise to a very strong collaboration between research and policy, and put forward two empirical ideas: social waste and educability. ...
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As the biggest developing country with the largest population in the world, China has made great achievements in education development, which has contributed tremendously to reducing poverty and boosting prosperity in the past decades. However, in the course of education development, many problems and issues have emerged, which have also been extensively studied by scholars in various fields in both China and international contexts. Among the myriad of research topics, three research foci stand out as the most concerning and studied: education return, education quality, and education equity. This paper draws on both international research literature and evidence from China to discuss education development issues including education return, education quality, and education equity, and suggests future directions for research and practice to enhance education development and to achieve a sustainable future.
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Fundamental change is taking place in the provision of welfare services in Britain. Government bureaucracies are losing their monopoly in such key areas as health, housing, community care and education. The Government agencies are increasingly acting as purchasers of services or as umbrellas for decentralised units. The command economy is being replaced by the quasi-market economy. This highly topical book assesses whether quasi-markets can deliver efficient and equitable public services and whether they represent a permanent break with the State's traditional role of welfare provider.
Chapter
Wage inequality has risen significantly in the UK since the late 1970s. The most rapid widening of the gap between well paid and low paid workers occurred in the 1980s, but wage inequality probably continued to rise (at least for men), albeit at a much slower pace, through the 1990s. An important feature of rising wage inequality in the last quarter century was increased wage gaps between workers with high levels of education as compared to those with low education levels. Educational wage differentials rose at the same time as the education levels of the workforce rose suggesting that the relative demand for more educated workers increased. There is some preliminary evidence that wage differentials by education may have stopped rising at the end of the 1990s and start of the 2000s, which is consistent with the very rapid supply increases that occurred with the expansion of the higher education system.
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Does student aid increase college attendance or simply subsidize costs for infra-marginal students? Settling the question empirically is a challenge, because aid is correlated with many characteristics that influence educational investment decisions. A shift in financial aid policy that affects some youth but not others can provide an identifying source of variation in aid. In 1982, Congress eliminated the Social Security Student Benefit Program, which at its peak provided grants totaling $3.7 billion a year to one out of ten college students. Using the death of a parent as a proxy for Social Security beneficiary status, I find that offering $1,000 ($1998) of grant aid increases educational attainment by about 0.16 years and the probability of attending college by four percentage points. The elasticities of attendance and completed years of college with respect to schooling costs are 0.7 to 0.8. The evidence suggests that aid has a 'threshold effect': a student who has crossed the hurdle of college entry with the assistance of aid is more likely to continue schooling later in life than one who has never attempted college. This is consistent with a model in which there are fixed costs of college entry. Finally, a cost-benefit analysis indicates that the aid program examined by this paper was a cost-effective use of government resources.