Is education really an investment?

By James Zuccollo 18/02/2013 5


Education, particularly at the tertiary level, is usually viewed as an investment by economists. It’s a voluntary cost that you pay to get skills and qualifications that will increase your future wealth and prosperity. That metaphor is reflected in the wealth of research into the ‘rate of return’ on university study and the discussions of externalities from the accrual of skills.

Nonetheless, it is a controversial view since the investment metaphor is not a natural choice for most people. Indeed, most people refer to the fun they had at university, the people they met, and the parties they attended. These are the ‘consumption’ elements of university education in the language of economists; the parts that you would pay to enjoy then and there with no expectation of future benefits. Now, via Economic Logic, I see a paper that asks prospective students how they view tertiary education and finds that

…most students do appear to value college consumption amenities, including spending on student activities, sports, and dormitories. While this taste for amenities is broad-based, the taste for academic quality is confined to high-achieving students.

As summarised by the Economic Logician, “except for the top students, high school graduates do not care about academics at all. All they want is excellent “college consumption amenities.” And this likely explains why they learn so little while in college. Their focus is on the university as a consumption good, not an investment good.” The policy-maker’s view of the value of university and the student’s view are very different.

What does this mean for policy, then? Well, if the private value of university is largely in the consumption value then the total value is far higher than most estimates suggest since they are usually based entirely on investment value. That has implications for the level of the subsidy we want to provide to tertiary students. In addition to the efficiency questions we also need to ask whether,as a society, we want to heavily subsidise most students’ on an extended holiday?


5 Responses to “Is education really an investment?”

  • “to ask whether,as a society, we want to heavily subsidise most students’ on an extended holiday?”

    Just because most students enjoy the amenities, this does not mean that they don’t learn anything – most after all do graduate don’t they?

    education and enjoying oneself aren’t mutually exclusive.

  • And this likely explains why they learn so little while in college.

    And where are the data in support of this statement? How is their learning measured, by whom, & how is value assigned to it?

  • Michael:

    Of course you’re right that enjoyment should be celebrated and it’s great that universities are improving their amenities. The question is more whether those amenities should be subsidised by everybody else, even though only the students enjoy them. Graduates earn an awful lot more than people who enter the workforce straight from school so we might think that they should pay for their own amenities. I don’t have a strong view about the answer but the point is that the question of tertiary fees isn’t as simple as asserting that the students ‘are our future’!

    Alison:

    I agree that’s an unnecessarily strong assertion. Really, I wanted to quote the sentences either side of it and just didn’t bother cutting out the middle.

  • Hmm….American. Lets see….The BIG colleges pay millions to the Football coach. Pay millions for their basketball coach. It attracts students who turn up to the games. Who is steering who here??

    Mr Jamesz looks like a devils advocate to me.

  • we also need to ask whether,as a society, we want to heavily subsidise most students’ on an extended holiday?

    I am so hoping you are playing devil’s advocate here.

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