Re: Being paid to Learn LO1411

John Wolfenden (
Mon, 29 May 1995 14:31:55 +1000

Charles A. Barclay (LO1401) wrote

>It is intellectually shortsighted to suspect that people won't get
>educated without federal help. Worse yet, there is a common belief that
>we all need federal help to get educated and that without this help
>society will deteriorate.

As one steeped in Economic Theory (although often skeptical of this
theory), I think the economic argument for subsidising education is
perhaps relevant.

Individuals are represented as "utility" maximisers (where increasing
utility comes from increasing satisfaction of individual wants and
desires) who make decisions based on achieving improved utility.
Education is treated as investment in human capital, which the individual
will persue to the extent that expected returns from a better education
(i.e. increased income) are just equal to the costs (both financial and
individual time costs) of obtaining that education.

If this were the whole story then, equity questions aside, an appropriate
policy would be for people to pay for their own eduaction.

However, the extent of education achieved in this way will be limited by
the way that individuals assess the cost/benefit situation. If they are
perfectly rational and fully informed (as assumed by this economic theory)
then they will make the personally optimal choice. In the absence of
perfect rationality and information (i.e. in the **real** world),
individuals will make choices about their education which are not optimal.
They may choose too much or too little education, there is no way to
determine this a priori.

It is often claimed that society benefits from the educational standard of
its members. Science and technology are advanced, labour becomes more
mobile, crime may well be reduced. The resulting increases in productivity
mean that all of society benefits from more goods and services. If this
(arguably naive) view of the world is correct, then the total social
benefits of education are greater than the sum of the benefits to
individuals, and some form of incentive/subsidy is needed to increase the
level of education to the social optimum.

Therefore, one way to achieve the desired social optimum level of
education is to subsidise the cost of education so that individuals will
demand more of it. There is no doubt some element of this approach in
present educational policies.

Of course in the real world of incomplete information, irrationality, and
political pork-barrelling, existing policies bear little resemblance to
the approach suggested above. Much subsidy to education will be equity
based, with fairness in outcome or fairness in opportunity two possible
rationales for this. Strong lobbying groups will also have obtained
favourable outcomes for their members.

Charles also wrote:

>No one held my hand through college or grad school, and no one gave me
>money to go. True, subsidies were paid to the grad school in tax dollars
>but I didn't complain that I couldn't get financial aid, and I paid my
>taxes in support. I got a job and paid for my education with the
>proceeds. If I can do it so can every one else who wants an education.
>Furthermore, why should I pay the taxes for someone elses studnet aid
>while I get none myself nor even get consideration because I worked?

Whereas Charles has demonstrated persistence and commitment in achieving
his education, I wonder is it appropriate to generalise from this one
experience to all cases? Sure we need to facilitate an environment where
personal responsibility and motivation are encouraged, but are all people
equally able to take advantage of this?

>From both equity and social benefits persepectives, it may be appropriate
to offer differential levels of subsidy to target groups to achieve equity
in outcome as opposed to equity in opportunity.

This analysis can be extended to the value placed on learning in
corporations, although the analysis may suffer from "linear and
reductionist accounting" as presently being discussed (LO1376/1393).

John Wolfenden, Centre for Agricultural & Resource Economics (CARE),
University of New England, ARMIDALE NSW 2351 AUSTRALIA;
Int'l code +61 67 / Aust'n code 067 - Phone: 733930; Fax: 733944;