UNIT 2

ECONOMICS OF EDUCATION
 TOPICS

 Education as an instrument of economic growth

 Social and Private returns on education
 Important issues in Basic and Higher Education
 Inequalities in education
 Role of government and market
 Financing of education
 Introduction of economics of education

 Economics of Education is relatively a new and

separate branch of study which attempts to establish
a cause and effect relationship between education
and economic aspects.
 It is a specialized branch of study that applies the
principles, theories and paradoxes of economics to
the field of education.
 It uses the concepts of economics to explain the
issues of education.
 Economics of Education employs the use of some
elementary concepts commonly used in labour
economics, public sector economics, welfare
economics, growth theory and development
economics.
 World known classical economists like Adam Smith,
Alfred Marshall, John Stuart Mill had discussed
education and development
extensively, advocating for public investment in
education.
 According to Babalola, Economics of Education
studies human behaviour in terms of decisions, actions
and reactions about schooling. It analyses, how the
individual learner takes his decision on the investment
and expenditure of a particular level of education.
 In the similar way in a country also, the government
has to take decisions on three central problems of
education. Central problems arise because of the
scarcity of resources. These are:
 • What type of education the country needs for its
human capital formation?.
 • How to produce educational opportunities and social
set
up for providing education?.
 • For whom the educational facilities to be produced?.
 These three are the crucial problems to be solved
by the respective government of the country.
 In this context, economics of education gives right
path to choose the alternatives available in solving
these three central Problems.
 Economics of education has to deal with how the
government, society, institution and household use
limited human and material resources to satisfy
the unlimited wants of education.
 So, Economics of education is not only a theory
based knowledge area but also a practical approach
to address the educational challenges.
 Economics of education is one of the branches of ordinary
economics, though, it is the study of how educational managers
make official or approved choices from scarce available resources
which is meant for the realisation of the best possible educational
outcomes.
 Economics of education is the study of how educational managers
make choices concerning the use of the scarce educational
resources, and this is what economists do in the education
system.
 Educational Resources are Limited Resources: such as men,
money, materials are limited in supply and serve as input into the
educational system. These inputs include
 1. Men (M): teachers, policy makers, non-teaching staff;
2. Materials (M): students (raw materials), teaching and research
materials, teaching aids and other equipments;
3. Money (M): cash, cheque and notes;
4. Management (M): polices, plans, programmes, time table and
educational laws; and
5. Time.
 Subject matter of Economics of Education

 According to Hanson the subject matter of

economics of education falls into seven categories as
follows-
 • Human capital formation.
 • Education’s contribution to economic growth.
 • Impact of education on earning.
 • Historical analysis of economics of education.
 • Relationship between education and earning.
 • Programme budgeting and financing of education.
 • Efficiency and equality of education as opportunity.
 Scope of Economics of Education

 Considering the above categories, we can further elaborate the

scope of economics of education under the following points.
 1 Educational Cost
 2. Funding pattern of Education
 3 Educational Planning
 4Human capital formation
 5. investment in education
 6. Cost benefit analysis (CBA) of Education
 7 Rate of return in education
 8 Efficiencies in education
 9. Relationship of education and economic development
 10 Demand and supply of education
 11. Education and labour market
 12 Management of educational finance
 what is the difference between literacy and education

 Literacy is defined as acquiring the ability to read, write and understand. It

is entirely concerned with the art of reading and writing.
 “Literacy provides a person with the ability to acquire information to
develop the know-how called education.”
 As per census 2011, a person aged seven and above, who can both read and
write with understanding in any language, is treated as literate. A person,
who can only read but cannot write, is not literate.
 Whereas education is defined as the systematic process of facilitating
learning, receiving, experiencing and/or of acquiring knowledge, skills,
values and beliefs to impart instructions and provide an overall
development.
 While an educated person can be literate, every literate person cannot be
called educated.
 Education is a broader concept which takes into consideration the all-
round development of a human personality.
 The results of 2011 census reveal that there has been
an increase in literacy in the country.
 The literacy rate in the country is 74.04 per cent,
82.14 for males and 65.46 for females.
 Kerala retained its position by being on top with a
93.91 per cent literacy rate, closely followed by
Lakshadweep (92.28 per cent) and Mizoram (91.58
per cent).
 Bihar with a literacy rate of 63.82 per cent ranks last
in the country preceded by Arunachal Pradesh
(66.95 per cent) and Rajasthan (67.06 per cent).
 Education System
 Official school ages by level of education
 Pre-primary- 3to 5 year
 Primary – 6 to 10 year
 Secondary- 11-17 year
 Tertiary 18 -22 year
 In developed as well as developing countries, there
are two types of education:
 public education (which, for the most part are
financed by the State) and
 private (which may be independent or partially
subsidised by the State).
 Private education is subject to State control and
complies with the official regulations regarding the
number and the training of teaching staff, education
organization, examination data and structure
 Sources of Finance for Education

 The sources of finance for education in India can be broadly

classified into external and internal. External sources do not
form a significant part of educational finances in India.
 (A) Internal sources:
 The domestic/internal sources of funding are
broadly divided into public and private sources.
 The public sources include contributions made by central,
state and local governments.
 The private or non-governmental sources include fees
and other household expenditures incurred by the direct
beneficiaries (students/parents) of education and
endowments and donations made by individuals, trusts, etc.
 Among theprivate sources, fees is a compulsory payment
whereas others are voluntary contributions.
 Private sources of finance:
 1. compulsory 2. voluntary in nature
 Compulsory private sources: includes fee and other
related charges
 Voluntary in nature includes endowments, trust funds,
donations, grants, gifts and other types of voluntary financial
help.
1. Student fees: It is well known fact that free and
compulsory education is made at the primary stage, while fee
structure at the secondary and university level has remained
constant during the post independence period, attempts at
raising fees structure incorporates a large element of in-built
subsidy, which is given indiscriminately to all the students,
furthermore, Indian
education policy provides an open invitation to all qualified
students to involve in the institution of higher education
regardless of their capacity to profit from such education.
 2. Educational Loans: The loans by banks and
private institutions, being repayable in easy
instalments, can create a self-generating fund which
can be recycled for the education of
generations of students.
 It would assist students to continue their higher
education, because the education unemployment is
increasing day by day which affects the repayment of
loans.
 d) Donations, sponsorships or other non-refundable
financial support received by educational institutions
Donations, sponsorships and other forms of non-
refundable financial aid which may be received by
educational institutions are granted by enterprises,
foundations, companies, associations, charitable
non-profit organizations or even by individuals.
 B. Public sources of finance:
 It includes the funds contributed from central and state,
university grants, U.G.C., NCERT and financial aid.
 1. Central government: provides grants-in aids for
centrally Sponsored schemes. These schemes are
formulated by the Central Government and are included
in the Centre’s five year plans, the Centre persuades the
states to implement these schemes through financial
incentives in the form of grants-in aidwhich meet a larger
proportion of the total expenditure of the states on those
schemes.
 The Central Government provides assistance, for
centrally assisted schemes.
 2. State Governments in financing education: The state
meets the non-plan and plan expenditure on education at
all levels.
 3. Funds of local bodies: This amount includes the funds
of Municipal Zilla Parishad and other areas which assist
development of education.
 The local community’s assist the local schools and
colleges for health and education service. Municipality
looks after municipal schools cleanliness, police and
other areas in the locality.
 4. Gram Panchayat: It would assist in financing
education to a little extent, the avenue sought from this
area is utilized for education purpose.
 External sources :classified into three categories
 International institutions (world bank)
 Foreign government: particulary important for
financing specialised courses in nhigher education:
languag courses and literature based courses.
Scholarship offered by foreign government to
scholars in India.
 International private agencies (NGOs) ford
foundation, rock feller foundation
 Expenditure on Education

 Expenditure as % of GDP (2013-14)

 Elementary education- 1.84
 secondary education 1.03
 higher education 0.63
 Adult education 0.01
 technical education 0.62
 Total 4.13
 Structure of Higher Education

 Structure of Higher Education in Indian the institutional framework

consists of
 Universities established by an Act of Parliament (Central
Universities) or of a State Legislature (State Universities),
 Deemed Universities (institutions which have been accorded
the status of a university with authority to award their
own degrees through central government notification),
 Institutes of National Importance (prestigious institutions awarded
the said status by Parliament), and
 Institutions established by State Legislative Act and colleges
affiliated with the University (both government-aided and unaided).
 Universities and its constituent colleges are the main institutes of
higher education in India.
 Central university
 State university
 Private university
 Deemed to be university
 Institution of national importance
 Institution under state legislature act.
 The education may be of the nature of
 General, Vocational,
 Professional or Technical education.
 Technical education includes 65 centrally funded
institutions like Indian Institutes ofTechnology (IITs), Indian
Institutes of Management (IIMs), National Institutes of
Technology (NITs), Indian Institute of Science (IISc), etc.
along with number of engineering colleges set up by State
Governments.
 All India Council for Technical Education (AICTE)
approves and regulates these institutions in
engineering/technology, architecture, hotel management &
catering technology, management studies, computer
applications and applied arts & crafts.
 Vocational Education is another stream of higher education in
India.
 For this a network of public and private polytechnics and
vocational institutions exists and they are controlled and
supervised by the Councils specializing in respective
discipline.
 India has also developed an Open University system to
encourage distance learning.
 Indira Gandhi National Open University (IGNOU) was the
pioneer and now there are 14 open universities in India.
 The Distance Education Council of India (DEC), New
Delhi regulates these universities, maintains the standards,
encourages and organizes the activities of Open and Distance
learning (ODL) in the country.
 The Higher Education sector ensures the quality of the educational
process with the help of accreditation agencies established for the
purpose.
 The main agency which accredits universities and colleges in
general education is the National Assessment and
Accreditation Council (NAAC) established by the UGC in 1994,
 whereas a similar function is done for technical education by the
National Board of Accreditation (NBA) set up by AICTE in
1994, and
 for agricultural education by the Accreditation Board (AB) set up by
ICAR in 1996.
 NAAC proposes to introduce the India Education Index (IEI) for
ranking institutes based on academic, research performance and
other parameters.
 Higher education benefits the individuals specifically as
it equips young people with skills to cope with the rapidly
changing labor market needs.
 It gives individuals powers to get better employment,
higher salaries and higher propensity to consume and
save.
 Altogether, investment in higher education enhances the
labor power in order to trade it for higher wages.
 For all these good reasons, a country that provides
educational opportunities to its citizens is far more likely
to reduce poverty and promote economic growth and
thereby achieve social inclusion and India is no exception
in this regard.
 Trends in Funding The Central and State
Governments jointly fund higher education.
 The Central Government‟s share is about 30 per cent
while the State Government‟s share is 70 per cent
mostly under the non-plan head.
 Higher education status in India (as on
November 2019)

 state universities 404

 Deemed to be universities 126
 Central universities 50
 Private universities 340
 Total Universities 920
 BASIC EDUCATION

 The International Standard Classification of

Education (ISCED) states that
 basic education corresponds to the first nine years
of formal schooling and is made up of two levels.
 Level 1 is primary education (usually six years)
 Level 2 refers to lower secondary (usually three
years; grades 7-9).
 It also covers non-formal and informal activities
intended to meet the basic learning needs of people
of all ages.
 ‘Basic education is more than an end in itself. It is the
foundation for lifelong learning and human development
on which countries may build, systematically, further
levels and types of education and training.
 In countries, Basic Education often includes also pre-
primary education and/or adult literacy programs.
Universal basic education is regarded as a priority for
developing countries and is the focus of the Education
For All movement led by UNESCO.
 It is also included in the Millennium Development Goals
as Goal number 2: Achieve Universal Primary Education
by 2015.
 As per the stats, around 29 percent of students in the
6 to 14 age group in the country receive private
education.
 In India, 80 percent of all recognized schools at the
elementary stage are government run or supported,
thus, making it the largest provider of primary
education in the country.
 Under the Right of Children to Free and Compulsory
Education Act 2009, education for children for 6 to
14 years of age or up to Class 8 has been made free
by the government.
 With an aim to universalize primary education in India, the
District Education Revitalization Programme (DERP) was
launched in 1994. Its main focus was to reform and vitalize
the primary education system.
 The student-teacher ratio in India stands at 24:1 across all
levels of schooling. This seems healthy in light of the Right to
Education Act stipulation of a ratio of 30:1.
 The RTE act has called for sufficient infrastructure, but less
than 5% schools have all the 9 facilities mentioned in the act.
Over 30 % schools had no toilets and over 60 % had no
playgrounds.
 In the past few years, this primary education scheme has
shown a high Gross Enrollment Ratio of 93–95 percent in
some Indian states.
 Number of Schools in India (2015-16)

Level-wise
 Primary 840546
 Upper Primary(in total) 429624
 Secondary(in total) 139539
 Senior Secondary(in total) 112637
 Total 1522346
 Management-wise
 Government 1102783
 Government Aided 83787
 Private Unaided 335776
 Total 1522346
Number of Teachers and Pupil Teacher Ratio (PTR) by Type of Institution: 2015-16

 Type of Institution Number of

Teachers Pupil Ratio
 Primary 23
 Upper Primary 17
 Secondary 27
 Senior Secondary 37
 Higher Education 24
 Inequalities in Education

 The distribution of education both in terms of quality

and quantity is highly uneven in most societies.
 Inequality in opportunities for education is found
not only with reference to individuals and social
classes but also in terms of regions and territorial
regions such as urban and rural areas.
 Most institutions of higher learning and good
schools are concentrated in urban areas. The
awareness of their existence and utility is also greater
there.
 Inequalities in education:
 Gender wise educational inequalities
 Region wise educational inequalities
 Areas wise educational inequalities
Gender wise educational inequalities
(male-female enrollment )
 As per AISHE 2018 (All India Survey on Higher
Education)
 More male teachers in Higher Educational
Institutions (HEIs) in India than females, with the
lowest gender proportion in Bihar.
 4,16,299 is the total number of teachers out of which
about 57.8 per cent are male teachers and 42.2 per
cent are female teachers.
 Region wise educational inequalities

 In eleven states lieratcy rates are lower than the national

litreacy rates.
 Theses states are Andhra pradesh, Arunachal pradesh,
Assam, Bihar ,MP, chhattisgarh, JK, Jharkhand ,Odisha,
Rajasthan and UP.
 In Bihar, literacy rate was as low as 63.82 % in 2011.
 Kerala had the highest literacy rate of 93.91 percent.
Female literacy rate was high as 91.98 percent.
 Rajasthan, Bihar, UP, JK and Jharkhand are the states
where female literacy rate are low.
 Bihar in 2011 had a female literacy rate as low as 52.66
%.
 Area wise educational ineqaulties
 Rural litracy rate (2011 census ) 67.77, M(77.15),F(57.93)
 Urban literacy rate (2011census) 84.11, M(88.76), F(79.11)
 1- Infrastructure (Urban schools are infrastructure more
qualitative )
 2-Quality teaching (depends on education level of teachers )
 3-Teachingg aids(ICT are mainly centred in Urban areas )
 4-physical environment (greenery + fresh air)
 5-Language (medium of language varies,UES more focused
towards the English language )
 6-co-curricular activities (which. More vibrant in urban
education system)
 7-School fees and Salary package of teachers(Huge salary
divide between Urban and rural teachers).
 In the rural areas, nearly 4.5 per cent of males and 2.2 per cent of females completed education
level of graduation and above, while in urban areas 17 per cent of males and 13 per cent of
females completed this level of education.

 As per ‘Social Consumption: Education' during the National Sample Survey (NSS) 71st
Round, January to June 2014, conducted by the National Sample Survey Office (NSSO) under
the Ministry of Statistics and Programme Implementation:
1. literacy rate among age group of seven years and above in the country was 75 per cent. In rural areas, it was 71 per
cent compared to 86 per cent in urban areas.
2. Adult literacy (age 15 years and above) rate in India was around 71 per cent. For adults also, literacy rate in rural
areas was lower than that in urban areas. In rural areas, adult literacy rate was 64 per cent compared to 84 per cent
in urban areas.

3. In rural areas, 72 per cent of the students at primary level, 76 per cent at upper
primary level and 64 per cent at secondary and higher secondary level attended
government institutions.
4.
While in urban areas, 31 per cent at primary level, 38 per cent at upper primary
level as well as secondary and higher secondary level, attended government
institutions,


 Indicators of educational development

 Institution density
 Gross Enrollment ratio
 The pupil-teacher ratio
 Gender parity Index
Pupil teacher ratio in India (AISHE 2018-19)

 All India Survey on Higher Education (AISHE) was established by the Ministry of
Human Resource Development for conducting an annual web-based survey, thereby
portraying the status of higher education in the country.

 PT R
 2012 20
 2016 23
 2017 25
 2018 24
 Gross enrollment ratio

 GER
 2014 24.3
 2015 24.5
 2016 25.2
 2017 25.8
 2018 26.3
 Gender parity Index

 There is an increase in GPI.

 2014 0.92
 2015 0.92
 2016 0.94
 2017 0.97
 2018 1.02
 Institutional/ college density (population in the age group 18-24)
the number of colleges per lakh eligible population

 Bottom 3 major States

 1. Bihar 7
 2. Jharkhand 8
3. West Bengal 11
College density varies from 7 in Bihar to 53 in
Karnataka and Telangana as compared to All India
Average 28. (AISHE 2018)
 Private and social returns to investments
in education

 The profitability, or rate of return on investment , is a measure of the expected

yield of the investment, in terms of the future benefits , income generated by
the capital.
 If money devoted to education, training or health it raises the lifetime earning
of workers who are better educated and trained or more health than other
workers.
 The cost (direct and indirect cost direct cost borne by individual, including
fees, expenditure on books or equipments . Indirect cost govt. provide free and
subsidized tuition in school or higher education ) and benefits of education also
effect society as whole( increase productivity of educated workers)
 Rate of return in Education : return to Investment in education are benefits
derived by educational consumers as a results of their investments in
education.
 The return of education can be two types:
 Private rate of return
 Social rate of return

 Private rate of return means those benefits accrued to
individuals at the end of schooling as a result of
investment in Education.
 Social returns : derived by the government or society for
an educational investment project.
 The private rate of returns to education is the increase in
the earnings from an additional year of education for an
individual who makes the investment decision on
education,
 while the social rate of returns to education measures the
increase in national income resulting from the same year
of education
 The rate of returns to education varies from individual to
individual due to differences in age, ability, quality and
quantity of education, and socioeconomic status.
 For example, it is often assumed that more able individuals
benefit more from an additional year of education.
 Also, better-quality education is likely to enhance the
productivity of individuals by improving cognitive skills,
thereby increasing the rate of returns to education.
 It is also assumed that the rate of returns to education is a
decreasing function of the quantity of education.
 In other words, the additional earnings generated from an
extra year of education are likely to be higher for people with
low levels of education than for those with high levels of
education.
 Economic Aspects of Education

 Education as Investment
 Education as consumption
 Education as industry
 Education as an Industry :
 Education presumably produces educated
individuals who, are expected to have enhanced
productivity.
 Thus, the process by which education transforms
(relatively) unproductive individuals into (relatively)
productive ones
 Education can view as consumption and investment.
 A product or services is considered to belong to the
consumption category when it gives satisfaction or utility in a
single period only while, it is considered pure investment
goods or services when it is expected to give satisfaction in the
future periods only.
 Education is regarded as the most important determinant of a
person’s economic and social success.
 In economy, terms of education is an economic good because
anything that satisfies a human wants is considered a good.
 Consumption can be determined as simply paying the cost for
a good or services and receiving all of the benefits for that
good or services immediately.
 Education as Investment
 As individuals and nations increasingly recognise that high levels of
knowledge and skills are essential to their future success, spending
on education is increasingly considered an investment into a
collective future, rather than simply as individual consumption.
 However, investment in education competes for limited public and
private resources.
 The challenge of expanding educational opportunities while
maintaining their quality and ensuring their equitable distribution
is linked to questions of education finance.
 Education is seen as an investment because it entails costs
in the present and because it increases productive capacity
and income (of the educated individual to be sure but also
of society in general) in the future.