Education: basic first!

Returns to and costs of education (graph by Todaro)

Over examining a doctoral dissertation, a collegue and I were involved in a discussion. The examinee modeled public education provision and how it affects (or affected by) interregional movement of students. One of the results seems to imply that higher education should be centralized. Despite the fact that the dissertation treats education as consumption-only, not an investment (one serious weakness, I think), the collegue rightly argued that it is the basic education that needs centralization more than higher education. He backed up his argument with G. Psacharopoulos' finding that the returns to investment on basic education is greater than that on higher education. The referred study is a classic, and the finding seems to be a stylized fact these days (Psacharopoulos has updated again the paper in Education Economics, 12(2) Aug 2004 -- subscription required). I would have stated my agreement with him.

But instead, I misunderstood my collegue's point, and rather, raised another related point, namely: the the social returns to investment on higher education is lower than its private returns. Of course I had in mind the graph above (from the Mike Todaro's Economic Development that in turns also cites Psacharopoulos). In particular, what I really meant was that in the case of higher education, the net private returns exceeds the net social returns. This is shown in the graph above where the expected private returns and private costs diverge; while the social returns and social costs converge (and later, cross and reverse).

So, basically my collegue and I were in agreement as far as the public policy on education was concerned. That is, if the government is to centralize public education, it should do it to basic education first (In fact, I even tend to think, for higher education, no centralization should be encouraged).