Economics of Education

Question 1

Is education a public good?

Answer 1

No, since it is rival in consumption, each student has an increasing MC and it is excludable.

Question 2

How much of GDP Lithuania spends on education?

Answer 2

Less than 5%

Question 3

Tertiary education meaning?

Answer 3

University or college

Question 4

What is the argument for the government to be involved in education? Since it is not the public good.

Answer 4

• Externalities (more people are educated, more positive externalities there are, like crime reduction, increased productivity)
• Cost/borrowing constraints (makes government come in and provide subsidies)
• Income mobility - inequality argument

Question 5

Does government help of giving loans increase education?

Answer 5

Yes, based on Solis empirical paper

Question 6

What is regression discontinuity design?

Answer 6

Used commonly in studies of education. The way it works is you have an arbitrary cut-off.

Question 7

Main theory of economics of education?

Answer 7

Human capital theory - education is like capital - more investment increases productivity. Capital makes you productive -> your productivity is higher -> MR product is higher -> you will be able to demand higher wage form employer.

Question 8

What are critisims of human capital theory?

Answer 8

Studies like art, women studies are not going to increase your capital such as like medicine or architecture.

Question 9

How human capital theory affect employment?

Answer 9

If you are in a country with high minimum wage, more education would increase workers productivity and make it possible for companies to hire them -> increasing the employment.

Question 10

Education as Human Capital Accumulation

Answer 10

A person’s stock of skills may be increased by education. Education raises earnings because it improves productivity.

Question 11

Education as Screening (signaling) Device

Answer 11

A model that suggests that education provides only a means of separating high-ability from low-ability individuals and does not actually improve skills.

Question 12

What your diploma is signaling to employer?

Answer 12

You are capable of learning, IQ level, conscientiousness (how good of a worker are you, are you responsible)

Question 13

What is called a rat race?

Answer 13

Education rises individual earnings, but does not improve productivity.

Question 14

If we believe in human capital theory, what can be done by the government?

Answer 14

Support education or ar least provide loans to individuals, so they can get more education and raise their productivity.

Question 15

If we believe in screening model, what the government should do?

Answer 15

Would not support more education for any given individual -> if everybody gets educated then diploma is worthless.

Question 16

What is the problem with this basic econometric approach? Earnings(i) = α + βEducation(i) + ε(i)

Answer 16

The coefficient should tell the impact education has on earnings. If education is correlated with something else, this will be biased, incorrect number. For example, IQ level - people who are smarter tend to get higher levels of education, it is easier for them. People, who are naturally intelligent tend to earn more money regardless their education level.

Question 17

If we increase the amount of education, will that affect our economy growth?

Answer 17

There is correlation

Question 18

How much education is leading towards higher levels of income?

Answer 18

A lot (based on human capital theory) for high school and primary school.

Question 19

What are two methods to estimate the true human capital effect of education?

Answer 19

1) Adding control variables (e.g., standardized test score)
2) Look at cases where policy change induces more education for some group but not for another group