You can't buy love, but you can definitely buy learning

The Economics of Education
April 6, 2007

Daniele Checchi, professor of economics at the University of Milan, devotes the first chapter of his book to four solid facts, underpinned by empirical surveys.

First, the rates of school and university enrolment have been rising around the globe: in 1960, for example, 9 per cent of the relevant age cohort in countries in the Organisation for Economic Co-operation and Development received tertiary education; in 1995, the figure was 50 per cent. Second, the more extensively the people of a nation are educated, the more equal their salaries tend to be (though cause and effect are not obvious). Third, the more extensively the people of a nation are educated, the more equally is that education distributed (that is, if a country spends twice as much on education, the children of the poor have more than twice as much spent on them, and the children of the rich less than twice as much spent on them). And fourth, the better educated a person is, the higher their salary is likely to be. (However, diminishing returns do set in, and the private return on education is higher in the developing world, where fewer people are educated, than in the developed world.) Checchi uses these facts to raise a number of questions. Why do people demand education? Why do educated people earn more? What prevents full access to education?

In chapter two, Checchi presents Becker's classical "human capital" model, which states that education increases our intellectual capacities and therefore our earning powers. As is the habit of economists, Checchi creates a series of theoretical equations based on particular assumptions (such as intelligent people invest more in education because they can benefit preferentially from it) and then, on working out his equations in the abstract, he shows that they confirm his assumptions (such as intelligent people invest more in education because they can benefit preferentially from it). Well, yes.

Chapter three, however, is important. Based on empirical analyses worldwide, Checchi shows that the greatest blocker of access to education at all stages is poverty: the children of the poor get less education than do the children of the rich. But Checchi shows also that the provision of free education by government seems not to correct that inequality. Only the provision of money to the poor seems to achieve that. It is a shame that he did not explain these findings; he could have cited the work of E. G. West and J. Tooley, which shows that government institutions are inferior to private ones, which means that encouraging the children of the poor into private institutions helps them more than the provision of free state institutions.

Chapter four is sobering. It reveals that the major determinant of educational outcome appears to be social class. Schools' physical attributes (class size or income per student) have surprisingly little impact on outcome. Competition between schools, facilitated by vouchers, seems to offer a better route to excellence - though the New Zealand experience shows that vouchers need free educational markets if they are to be equitable.

As the book progresses, so Checchi addresses the big questions in the economics of education. Do privately educated children advance preferentially in their careers not because they are better educated but because their schools are better networked? How efficient are education capital markets? Do schools increase human capital or do they only signal talent to employers? Are the children of the rich better endowed genetically? To these questions, Checchi provides reviews of the literature, mathematical models and judicious conclusions.

Yet this book lacks two dimensions. First, it ignores much economic history (a reader would not learn, for example, that England had 6,000 independent schools in 1870, and that the introduction of state schools in that year seems merely to have crowded out the independent sector, to no benefit).

And second, Checchi leaves us with no prescriptions. After his analyses, should he not say how he personally would run the schools?

This book, although no light read, is a treasure trove of impartial scholarship. Thanks to Checchi, the numerate reader will be empowered to construct educational policies based on the best analyses available.

Terence Kealey is vice-chancellor of the University of Buckingham and author of The Economic Laws of Scientific Freedom .

The Economics of Education: Human Capital, Family Background and Inequality

Author - Daniele Checchi
Publisher - Cambridge University Press
Pages - 8
Price - £50.00
ISBN - 0 521 79310 6

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