Fundamentals of Economics of Education (Revised, 2015)

Joel B. Babalola

Published in Joel B. Babalola (Ed, 2003). Basic Text in Educational Planning. Ibadan: Department of
Educational Management, University of Ibadan, Ibadan (pages 127-191)

Economics of Education is a study of human behaviour (in terms of human's decisions,

actions and reactions) about schooling. It also deals with how this human behaviour affects
economic growth and national development. Generally, the economics of education, as
different from economics education, is the study of economic issues relating to education.
Being an applied economics, it involves the application of economic terms, concepts,
principles and laws in the process of producing, financing, distributing and consuming
educational goods and services. From early works on the relationship between schooling and
labour market outcomes for individuals, the field of the economics of education has grown
rapidly to cover almost all economic issues with connections to education such as education
as investment, demand for education, provision and allocation of resources to education,
financing of education and education production function

The history of economics of education is a short one. In the early 1900s, classical
economists such as Adam Smith, Alfred Marshall and John Start Mile discussed education
and development, while advocating for public investment in education. By 1950s, economists
devoted attention to issues such as the relationship between education and economic growth;
relationship between education and income distribution and financing of education. Since the
1960s, the subject has developed rapidly in terms of researches and publications. In the recent
time, the dwindling economic revenues with unlimited wants with respect to education and
training has set the stage for a growing interest of economists in education. In fact, the
majority of contemporary crises in education are either economic or financial in nature. Thus,
the economic environment within which they operate immediately affects schools. In the end,
schools affect the economic environment itself, for example, by providing qualified
personnel. Consequently, education practitioners require an economic analysis in answering
educational questions.

Hitherto, apart from the human capital theory, there are few comprehensive theories of
economics of education in use in educational debates. Instead, there have been some
economic concepts that are useful in the analysis of economic issues relating to education.
Such concepts include education as investment and its effect on costs of education, returns on
investment in education and labour productivity; demand for education; financing or
provision of education and education production function. We will discuss each of these
concepts briefly in this section.

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1. Investment and its economic implications on cost, productivity and returns: An
important distinction in economics of education is between investment and consumption.
This distinction is based on the nature of the benefits derivable from education. We can
classify an expenditure on education as either investment or consumption depending on
whether or not the benefits are immediate and short-lived. An expenditure on education is
consumption when such an education brings immediate but short-lived benefits. For instance,
when the knowledge of economics of education is required only for satisfying an immediate
academic exercise, such education is termed consumption. The monetary and the opportunity
costs of such education as well as the consumer price index determine the decision to
consume education. One consumes education when the cost of education is lower than the
consumer price index despite that there is no expectation of future benefits. On the other
hand, an expenditure on education can be regarded as a form of investment if it promises
future benefits. In fact, people demand education as an asset that is 'capable of generating
long-lived future benefits if the present value of the expected stream of benefits resulting
from such education exceeds the present cost of the education. One invests in education when
one sees education as an asset that promises a stream of economic benefits in the future.
Three basic questions have prompted economic discussions and debates on education as an
investment good or service. These are: (1) is human capital especially education, an
investment good or service? (2) If it is an investment good, is investment in human capital
especially education, a worthwhile one: (3) if it is worthwhile, is it as worthwhile as the
investment in a physical asset? In order to understand the argument properly it is necessary to
explain the concept of capital and those of human capital as different from physical capital.

2. Capital Formation - Physical and Human: Economics has demonstrated that human
capital is as critical as physical capital as a means of production. Physical capital refers to the
acquisition of machines, money and materials for further productive activities. Human
capital, on the other hand, refers to the acquisition of trained and skilled men for further
productive activities. The four main characteristics of capital are as follows (Ca-Pa-Bu-De):
a) Ca=Capacity increase is expected. Capitals are capable of increasing the productive
capacity of an organisation. For example, a trained man with the ability to handle and
manipulate machines will increase the output of an organization,
b) Pa=Pay-off time is long. Capitals require a long period of time before they can pay
off (this is known as an investment). An educated man would have to work for some
years before he or she can pay off the money spent on his or her education;
c) Bu=Building-up period is long. It requires a lengthy period of time to build up
capital. For example it takes 18 years for a person to become a Medical Doctor in
Nigeria.
d) De=Depreciation is a must: Capital/depreciate over time. Depreciation manifests in
human knowledge and skills. To this end, human capital requires some updating
through in-service training, seminars, workshops, further education, etc.

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Economics has shown that investments in human capital, such as education, lead to three
major economic implications; namely: (a) increased expenses (or costs) since the
accumulation of additional years of schooling requires investments just as physical capital
does, (b) increased productivity as people gain attributes such as knowledge, skills and
attitudes that enable them to produce more output and hence (c) return on investment in the
form of higher incomes. The next section is devoted to a discussion of each of these three
economic implications of viewing education as an investment one after another starting from
cost of investment in education.

3. Cost of investments in education: The cost of education refers to the total resources
devoted to education. They include the direct money outlays and the indirect financial
burdens (in form of opportunity costs measured as the loss of income incurred either by the
individual or by the society as a result of schooling). The loss of the opportunity to earn
wages or salaries in the labour market is the real cost, to the individual student, of his or her
decision to enroll in a full-time or part-time course of education. For the economy as a whole,
the loss of the output (GNP) that the student could have produced, if in employment, is part
of the resource costs of education. Generally, cost of education is anything that a person or a
government gives up because of a schooling decision. Like any investment, investments in
education entail a cost. Characteristically education is very expensive thus its expenditure
takes the form of government consumption, granting that some costs are also borne by
individuals. In 2013, Nigeria allocated 10 % of her total budget to education while in some
other highly competitive economies the total expenditure on education was as high as 20% of
their total national budgets (Micaiah, 2014). In 1983 when Nigeria spent 2.1% of GNP on
education the total education expenditure as percentage of GNP was as high as 8.4% in Cote
d’Ivoire; 6.3% in Mali, 6.0% in Congo and Gambia respectively (IBRD/The World Bank,
1986:47). Using the monetary expenses on education to discuss its cost greatly
underestimates the investment costs in education because the opportunity cost of forgone
wages as students cannot work while they study is completely ignored. Consequently, if the
opportunity costs of investments in education can be estimated, then the total cost could have
been around 6% of GNP in Nigeria, 16.8% in Cote d’Ivoire, 12.6% in Mali, and 12.0% in
Gambia. Comparing these data, especially the figure for Cote d’Ivoire (16.8%) and given
that investments in physical capital have been generally estimated to be 20% of GDP,
investments in physical capital and human capital can be said to be of similar magnitude.

4. Returns on investment: Human capital in the form of education shares many

characteristics with physical capital. Both require an investment to create and, once created,
both have economic value. Physical capital earns a return because people are willing to
sacrifice to use a piece of physical capital in work as it allows them to produce more output.
To measure the productive value of physical capital, we can simply measure how much of a
return it commands in the market. In the case of human capital calculating returns is more
complicated since it is not possible to separate education from the person to estimate its
rental fee. To avoid this difficulty (equating returns to rents as done for physical capital) the
returns to human capital are generally inferred from differences in wages among people with

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different levels of education. In essence, the economic benefits of education are measured in
terms of the extra lifetime incomes or earnings enjoyed by educated workers, compared with
workers with lower levels of education, or illiterate workers. Hall and Jones have calculated
from international data that on average that the returns on education are 13.4% per year for
first four years of schooling (grades 1–4), 10.1% per year for the next four years (grades 5–8)
and 6.8% for each year beyond eight years.[5] Thus someone with 12 years of schooling can
be expected to earn, on average, 1.1344 × 1.1014 × 1.0684 = 3.161 times as much as
someone with no schooling at all.

5. Productivity: Productivity (or economic efficiency) is the output of goods and services
per unit of input such as per unit of land (land productivity in an agrarian society where
natural resources are the dominant factor of production), per unit of labour (labour
productivity in an industrial society), per unit of learning (learning or intellectual productivity
in a knowledge-based society) and per unit of all production inputs combined (national
productivity often measured by GNP per capita or GDP per capita owing to measurement
difficulty in respect of natural capital and human capital).

Productivity has to do with efficiency in the allocation and utilization of resources to produce
national income: National income is the monetary value of goods and services produced in a country
over a .period. There are three main ways of measuring national income. Gross domestic product
(GDP) is the monetary value of goods and services produced by all factors of production owned by
both indigenous and foreign people living in a country over a period. On the other hand, the gross
national income (GNI) is the monetary value of goods and services produced by all factors of
production owned by citizens of a country, regardless of country of residence, over a period. It does
not matter where those citizens live. For example, the national income of Nigeria is the
monetary value of goods and services owned by all Nigerians in Nigeria and abroad. The third and
most useful comparable measure of national income is per capita income. Per capita income is the
total income of a group divided by the population of the group. It is the best of all the measures of
national income. This is because it takes the number of people using the income into consideration
in its calculation. For example, two households with the same income may have different per capita
income owing to difference in the size of the family. Let us assume that the two households earn
1000 dollars per month. If the sizes of the two families are 3 and 5 respectively, then the incomes
per head are 333.33 and 200 dollars respectively. The family of 3 is financially at advantage.

Some inputs or resources are used in order to produce goods and services. These resources include
natural resources (from forest, land, air and sea; renewable and non-renewable), labour, human
capital, physical capital, knowledge capital, social capital and so on. One allocates or uses these
resources efficiently if it is not possible to reallocate them (that is to say increase the quantity of
some goods or services at the expense of other goods or services) without reducing welfare.
Pareto efficiency is the criterion of efficiency that is commonly used. This defines welfare as a
condition where it is not possible to increase total utility by reallocating resources. If any
reallocation, which makes one group of individuals, better off would make another group worse off,
then, such allocation is not efficient. On the other hand, resources are not being used as efficiently
as possible if it is possible to make all groups better by changing the balance between different

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goods and services,. If however, any changes, which benefit one group, would be at the expense of
another group, then welfare is already maximized, and we say that the condition is Pareto optimal.

Economy-wide, the effect of human capital on incomes has been estimated to be rather significant
such that 65% of wages paid in developed countries has been attributed to payments to human
capital (educated skilled workers) and only 35% to raw labour (unskilled labour). The higher
productivity of well-educated workers is one of the factors that explain higher GDPs and, therefore,
higher incomes in developed countries. A strong correlation between GDP and education is clearly
visible among the countries of the world. It is less clear; however, how much of a high GDP is
explained by education. In any case, it is also possible that rich countries can simply afford more
education. On the other ground, it also less clear how much of a low GDP is explained by education
since it is possible that low-income countries might not be able to afford more of quality education.

At the meso and micro levels there is evidence of the effects of educational investment on
productivity and this has also been widely studied. The analysis can be separated to into
three: (a) agricultural productivity; (b) industrial or the modern-formal sector productivity;
and (c) the urban informal sector productivity. Figure 1 illustrates the three main sectors into
which productivity effects of investment in education can be categorized.

Figure 1: consumer products by type of society as determinants of employment and demand for schooling
Source: Miler (NY)

(a) Agricultural society (Figure 1) is an economy where agriculture is the dominant sector
amongst other productive sectors such as the tactile, the industrial (comprising the
manufacturing and the construction sub sectors), the commercial and the service segments.
In an agrarian economy, the dominant production technologies are labour and natural
resources. The major types of consumer products are food and hand-made clothes processed
through a human-nature interaction and the major driver of economic growth is natural or

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land productivity based on natural soil fertility, climate and biological resources. The
agrarian revolution in the 19th century was driven by formal basic and general education at
that time when formal schools such as charity primary schools and grammar schools were
established to serve the needs of the agrarian population. English-speaking countries at this
period developed a mandatory free education system to meet the needs of the agrarian society
at that time. While the available schools were good enough to meet the needs of a farming
society, but they felt short of the needs for massive, skilled and specialized labour that was
critical in an industrial society. Schools were small to supply the required manpower and the
curricula were not differentiated to meet different skills and abilities required to work in
firms. Evidence has shown that four years of primary education increased agricultural
productivity by 8.7% with a standard deviation of 9%. Different studies measured education
in terms of the number of years of schooling, highest grade completed, and literacy
achievement. In addition input factors were measured in terms of quantity of time, type of
capital available and technological characteristics of farming (irrigation, new seed varieties,
fertilizers and so on). It has been revealed that education shows different effects on
productivity in different societies. In traditional environments where there were primitive
technology, traditional farming practices, and minimal level of innovation, four years of
education increased productivity by 1.3% and 9.5% in modernizing ones. In an agrarian
economy, agricultural outputs form the bulk of GDP also employment in agricultural sector is
dominant. Agricultural societies often depend on people and basic skills than on capital or
machine and post-basic skills. They therefore rely on schools to supply basic skills required
for productivity at farms. Basic skills denote the set of minimal abilities such as numeracy,
literacy, perseverance, self-discipline and self-confidence needed for work and life in the
society.
(b) Industrial society is a society in which the leading economic sector is industry. Just as
the agrarian society can be traced to the agrarian revolution, the industrial society can be
traced to the industrial revolution from the late 19 th century. Technologies of production in
an industrial society are dominantly capital intensive while the consumer products are
industrial goods processed through a machine-machine interaction. The major factor of
economic growth is the labour productivity. Firms (manufacturing, construction and
commercial as well as the ministries) provided employment for most of the urban population.
Industrialization brought with it schools modelled after industrial processes and urban
development. Thus, the requirements of these firms determined the type of knowledge and
skills that were taught is formal schools and colleges. Definitely, the industrial society needs
post-basic skills which include thinking skills (critical and creative thinking), higher order
behavioural skills (such as decision-making skills, teamwork, the ability to negotiate conflict
and manage risks), specific knowledge applied to real-life situations and vocational skills
required to work and live in an industrial society. To this end, there was the need to mode
universities, polytechnics, vocational training institutions, school of commerce and so on to
meet various requirements of various firms. Studies of effects of education of workers on
labour productivity of urban-based industries and ministries have not arrived at a meaningful
conclusion because of the variation in the types of workers in various industries and

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ministries. For instance, the relative productivity of a lawyer and that of a plumber cannot be
assumed to be reflected in their earnings for so many reasons. So, the argument has been
between the human capital proponents who argue that education increases productivity
which is rewarded by higher earnings and those who believe in the signalling theory that the
higher earnings of the more educated people are attributable to factors other than cognitive
changes associated with studying to higher levels. Nonetheless, there are so many studies
that found a positive relationship between education and urban productivity.
(c) Post-industrial knowledge-based (learning) society is dominated by the service sector
with a knowledge-intensive technology. The consumer products are information and
knowledge services processed through a human-human interaction. The major factor of
production in a learning society is innovation or intellectual productivity. Consequently
those with higher education, creative research skills, lifelong learning, and social or relational
skills are required to work in this learning society. In conclusion, not just any education, but
relevant work-related or labour-market driven education is actually capable of enhancing
productivity that will be rewarded with higher earnings in both industrial and learning
societies. The classical Marxian paradigm sees education as serving the interest of capital
and is seeking alternative modes of education that would prepare students and citizens for
more progressive socialist mode of social organizations. Thus for them education should
become a more essential part of the life of people unlike capitalist society (including all its
institutions like education) which is organized mainly around work and the production of
commodities.

6. Demand for education: The dominant model of the demand for education is based on
human capital theory. The central idea is that undertaking education is investment in the
acquisition of skills and knowledge which will increase earnings, or provide long-term
benefits such as an appreciation of literature (sometimes referred to as cultural capital). An
increase in human capital (especially accumulation of knowledge and skills) can follow
technological progress as knowledgeable employees are in demand due to the need for their
skills and knowledge in the production process or in operating machines. Studies from 1958
attempted to calculate the returns from additional schooling (the percentage increase in
income acquired through an additional year of schooling). Later results attempted to allow for
differences in returns across persons (indices) or level of education (signals). Statistics have
shown that countries with high enrollment/graduation rates have grown faster than countries
without. The United States has been the world leader in educational advances, beginning with
the high school movement (1910–1950). There also seems to be a correlation between gender
differences in education with the level of growth; more development is observed in countries
which have an equal distribution of the percentage of women versus men who graduated
from high school. When looking at correlations in the data, education seems to generate
economic growth; however, it could be that we have “backward causality” relationship. For
example, if education is seen as a luxury good, it may be that richer households are seeking
out educational attainment as a symbol of status, rather than the relationship of education
leading to wealth. Educational progress is not the only variable for economic growth, though,

7
as it only explains about 14% of the average annual increase in labor productivity over the
period 1915-2005. From lack of a more significant correlation between formal educational
achievement and productivity growth, some economists see reason to believe that in today’s
world many skills and capabilities come by way of learning outside of schooling. To advance
this assumption, economists have propounded the theory of signalling (or the screening
hypothesis) as an alternative model of the demand for education. The central idea is that the
successful completion of education is a signal of ability. Economists measure educational
demand by counting the number of the eligible "relevant age population or the number of
qualified potential entrants who are willing, able and ready to participate in a particular
educational programme at a given cost and at a specified time. The law of educational
demand states that the higher the price of education, the lower the demand owing to
substitution and income effects. However, this law may not hold when there is evidence of
ostentatious, speculative and inferior educational services. There is the, ' derived demand,
which is because of enrolment demand. For example, a school employs teachers and builds
classrooms to meet the demand created for them by the enrolment. Linked with the concept
of demand is that of educational supply. Educational supply refers to the quantity of
education in terms of the number of places that institutions of learning are willing able as
well as ready to offer at a given price over a period/Supply varies over a given period of time
or from place to place because of cost or the price of the educational services, the cost of
production, the state of educational technology (distance learning) natural influence
and political situation influence educational supply.

7. Financing and provision: Ideological differences exist concerning how to finance

education thus constituting another issue in the economics of education. Economists are
particularly interested in issue of sharing the financial burden of education among the
beneficiaries. Economists believe that whoever derives more from education should pay more
for such education. They want to know what should be the balance between public and
private sources of finance. The difference between the social and the private rates of return
reflect the degree of public subsidy of education, and since education is generally
highly subsidized, there is usually a wide gap between social and-private rates of return. If
individuals were expected -to contribute a greater share of the costs of education
themselves, by means of fees or some other forms of payment, then the gap between the
social and the private rates of return would be reduced. However, there are very few cases
where individual students pay the whole of the cost of their education themselves, and thus
private rates of return exceed social rates of return. In most countries a significant part of the
costs of education, particularly at the primary and secondary levels are borne out of general
taxation or other government revenue, and pupils receive free schooling or pay low fees. In
the case of private schools, fees may be substantial. In fact, they may be the only source of
revenue. Nevertheless, in the case of private schools, there is often some degree of public
subsidy, either by means of tax concessions for institutions, or direct subventions for teacher
salaries. In many countries, fees are charged in institutions of higher education, but these are
often well below the social resource costs of higher education. In addition, many students

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receive financial aid in the form of scholarships, bursaries, grants or subsidized loans, which
help to reduce the private costs of education. In most countries school education is
predominantly financed and provided by governments. Public funding and provision also
plays a major role in higher education. Although there is wide agreement on the principle that
education, at least at school level, should be financed mainly by governments, there is
considerable debate over the desirable extent of public provision of education. Supporters of
public education argue that universal public provision promotes equality of opportunity and
social cohesion. Opponents of public provision advocate alternatives such as vouchers.

8. Education production function: An education production function is an application of

the economic concept of a production function to the field of education. It relates various
inputs affecting a student’s learning (schools, families, peers, neighbourhoods, etc.) to
measured outputs including subsequent labor market success, college attendance, graduation
rates, and, most frequently, standardized test scores. The Coleman Report, published in 1966,
concluded that the marginal effect of various school inputs on student achievement was small
compared to the impact of families and friends. Later work, introduced the structure of
"production" to the consideration of student learning outcomes.

INPUTS OUTPUTS

Labour market success

Family EDUCATION
School

Progression
scores

to higher
PROCESS
Test

(Home)

level
Graduatio

Friends
n rate

(Peers)
Neighbourhood

Figure: Education Production Function

A large number of successive studies, increasingly involving economists, produced

inconsistent results about the impact of school resources on student performance, leading to
considerable controversy in policy discussions. The interpretation of the various studies has
been very controversial, in part because the findings have directly influenced policy debates.
Two separate lines of study have been particularly widely debated. The overall question of
whether added funds to schools are likely to produce higher achievement (the “money
doesn’t matter” debate) has entered into legislative debates and court consideration of school
finance systems. Additionally, policy discussions about class size reduction heightened
academic study of the relationship of class size and achievement.

9. Economic growth and education: Economic growth is a sustained increase over a

significant period of time, in the quantity of material goods and services produced in an

9
economy. One important measure of economic growth is change in the per capita income.
Education is one of the many elements that influence economic growth and it does so in four
main ways. First, education inculcates skills such as typing, accounting teaching, medicine,
law, engineering and electronics, which are useful in the productive process (extractive,
manufacturing and construction, commercial and service sectors). Second, education imparts
knowledge of economics, politics, science, history, arts, geography, philosophy, mathematics
and logical reasoning that can contribute to the most important aspects of economic growth
such as innovation, adaptation and entrepreneurship. Third, education provides job ethics and
attitude conducive to production of goods and services. Finally, education serves as a
screening device for selecting or identifying talents in the most efficient manner.

Economic growth is a sustained increase over a significant period in the quantity of material
goods and services produced in an economy. Economists have traditionally considered an
increase in per capita income (or per capita GNP) to be a good proxy for economic growth.
Thus, economic growth reflects a continuing capacity to supply a growing population with
increased volume of commodities and services per person. In a developed nation, a country
experiences economic growth when there is an evidence of reduced unemployment and real
increases in the social welfare of the people. Moreover, high standard of living, which is
comparable to that of the advanced countries and evidence of a reduction in the incidences of
poverty and deprivation are indicators of economic growth.

10. Contribution of Education to Economic Growth

The contribution of education to economic growth occurs through its ability to increase the
productivity of an existing labour force in various ways. Education, as one of the many
factors, which influence economic growth, contributes to economic growth in four main
ways. First, education inculcates skills such as typing, accounting, teaching, medicine, law,
engineering and computer engineering, which are useful in the productive processes. Second,
.education imparts knowledge of economics, politics, science, arts, geography, philosophy,
history, mathematics and logical reasoning, which can contribute to the most important
aspects of economic growth, such" as innovation, adaptation and entrepreneurship. Third, it
provides job ethics and attitudes conducive for production of goods and services. Finally,
education serves as a screening device for selecting or identifying talents in the most efficient
manner. Therefore, education is capable of enhancing the efficient production of goods and
services by ensuring, through screening, that the world of work has the best people in the
right number.

Problematizing Education-Economic Growth Nexus

The main problem associated with the belief that education is good for economic growth
concerns how to maintain an equilibrium position between skilled-labour demand and supply.
That is, where there will be no incidence of either shortage or surplus supply of educated
people. A shortage of educated people might limit growth, while excess supply of it might
create unemployment and thus limit economic growth. Secondly, as a screening device used
by employers to make hiring decisions, education might develop into mere credentials or
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identifications (IDs). Faced with large number of applicants for a given job, an employer
tends to narrow his or her options by looking only at those with the highest levels of
education. Consequently, the education level required to gain entry to certain jobs tends to
move upward over time with little or no change in basic productivity.

Theories of Economic Growth

Theories of economic growth have been concerned with the interactions among three basic
factors, namely;

1. Population growth (dynamics) as it affects production of goods and services per head;

2. Capital formation as it affects economic growth; and

3. Technological progress in relation to the size, speed and spread of per capita income.

At the inception of the theory of economic growth, classical theorists envisaged that per
capita output would be stationary as the rate of profit declined with diminishing
improvements in (land) productivity. Different theorists proffered explanations to the growth
stationarity prediction. One of the first to proffer explanation was Thomas Malthus (1766-
1834). He came up with the idea of population trap popularly known as the Malthusian
population trap.

Malthusian population trap is an inevitable population level at which population increase

was bound to stop because after that level life-sustaining resources, which increase at an
arithmetic rate, would be insufficient to support human population, which increases at a
geometric rate : People like Malthus identified the limit to economic growth as the limited
amount and capacity of land to yield continually increasing products. Consequently, people
would die of starvation, diseases, wars, and so on. The Malthusian population trap therefore
represents that population size that can just be supported by the available resources. This
anxiety-causing prediction of a possible population trap instigated research on sources of
economic growth with particular focus on capital formation (leading to physical and human
capital theories).

Sources of economic growth

Research has shown that economic growth comes from two sources, both of which can be
powerfully influenced by government policy. One is building up a larger stock of productive
(physical) assets and human skills. The other is increasing the productivity of these natural,
physical and human resources. This involves moving capital and labour between sectors,
developing new institutions, inventing and introducing new techniques of production and new
products, making better choices among existing techniques, and taking steps to cut costs and
eliminate waste. Growth thus involves continuous change that can be described as a process
of perpetual disequilibrium.

Investment in Natural resources: The natural resources of countries are not consistently
correlated with either income levels or income growth. Some of the richest and most rapidly

11
growing economies like Austria, Japan and South Korea, have few natural resources; some
well-endowed ones like Iraq, Angola, Yemen, Congo, Chad, Cameroon, Zambia, Guinea,
Mauritania, Sierra Leone, Liberia, and so on, have remained relatively poor. Nonetheless, no
account of the causes of national prosperity and poverty should overlook land, water,
minerals, energy and climate. Many countries among them Argentina, Australia, Saudi
Arabia, Nigeria and the Soviet Union owe a good part of their affluence to natural resources.
Nor is it coincidental that most poor countries are in the tropics and, more particularly, that
many of the poorest people in the world live in the arid and semiarid regions of Asia and
Africa. But the link between natural resources and income (GDP) is affected by world
demand, the state of technology, the availability of capital and skills as well as the
development strategy adopted. Malaysia's early progress was founded on tin and rubber for
automobile tires. Bangladesh's jute industry suffered from the invention of synthetic fibres
(especially because, in contrast to Malaysia, little relevant research was undertaken). Having
discussed the link between natural resources and income, the next section focuses on the
relationship between physical capital and growth.

Investment in physical capital: contrary to the probable link between natural resources and
growth, it widely accepted that the accumulation of physical capital is a necessary and very
important part of economic growth. The belief is that the productivity of workers in
industrialized countries is greater than in developing countries partly because they have more
capital or physical assets to assist them. Similarly, most of the innovations and structural
changes that generate growth greatly require substantial physical investment in roads,
machines, irrigation systems and so on. Developing countries that have invested a higher
proportion of their output have on average grown faster, but the contribution of investment in
physical capital to growth has varied widely. Some countries have invested to much effect
while others, such as Ghana, have invested to much less effect. Part of the discrepancy is
attributable to differences in the share of investment devoted to activities (such as housing)
that do not contribute directly to production. Part of the discrepancy is further attributable to
variations in the efficiency with which productive investment has been allocated and used.
This efficiency has in turn depended on the availability of natural resources and skilled labour
and on government policies toward agriculture, industry and foreign trade. It has sometimes
been suggested that income inequality is conducive to higher investment (since the rich save
a larger proportion of their incomes than the poor). But in practice this relation is lowered by
government and corporate saving and by variation across countries in incentives and attitudes
to saving. High investment rates are observed both in countries with relatively unequal
income distributions, such as Brazil and Kenya, and in countries with relatively equal
distributions, such as China and South Korea. Low investment rates also appear compatible
with income distributions that are both more unequal, as in Senegal, and less unequal, as in
Burma. The next section discusses the relationship between human resources and growth.

Investment in human resources: It has long been recognized that the qualities of a nation's
people have an important influence on its prosperity and growth. This is not simply because
better labour adds to output in the passive way that, say, more fertilizer or better machinery
does to farm’s or firm’s outputs respectively, it is also because human beings are the source

12
of ideas, decisions and actions on investment, innovation and other opportunities. Technical,
scientific and professional skills are clearly essential to producing many modern goods and
services. Entrepreneurial and administrative abilities are also vital in both public and private
sectors. Less immediately obvious, but equally fundamental, are the skills, knowledge and
attitudes of the great mass of ordinary workers, including small farmers and traders.

What governs the quality of human resources, and how can it be improved? There is no
simple answer, no simple best policy. One important ingredient is practical experience.
Another consists of the knowledge and attitudes (exposure) that children acquire from their
parents and from society at large. Then there are the many different kinds of formal education
and training: general primary and secondary schooling, technical and vocational schooling,
general and specialized higher education which impart specific skills, enhance the ability to
learn further and modify attitudes toward work and change. Partly because measurement is
difficult, the evidence is not complete either on the contribution of human resources to
production and growth, or on what determines their quality. But a lot of research has been
done on the economic contribution of formal education. In all countries more educated people
tend to earn more to a degree that makes educational spending (especially for primary
education and especially in developing countries) often appear an attractive investment.
Studies have also shown that primary schooling can contribute to the productivity of farmers
and to industrial productivity. In addition, there is evidence that basic education can
contribute to national growth. Developing countries with higher literacy rates have tended to
grow faster, even after allowances are made for differences in incomes and physical
investment, and they have had higher physical investment rates. The results of this research
reinforce a body of less systematic observations, and some historical evidence, that formal
education can aid economic development. The outstanding growth records of Japan and
South Korea probably could not have been achieved without their distinctively early mass
literacy and numeracy, which (together with land reform, more advanced education and good
economic management) contributed to increased agricultural productivity, to the expansion of
labour-intensive manufacturing and exports, and to their remarkable ability to adapt to
changes in technology and world demand. At the other end of the spectrum, the poor
economic performance of the countries of Sub-Saharan Africa is at least partly attributable to
extremely low literacy and the scarcity of highly educated and experienced people.
Knowledge, skills and attitudes are not the only aspects of human resources that affect
economic performance. A healthy and well-fed labour force is more physically and mentally
energetic than one that is sick and hungry, and therefore gets more work done and is more
innovative. This is confirmed by a number of experiments and project-level studies. The
aggregate evidence is less clear-cut. At the same time, however, there are examples that
refute any suggestion that education; health and nutrition are in themselves sufficient to
induce rapid growth. Burma and Jamaica, for example, with high levels of literacy and life
expectancy for their income levels, achieved annual growth rates of only 1.0 and 2.0 percent
per person over the period 1960-78. It is also possible (though difficult if economies heavily
dependent on petroleum, other minerals or expatriate skilled labour are excluded) to find
cases of fairly rapid growth even with low levels of literacy and life expectancy Pakistan in
the 1960s is an example. The linkage is imperfect partly because literacy and life expectancy

13
are crude indicators of education and health and are often measured inaccurately as well. But
the main reason is that growth also depends on other factors the availability of natural
resources and physical capital and the efficiency with which all resources are used. Without
modern inputs, the right technology and ready access to markets, even educated farmers find
it hard to innovate; and they can be discouraged from increasing production by low prices.
Without rapid accumulation of physical capital, and policies to ensure that this is associated
with rapid growth of productive employment opportunities, the earnings of even a healthy
and educated labour force will stagnate. Without the right mixture of education and training,
shortages of specific skills will hold back growth, while chronic surpluses of other sorts of
manpower may emerge.

Complementarities between education and other forms of investment: It has been

discovered that the contribution of education to growth becomes stronger when the
complementarities between education and other forms of investment are taken into
consideration (Psacharopoulos, 1984). The early attempts to measure the contribution of
education to growth were either based on the growth accounting procedure used by Denison
and others or by the rate of return to human capital approach adopted by Schultz and others.
Growth accounting is based on the concept of an aggregate production function which links
output (Y) to the input of physical capital (K) and labour (L). The simplest form of
production function, assumed in many of these studies, is the linear homogeneous production
function: ( ). At the initial stage of the development of the production function, the
classical theorists, such as Adam Smith, initially propounded the one-factor theory
( ) in which growth of goods and services depended on the amount and capacity of land.
Thus, increases in national income will result from a better use of land since the amount of
land is fixed. Nevertheless, theorists such as Alfred Marshall, Schultz, Kutnets, Harbison and
Mayers advanced many arguments against the one-factor theory of the classical economists.
They introduced the second factor, labour, in addition to fixed capital, as a determinant of
economic growth.

The two-factor model can be represented by the following function: ( )

Where:

; and

Growth in output process can then be represented by the following growth rate formula:

ƒ( )

Where:

Y1 – Y0  Y (change in output)

K1 – K0  K (change in capital)

14
L1 L0  L (change in labour)

The growth equation can be written briefly as

GY = ƒ (GK; GL) (ii)

Where: (Growth rate of output)

(Growth rate of capital)

(Growth rate of labour)

Mathematically, the growth equation becomes

Y K L (iii)

Where:

Since 'a' and 'b' are the shares of capital and labour respectively in total output,

GY = (1 –b) GK + bGL.

Since a + b=l then a=l-b hence the substitution of (1 - b) in the place of 'a'.

The neo-classical model recognizes that added capital is a possible substitute for added
labour and vice-versa and that increases in either result in economic growth. The two-factor
theorists believed that both capital and labour contribute directly to economic growth and that
their contributions are in the form of 'a' + 'b' equal one (that man-machine relationship is
assumed to be substitutable such that one has to ensure an optimum mix of labour and capital
to maximize national productivity). This was faulty when the model was experimented with
the United States economy. Thus, a discrepancy between the actual growth rate and that
which the two-factor model attributed to the growth of labour and capital existed. Economists
called this discrepancy the 'residual factor’ controversy. In another words, it was found that
'a' + 'b' is always less than 1 which means that some residual factors other than labour and
capital, are yet unaccounted for in the two-factor model.

The residual factor controversy led to the development of the three-factor model. Some
theorists suggested that this residual factor is a measure of ignorance (or errors in
measurement of the amount of growth or of the relative shares in the output of labour and
capital). Another viewed it as a measure of technological progress. To the three-factor
theorists, output (Y) is a function of the stock of the capital (K), the labour force (L) and the
level of technological progress (A).

Hence, ( )

Where A = technological progress which is assumed to be a function of time, t.

15
Recasting in terms of growth rates and transposing the results in a production function of the
type:

Y K L A ...................(iv)

A Y ( K L).......... (v)

Thus, cGA is the residual between the growth of output (G Y) and the growth of factor inputs
(aGK bGL). Owing to measurement problems with respect of output, labour, and capital,
the residual factor is susceptible to errors. Changes in the quality of the labour force can also
affect the results in a misleading direction. This attempts to explain the residual factor has led
to the theories of disembodiment and embodiment.

Education as the Disembodied Technological Progress or Advances in Technological.

Literature established it that the growth in technology or (technological progress) is the
residual between the growth of output and the growth of factor inputs (Labour and Capital).
In another words, the growth of technology occurs outside the two factors of production. That
is, it is independent of labour and capital although it can sometimes be a product of both or
one of the two factor inputs. A good example of the disembodied technological progress is
equation (v) which clearly shows that “cG A” or the residual factor is independent of “aG K”
and “bGL”. Hence, “cGA” is disembodied from either of aG K or bGL. The discovery of better
new foreign ideas, which may lead to greater output without additional utilization of either
local new capital, labour or any other factor of production, serves as an example.

Proponents of the disembodiment theory believe that education is one of those

factors that create disembodied technological change for so many reasons. Firstly,
education enables educated people and their economies to become open, receptive or
amenable to and be able to articulate, accept, absorb, adopt or adapt and apply new ideas. It
also makes it possible for institutions of learning to acquire the needed ability to absorb,
adopt, adapt and apply new ideas in a profitable manner for economic growth. Nevertheless,
educated people and institutions that are isolated, homogeneous, proud and authoritarian are
unlikely to absorb new ideas quickly when exposed to them. Consequently, to gain access to
disembodied technologies, domestic economies needed to be receptive. As a matter of
emphasis, while openness encourages the flow of technologies from industrial countries to
developing countries, education and knowledge make it possible for the disembodied
technologies to be absorbed, adapted, improved, disseminated and applied. Nevertheless,
there is another type of education that might be embodied in technological progress.

Education as the Embodied Technological Progress: An embodied technological progress

requires an improvement in the quality of the factors of production, particularly the labour
force before it can lead to greater productivity of output. Unlike the disembodied type, the
embodied technology depends on labour and capital for its growth. That is, it requires capital
and labour for its development or improvement. Examples of an embodied labour are better-
educated, better-trained and healthier labour force, which requires capital and labour as
investment in the process of human capital growth and development. Education is not only
embodied in labour, it can also be embodied in capital through advances in technology,

16
research and development (R & D). Examples of embodied technological progress in capital
include development of new machine or an improvement of an old machine, which does the
same job costing less or a larger job costing the same. By doing this, productivity
(output/input ratio) is increased. Moreover, for Nigeria to discover alternative sources of fuel
to fossil fuel that would not emit green gas, that will be the need for capital investment in
scientific labour as well as research and development. Having shown how education is
embodied in capital, we need to discuss how education can be embodied in labour.

Obviously through better education, the quality of labour can be improved and consequently
improving the economy through better working habits and efforts, greater discipline and
reliability, better understanding of work requirements, prompter adaptability to changes and
increased mobility to more productive occupation. Moreover, more capital depends on the
saving and investment decisions of an economy. This brings about an increase in the quantity
of capital as well as a diversion of current resources away from consumption now to future
consumption. In fact, more and better education is capable of inducing better individual
decisions about savings and investment in capital.

The theory of embodiment describes education-economic growth relationship as an indirect

one. Education relates to economic growth through educated person, which means that the
improvement in productivity will not exist if we fail to train educated people in a better way.
In other words, education cannot directly influence economic growth without passing
through the educated people. However, economists believe that one can combine the direct
influence of education through disembodied technological progress and the indirect
influence of advances in knowledge brought about by non-formal education and technical
and managerial knowledge. By doing this, one can derive a very large proportion of growth
attributable to improvements in human capital or education broadly conceived. However, the
disembodied technology or the indirect influence of education is the biggest and most basic
reason for growth of output in most countries of the world.

Controversies about Education-Economic Growth Relationship

There are controversial issues with respected to the link between education and economic
growth. Firstly, return to investment in education reflects the return to investment in labour
as a factor of production rather than return to education as an independent factor. This is
because education works through man as a carrier. Therefore, there is a controversy as to
what the contribution of education itself is to economic growth. Secondly, since
consumption aspect of the spending on education is not an investment that part of education,
which is consumed, does not contribute to economic growth. Thirdly, there is the problem of
how to isolate the effect of education on workers’ productivity as distinct from the
effects of other variables, such as innate ability, which must have contributed to individual
productivity over their lifetime.

11. Education and Development

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Contemporary discussions of education for economic development have been dominated by
three main models: namely; the human capital, the modernization and the economic
dependence theories.
The human capital theory emphasizes how education increases the productivity and
efficiency of workers by increasing the level of cognitive skills possessed by the workforce.
Theodore Schultz Garry Becker and Jacob Mincer introduced the notion that people invoked
in education to increase their stock of human capital. The proponents saw; human capitals as
the stock of economically productive human capabilities, which is a product of innate
abilities and investments in human beings. Examples of such investments include
expenditures on education, on-the-job training, health and nutrition. Such expenditures
increase future productive capacity at the expense of current consumption. However, the
stock of human capital increases in a period only when gross investment exceeds depreciation
with the passage of time, with intense use or with lack of use. The provision of education is
seen as a productive investment in human capital, which the proponents of the human capital
theory has considered as equally or even more equally worthwhile than that in physical
capital. In fact, contemporary body of knowledge in the United States of America
acknowledges that investment in human capital is three times better than that in physical
inputs. The rationality behind investment in human capital is based on three main
arguments1. First, that the new generation must be given the appropriate parts of the
knowledge, which has already been accumulated by previous generations. Second, that new
generation should be taught how existing knowledge can be used to develop new products to
introduce new processes and production methods, and to improve the efficiency of
organization in business, government and social services. Third, that people must be
encouraged to develop entirely new ideas, processes and products through creativity. Human
capital theorists have established that basic literacy enhances the productivity of workers in
low-skill occupations. They further state that an instruction that demands logical or analytical
reasoning or provides technical and specialize-knowledge increases the marginal productivity
of workers in high-skill or professional positions. Moreover, they belief that the greater the
provision of schooling, the greater the stock of human capital in a society and consequently,
the greater the increases in national productivity and economic growth. In fact, the human
Capital theory lays emphasis on skill acquisition as it affects development.

The modernization theory focuses on how education transforms individual values, beliefs,
and behaviour. Exposure to modernizing institutions (such as schools, factories and the mass
media) inculcates modern values and attitudes. These attitudes include openness to new
ideas, independence from traditional authority, a willingness to plan and calculate future
exigencies, and a growing sense of personal and social efficacy. According to modernization
theorists, these normative and attitudinal changes continue throughout the life cycle,
permanently altering an individual's relationship to the social structure. The greater the
number of people exposed to modernizing institutions, the greater the level of individual
modernity attained by the population. The pace of society modernization and economic
development quickens once a critical segment of the population changes. Thus educational

18
expansion, through its effects on individual values and beliefs, sets in motion the necessary
building blocks for a more productive work force and for sustained economic growth.

The dependence theory arose from Marxist conceptualizations, based on the dynamics of
the world system that structures conditions economic transformation in both the core and
periphery of the world economy. The proponents argue that long-term development is
constrained by the prevalence of foreign investment capital, the presence of Multinational
Corporation, the concentrations on exporting primary products, the dependence on imported
technologies and manufactured goods. However, certain features of the world polity (such as
state fiscal strength, degrees of regime centralization and external political integration) may
contribute to economic growth in the Third World. Critics have pointed to the evidence of
widespread unemployment and its negative impact on also pointed out that educated
individuals with modern attitudes and values are causes of brain drain with its deleterious
impacts on the stock of trained personnel, potential entrepreneurs and consequently, on the
rate of growth of development. It is not surprising, then, that many commentators have
become more cautious and skeptical about the presumed positive economic impact of
education. Nevertheless, there are new advances from the feminists.

Feminist Models of Education for Development could be traced to the 1970s when
important feminist critiques of the models of development emerged. The basic premise of the
feminists with respect to their arguments against the human capital and the modernization
models of education for development is captured in the statement made by Coats (1994:19)
that women are disadvantaged and that something must be done to redress this problem.
Steps must be taken to expose this disadvantage, to change and correct it. Although, still
growing bodies of enquiry, three different strands of feminist theories have emerged to
explain women's positions in society concerning education for development, namely: the
liberal feminism, the radical feminism, and the social (Marxist) feminism. The main
contribution of the liberal feminists to the existing educational thoughts, that education is a
good and compensatory instrument of development is the notion of 'equality’ They argue that
one way of redressing the disadvantage of women is by encouraging individuals to fulfil their
potential or of redressing the balance between women and men. Thus, access to education is
fundamental to liberal perspective since it claims that by providing equal education to both
sexes, an environment would be created in which individual women's (and men's) potential
can be encouraged and developed. Liberal feminists agree that ignorance is the main cause of
sexual inequality and therefore knowledge dissemination is the principal solution. Further to
the discussion. One major limitation of the liberal theory of education for development is that
it tends to concentrate on enabling individual women to redress disadvantage without much
emphasis on challenging discriminative practices in education. Radical feminism arose from
the need to put actions into the earlier women's liberal views. Radical feminists attribute
inequalities in schooling to patriarchal forces and male-dominated power relations to which
sexuality and hierarchy combine to create the "dominant male" and ''subordinate female"
dualism. Therefore, neither the responsibility nor solution to sexual inequality can be placed

19
entirely on the shoulder of educators; rather women must do what they can to re-educate
society into non-sexist behaviours and practices. Radical feminism has therefore given
women the way to initiate, explore and suggest changes through the analysis of women's
experience, the fostering of collectively and development of new strategies. Radical feminism
assumes that, to be aware of the effects of male domination, women have to undergo a
process of women focused, women only education known as consciousness raising education.
In curriculum content and methods, radical feminists challenges viewpoint that women's
education consists of domestic and recreational subjects, which suggest that women are
interested only in where they live and what they look like (Coasts, 1994:22). One major
contribution of the radical feminism to the belief that education is an instrument for
development is its ability to bring into focus the issue of gender, which refers to the roles
which each society assigns to men and women with respect to education and training. In the
recent time, radical feminists have challenged fundamental generalizations concerning
embodied technological progress. They have argued that educated female workers are more
productive than their male counterparts are. This argument has implication for the growth
model since the general equation accommodates the gender difference. However, the
signaling and screening hypotheses have built the gender dimension to the calculus of
education and economic growth by specifying sex as one of indices that employers consider
in using education as a screening devise for the purposes of employment

12. The Manpower Aspect of Education

Manpower is the power of work in human being. Education is capable of transforming the
power of work in human beings. With it, they acquire greater force or power to work. We
need to remember that good food and health status is capable of transforming the power of
work in man. Thus education is just one of the instruments needed to improve the power of
work in human beings.

Manpower Levels: Different levels of workers require different doses of education. The
highest level of power of work in human beings requires university or equivalent education
for transformation. The high-level workforce embraces university graduates or equivalent
that is in the managerial, administrative or professional categories. The middle -le\ el
manpower is made up of intermediate cadre of supervisors, technicians and foremen. This
cadre requires at least one-year specialized training after school certificate. The low-level
manpower is made up of persons with craftsmanship, apprenticeship training and whose
duties call for no previous training. This category of manpower consists of tradesmen,
without no previous training (skilled labour, semiskilled labour).

Manpower Development and Transformation: The level of transformation of the power of

beings depends on the learning time, learners’ motivation and capacity to teachers’ to
inculcate skills, technology used for delivering the skills and the training content. For
example, a person who spends three years in a degree awarding institution is expected to

20
experience higher level of skill transformation than another person who attends a two year
diploma course in the same discipline. The economy requires skills ranging from simple
manual labour to the work of highly –trained scientists. It also requires skills and abilities of
various drive, commercial competence and judgment. The power of work in human beings
has two main dimensions, namely: the inherited and the acquired. These two aspects of
manpower differ in respect to the process of formation. Inherited abilities are neutral and are
therefore approximately the same whether a country is poor or rich, backward or modern,
provided the population is large. In the case of acquired abilities, the formation and
maintenance are subject to depreciation and obsolescence. The distribution and level of
acquired abilities may alter during a period. Historically, they have been altered vastly in
countries that have developed a modern economy (please, refer to modernization theory). In
this respect, the difference between poor and rich, backward and modern countries is indeed
great.

Manpower Aspect of Education through Planning: We talk about the manpower aspect of
education since skill development is just a single part of education and training. For instance,
each educational programme embraces development of skills, imparting of knowledge and
inculcation of right values and attitudes. Through these three aspects of education, each
society aims at manpower development, increased social equity and nation building. Nation
building is the main concern in those countries, which have a diversity of people and are
consciously attempting to consolidate or change the ideological orientation of the
population. In such countries, an important aspect of education is the socialization
of students, especially primary school pupils. Many countries also believed that education is
a human right, particularly at primary school level. The tendency is therefore, to focus on
increasing the access of particular regional, ethnic and disadvantaged groups to educational
opportunities. Moreover, most countries justify educational spending by making a general
statement that the future expansion of the economy required a more highly educated labour
force. Often, planners enumerate specific occupational requirements. They also specify types
and levels of education required especially at the post-secondary level. This process is
generally known as manpower planning, which is meant to link education with occupation
and vice-versa.

The Occupation - Education Link: The formation of human capital, especially through
those activities that have become organized and specialized in a modern economy, is of a
magnitude to alter radically the conventional estimates of savings and capital formation.
Various categories of skilled workers have prior education requirements and without these
requirements, workers of the appropriate skill either will be unobtainable or will have a
significantly lower level of productivity. However, there are occupations where the link
between occupation and education is less obvious. For instance, Layara and Saigal (1966)
found that the association between output per worker and educational structure of
occupational groups in various countries is small. Nevertheless, Sheehan (1973),
hypothesized that technical changes and innovations require progressively higher proportion

21
of more skilled workers in various industries. Thus, if skilled manpower is not available in
the quantities dictated by technically fixed production coefficients, the resulting bottlenecks
will restrict the growth of output in various industries and in the economy as a whole.
Manpower Control: The assumption that certain skills are required at appropriate quantity
in order to attain a given level of output led to manpower planning. Planning is important to
produce sustained growth in countries where it is not possible to rely on the market
mechanism; where population is growing rapidly and where large government sector exists.
Manpower planning is meant to supplement the free market mechanism and not to supplant
it. Since the supply of workers is done by educational institutions, while the workforce is
usually demanded by the economy through the labour market, manpower planning is meant
to ascertain that the right quantity and quality of manpower is supplied by the educational
system to meet the requirement of the economy. Education is to a large extent a public good
so that market forces are not completely free to determine the optimum quantity and price of
education. The long lead-time between the beginning of education and the time the recipient
tries to sell his/skills in the market place makes it difficult for the consumer to evaluate its
worth at the inception. If a surplus or a scarcity of some types of skill develops, it takes a
long time before the reactions of the market in terms of a decrease or an increase of salary
will create the required adjustment of fewer or more people acquiring that skill respectively.
In countries where education is highly valued, suppliers (institutions) may supply more
manpower, while employer of labour demands less manpower than required thus creating a
surplus situation. On the other hand, when education is undervalued, supply may drop,
while demand for manpower increases. This may lead to scarcity situation. When surplus or
scarcity of workers cannot be controlled by free interplay of the forces of demand and
supply, planning becomes necessary-either at the side of education(educational planning) or
at the side of the economy(economic planning).

Labour Market Analysis: Labour is the collective name given to the productive services
embodied in human physical effort, skills, intellectual power, attitudes and aptitudes. The
manpower aspects of education simply concern the skills, talents, aptitudes and attitudes
with which education can provide the future working population. A nation with plans or
aspirations for economic development cannot afford to slight the preparation of its agents of
production. The creation of a new steel works, for example, is meaningless unless provision
is also made for scientists, engineers, managers, skilled workers and clerical staff necessary
to operate it. One of the functions of an educational system in a society is to provide its
workforce with the abilities required for productive activity. It therefore follows that the
system must be reasonably well geared to the production requirements of the economy.
Ideally, it is the future patterns of requirements that must guide today’s educational
decisions. However, to forecast future needs of the economy for educated manpower is not
an easy task. One difficulty in forecasting manpower requirement is the uncertainty
connected with the effects of technological progress on the future patterns of requirements.
It is generally believed that it is extremely difficult to foresee the effects of such
developments on manpower need a decade or more hence, in many cases, the new

22
technology creates new occupations. It is even safe to say that no manpower forecasts that
might have been made in the early 1950s in North America or Europe could possibly have
foreseen the phenomenal demand for a whole range of skills associated with computer
technology today in 2015. In the present state of the art of manpower aspects of education, it
is probably more useful to think in terms of analysis of the labour market operations as a
basis for educational development. In general terms, educational planning seems to avoid
persistent labour market disequilibria. That is, situations whereby there are either critical
surpluses or critical shortages of workers at various levels of skills. For effective educational
planning, the labour market operations must be studied in such a way that the private and
public sectors will be analyzed differently. Labour market operates' differently in these
sectors for the following three major reasons (R-A-M).
 Responsiveness of public and private sectors to the labour market situation: Labour
market situations include the supply of, the demand for and the prize of labour. When
these situations change, the public and private employers of labour are expected to
respond in such a way that there will be equilibrium between the demand and supply of
labour. However, in the short run, the private sector, more that the public sector, has the
ability to respond to relative changes in market situations, particularly if the demand for
labour is not sudden and sizeable. This also happens if there is a short gestation period
within which a skill can be trained. Moreover, it happens if there is opportunity to
substitute (or transfer) one type of labour for another, or capital and raw materials for
labour or if there is an external source of labour from where private sector can employ
when there is scarcity. Thus, the private sector does not experience critical surpluses or
critical shortages, owing to the responsiveness of these private institutions to different
opportunities such as changing wage rates and using expatriates. On the other hand,
public institutions may not react flexibly to changing labour market situations,
particularly to wage adjustments. The government has the propensity to insist on uniform
wage scales, which prevents public sector from adjusting relative wages in response to
shifts in the labour markets. It is therefore common in the public sector to experience
surpluses and shortages.
 Adjustment ability to regulate the market situation: For middle level manpower, the
gestation period is short and therefore critical shortages are not likely to persist unless
there are inappropriate signals and institutional constraints on the operation of the labour
market. When the production of a particular skill is expensive and requires long gestation
period, it may not be efficient for private sector to embark on such training. This is
because; public sector has the ability to insure against risks of unemployment, failure and
dropout. It may therefore underwrite major sources of supply of skills with long gestation
periods and which involve high production costs, for example, training of teachers,
doctors and scientists. The public sector often controls these major sources of skill
through its special regulations on the licensing of certain activities and through its control
on external sources of labour by immigration and emigration policies. At the low level of
manpower production, government can formulate policies with regards to the opening of

23
 new schools. This may have an impact on private sector activities in the field of
education. All these may affect low-level manpower situation.
 Mobility of labour (spatial and occupational): The mobility of labour has two aspects.
First, we have the spatial or geographical mobility of labour. This relates to the rate at
which labour moves between geographical areas and regions in response to differences in
wages or job availability. Second, there is the occupational mobility of labour. This
relates to the extent with which workers change occupations or skills in response to
differences in wages or job availability. Job shifting is common in private sector than in
public sector where workers want to optimize retirement benefits, and therefore feel
reluctant to change job. Moreover, spatial mobility of labour is more experienced in
private than in public sector. This is because in the private sector, response to differences
in wages, benefits and opportunities, prevent the emergence of critical shortages or
critical surpluses. However, social factors, which diminish the willingness of workers to
move constrain mobility of labour. A pro-cyclical flow of middle-level manpower is
another important manpower issue. Workers at this level use to leave their country as the
world economic activity increases and return home during world recessions.
Consequently, middle level workers become scarce when the situation is favourable. On
the other hand, they become surplus during recession, making it difficult to maintain
domestic employment and economic growth. In the public sector, there is an inordinate
desire for middle-level manpower to attempt to gain paper qualification that will enhance
their promotion into the higher levels of the wage structure. This is because of a bias
toward higher level qualifications. It is therefore common for education sector to focus on
the formal vocational education to prepare people for the middle level work. For example,
one study showed that while the training for agricultural technical workers was probably
valuable, that students were aware that the government wage scales for those kinds of
workers were not sufficiently high to warrant the time and expense of completing the
course.

Having analyzed the labour market, the planner moves to the next stage of planning. This involves
deliberate manipulation of the three main manpower issues highlighted earlier. That is, by
stimulating the response of schools to the labour market situation, controlling the market situation
through regulation, and by encouraging mobility of labour within and outside the country.
Government in a number of ways could encourage occupational and geographical mobility of
labour. For instance, this could be done by disseminating information on job opportunities, by
providing adequate infrastructure in rural areas and by giving tax concessions, inducement
allowances and free housing facilities, to works in rural schools. Improvement in transportation,
electricity, education and health facilities could lead to greater mobility of workers. Government
could further encourage retraining of workers to ensure that they are trained in the required skills.
Lastly, government could reduce trade restrictions placed on entry into some trades.

13. Correspondence between Education and Work

24
There is a close link between education (that is schooling) and work, even though schooling
is for the most part for the young; while work is, by law, meant for the adults, especially
above age 18 in countries like Nigeria. Owing to the fact that the structure of schooling
matches up with those of work organisations, most works and careers have educational
requirements for entering into jobs and progressing of the job. In many countries, they
designed and judged schooling according to its contribution to the labour needs of their
economies. Schooling is not the only means of training people for work. There are the
traditional sources of preparation for adult responsibilities, such as family, church,
apprenticeships, and community. A traditional society can adopt apprenticeship to train
people to produce at a subsistence level, food, shelter, and clothing that the people need for
their day-to-day living. In the more advanced economy, where division of labour is the
vogue, pre-work formal education and training are very important to prepare young people
for the world of work. On-the-job education and training are also essential in the developed
societies to update the job attitude, skills and knowledge of their workforce. Post job
education and training are equally essential in the contemporary economies to fit retired
workers to the society. However, the traditional sources are no longer adequate for preparing
the modern industrial workers. The post-industrial school is a bureaucratic institution that
closely reflects the work process in the industry.

School as a Bureaucratic Organisation: School like the workplace, is a hierarchical,

bureaucratic and personified organisation with highly centralized control of the overall
institution through central school boards, administrators, and school-level directors such as
Headteachers, or principals. Just as in the workplace, the work process for teachers and
student/has been set out well in advance of the implementation of the schooling activity and
without the involvement of the major participants. A political and administrative process
usually sets out the design and planning of the curriculum, pedagogy, sequence of courses,
selection of textbooks, and methods of evaluation with the assistance of technical specialists.
In line with the division of labour in the workplace, the school system divides each course
into units and subunits that learners followed sequentially and often learned by rote to enable
success on standardized tests of the units. Teachers supervise a work process that is relatively
uniform and usually organized according to grade levels. Similar to what operates in the
workplace: students have little control over the use of their time input into the learning
process, but the school mainly expects them to respond correctly to the demands placed upon
them. Classroom teachers like those that supervise at workplaces; have authority over
students by virtue of their superior positions in the hierarchy. They generally carry out the
implementation and evaluation of the process. In line with what operates in the workplace,
the reward and control systems in the school are extrinsic. Schools control and reward student
activities through extrinsic motivations (external to the educational activity rather than
because of the direct satisfaction received from the activity itself) and other sanctions such as
promotions, and access to later educational opportunities in a world, where such educational
opportunities translate directly into opportunities for economic and occupational status. Like
most workers, students too, are alienated from the process and product of their own efforts

25
and they are in direct competition with their fellow students for schooling rewards and for
kindness in the eyes of their supervisors. This is because the society planned, controlled,
supervised, and evaluated school activities by an organizational approach and process over
which the student has little or no control. Lastly, schooling closely reproduces the workplace
characteristics in its treatment of persons from different social-class, background, race, and
gender. In the workplace the most remunerative, powerful, and highest status positions are
generally occupied by persons who themselves have considerable educational advantages and
come from higher social class origins. In the schools, persons from less advantaged
backgrounds generally receive less education and schooling of a poorer quality than those
from more advantaged backgrounds. For many countries, this is also true for the children of
immigrants and rural inhabitants, racial and ethnic minorities, and females. It is most likely to
find children from higher socio-economic origins in elite, private schools or higher quality
public schools with better-trained teachers, smaller classes, superior facilities, and better
instructional materials than their less-advantaged peers. In addition, schools based their
streaming on “'aptitudes". School generally functions to assign children from more
advantaged families to academic and reputable programmes and those from less advantaged
families to basic and vocational preparation. The former programmes tend to lead to
university and the most prestigious jobs and professions, while the latter have a propensity to
prepare students for relatively unskilled work or limited vocational training in technical
institutes, colleges of education and training schools. In many noticeable ways, the structure
of the schooling resembles that of the workplace, although the connection is never complete,
as other dynamics also influence the nature of schooling. However, it is useful to distinguish
several functions of the schooling process that contribute to the formation of workers, and in
doing so, to the reproduction and expansion of the production process. First, schools produce
both general cognitive skills and specific vocational ones that correspond to the skill
requirements for entry at different job levels. Second, they produce those behaviours, habits,
values, and awareness of social processes among children that will predispose them to accept
the conditions and social relations, which predominate among work organisations. Third, as
reproduced in the inequalities of the work hierarchy, the schools legitimate the differential
preparation and certification of the young for work roles according to class, race, and sex.
Finally, schooling plays a major role in reproducing the ideology of the forms of work that
characterize a society as well as workplace justice. In this respect, students learn that in the
capitalist workplace, the society allocates rewards according to individual effort and
productivity and that only their educational attainment limits social mobility as well as efforts
in both school and in the workplace.

Positive and Normative Theories of Education and Work: Correspondence theories

relating education to work can be either positive or normative. Positive approaches
characterize efforts at explaining the pragmatic and observable links between education and
work as well as their growth and development. In contrast, normative approaches tend to
focus on what should or ought to be the correspondence between education and work. That
is, normative theories emphasize an ethical or moral approach to the issue rather than

26
attempting to explain what exists or has existed. While social scientists and educational
planners adopt the pragmatic and rational approach in relating education to work, educators
on the other hands, are particularly concerned with the normative view, since it has important
implications for designing the structure and content of schooling, that is, what should be
taught and how.
 Normative Theories: The two principal normative theories regarding the relation
between education and work differ primarily according to the role accorded education in
a society. The first theory beliefs that schools should prepare workers in the right
numbers, and with suitable skills and acceptable behaviours, to serve the system of
production. This implies that the schools should aim at achieving "social efficiency" by
preparing workers for the existing economic order, and the criterion of success is the
degree to which the schools provide trained workforce to fill the needs of the economy.
To a large degree, the field of educational planning rests on this type of economic demand
approach where vocational orientation reflects in the curriculum. The second normative
viewpoint is that schools should provide a moral education committed to human
development and democratic principles without allusion to the needs of the workplace.
This implies that the schools should aim at achieving "social efficiency" by preparing
morally sound young people for the existing socio-political order, and the criterion of
success is the degree to which the schools provide responsible adults to fill the needs of
the society. Largely, educators and philosophers have a high regard for this social demand
perspective in which logic and values underlay the social efficiency approach. In this
case, there is no observable correspondence between education and workplaces.
 Positive Theories: Many capitalist societies sponsored vocational education.
Consequently, there is an observable correspondence between education and work in all
these societies. Nevertheless, this still leaves the question of why so much of the
schooling enterprise that is not seemingly oriented towards vocational training in the
capitalist countries still seems to be highly functional to the needs for wage labour in
those societies. The theory of human capital probably explains these relations. Human
capital theory views education as an investment for increasing human productivity.
According to this theory, there is a correspondence between productivity and earnings in
that the higher the productivity of workers the higher their earnings. Accordingly,
individuals and societies invest in education to raise productivity and earnings, and both
entities will invest in schooling to the point where the present value of any additional
investment is exactly equal to the present value of the investment returns (that is the cost-
benefit approach to educational planning). Sometimes economists use a measure of the
internal rate of return to compare investments in education with those of other
alternatives. Although the theory of human capital does not address the issue of
correspondence between the school and work directly, it does imply that since investment
returns are the ultimate guide for educational decisions, families and societies will
attempt to make certain that education is vocationally relevant. In contrast, sociologists
have devoted considerable attention to the close correspondence between the organisation
of schools and that of the workplace. However, in many ways they differ in their

27
 explanation of how this relation developed historically and why it exists today. Important
distinctions include whether the general reproduction of workers through the schools
explains the historical development of the relation, or whether it emphasizes a social
class-based on a Marxian framework of the class conflict. Whether the emphasis is on the
reproduction of skills and qualifications or other aspects of worker reproduction or
whether there is an explicit consideration for the state in the formulation of the theory.
The school reproduces the production system through the system of values, norms, and
language of the schools as well as a system of segment, which relies on class criteria. The
major criticism is that the origins of inequality, and the dynamics by which the schools
function to reproduce it, are not explicit in this theory. Instead, the theory views the
schools as operating in a mechanistic way with -no mention of the origin of forces that
create their motion.
 Marxian approaches provide a dynamic framework to explain the connections between
education and work. The Marxian view places the productive system at the centres of the
explanation as well as the class conflict between capitalists who own the means of
production and workers who must sell their labour to capitalists to obtain income. In
order for capital to expand, capitalists must, extract a surplus in the value of labour
extracted from the labour power of workers relative to the wages paid them. In order to
do this, the capitalist owners and their managers have adopted production techniques
designed around a minute division of labour, hierarchy, and both bureaucratic and
technical control of the production process. This approach divides workers against each
other in competition for jobs and promotions, while routinizing the extraction of a surplus
from the labour input. The cost to workers is high in the form of “deskilling” of the work
process and in the loss of control by the worker of both the process and product of
his/work activity (the Marxian concept of alienation). While the form of production
adopted by the capitalist reconciles the structural contradiction or "struggle of opposites"
between capital and labour, the capitalist still must face the challenge of obtaining
workers who will be adapted to the system of work relations that awaits them. In general,
the Marxist explanation sees the schools, as instrumental in preparing wage labour that
will be well equipped with the skills, values, and attitudes to accept the capitalist order
and to contribute to capital accumulation. However, there are some observable
differences between the school and the workplace. Schools are more equitable and
democratic than work organizations. Moreover, schools have more constitutional
protections than the workplace. In societies, there are greater opportunities for upward
educational mobility than for upward occupational mobility. These theories have failed to
provide explanations to these differences and their implications for the
correspondence theory of education and work.
 Theory of State in Explaining Manpower Issues: Instrumentalist or Structuralist
assumes that the state is strictly an instrument of the capitalist Class, however, analyses
that are more refined view the state as a field for enduring struggle between capital "and
labour and among class divisions. The legitimacy of the state depends upon its
ability to provide reforms while at the same time meeting the needs for private capital

28
accumulation. However, reconciling both sets of needs is often impracticable.
For that reason, there is always a struggle between capital and labour and among
components of both capital and labour to shape the configuration and actions of the state
on behalf of class and subclass interests. The schools exist within the state and
therefore suffer the same internal contradiction between the demands for reforms and the
pressures of capital accumulation. That is, the schools are in conflict within themselves in
their attempts to satisfy the needs of two masters with incompatible goals. The school
policies mediate this internal contradiction by attempting to meet the needs of both the
democratic and egalitarian aspects of schooling. However, this mediation creates a
situation where the school is neither under the control of capitalist nor of labour. Thus,
although the influence of capitalist ideology and practice on the operations of schools can
explain their correspondence with the workplace, such factors are unable to explain the
fact that schools provide more opportunities for upward mobility than the workplace.
Indeed, education has become more equally distributed over time, while during the same
period income distribution has been unchanged or has become more unequal. Further,
educational opportunities for females and economically disadvantaged groups are
generally far superior to those in the workplace. The outcome of the struggle to satisfy
two masters is the tendency for the educational system to produce a larger number of
educated workers than can be absorbed by the economic system at appropriate
occupational levels. This is because political pressures on the educational system to
expand in order to accommodate all aspirants will tend to increase the number of
educated persons beyond the availability of appropriate jobs in the economy. In this case,
highly educated people seek jobs requiring qualifications lower than the ones they possess
with consequential negative effects on productivity. The most notable concerns seem to
be that the frustrations and work dissatisfaction of the over educated may contribute to
such costly phenomena as worker absenteeism, high labour turnover, alcoholism, drug
usage, strikes, and worsening of product quality. In contrast with this dynamic of
schooling to continually expand and produce more workers that are educated, there is a
rather different one for the economy to create more jobs for educated labour. Although
there is common pattern of correspondence between the schools and the workplace, the
struggle over school policy will tend to create a divergence that may create obstacles to
further capital accumulation unless the schools and the workplace reforms create a
smooth pattern of reproduction of workers for capitalist production. Two prominent
educational reforms that seem to address the growing contradictions are career education
and recurrent education. Career education represents a broad attempt to integrate more
fully the worlds of education and work. Pertinent strategies include attempts to increase
career guidance and student knowledge on the nature and availability of existing jobs; to
improve the career content of curricula; to provide periods of work and schooling
interspersed through the secondary schooling cycle; and to inculcate students with a
more realistic understanding of what to expect in the workplace. At the university level,
the movement towards career education takes the form of reducing the availability of
non-vocational courses and fields of study as well as changing university governance to

29
 increase the voice of the business community. Obviously, an important element of
this strategy is to reduce "unrealistically high" expectations for high-level careers and to
guide students into more attainable ones. Recurrent education" and lifelong learning refer
to establishing patterns of post-secondary training that recur over a lifetime rather than
completing advanced education and training prior to entering the labour force.
Apparently, a typical pattern would entail labour force entry after the completion of
secondary school with further education and training provided, as needed, for career
mobility through educational leave as well as on-the- job training. This approach would
replace the more traditional one in which many persons take advanced training or
university education immediately after secondary completion, entering the labour market
only at the end of formal studies. This proposal would also match more closely the needs
of employers with the educational system, and it would tend to reduce the number of
persons with educational levels in excess of those required for available jobs by lessening
the initial demand for university degrees prior to labour market entry. . However, there
are reasons why they have not met with substantial success. First, no matter how realistic
the schools are about the available jobs, most families have no alternative other than
education for providing opportunities for their children. Without an alternative route for
social mobility, it is unlikely that parents and students will become more “realistic”. As
the educational path diverges from that of the workplace, it is more likely that changes in
the workplace will be the major mechanism for reestablishing correspondence or
equilibrium. The disruptive potential of over-education for productivity and capital
accumulation has created the need for addressing worker challenges in the workplace
itself. One of the most prominent movements in this direction is that of increasing worker
participation by establishing various forms of workplace democracy to increase the
intrinsic involvement and satisfaction of workers and their commitment to work. The
dynamics of this underlying dialectic confound the assumptions of educational planners
and reformers who plan the educational system to meet the needs of the workplace.
Despite the best intention of the planners, the system “devices” itself, and the cost are
often enormous.

14. Theories of Demand for and Supply of Education

Educational Demand: Demand for education has to do with willingness, ability and
readiness to acquire something that is considered useful enough to pay the price attached to it
and bear the risks involved in acquiring that thing. Economists use the eligible relevant age
population or the number of qualified potential entrants who are willing, able and ready to
participate in a particular educational programme at a given cost and at a specified time to
measure educational demand. In countries where data on qualified applicants is available, it is
possible to assume that the total number of eligible applicants represents the expressed
potential demand – regardless of willingness cost, and ability to pay. For clarity sake, we
need to return to our earlier concepts of investment and consumption as these relate to the
theory of demand.

30
 Investment Approach: The investment approach to the theory of educational demand
views the decision to enroll in educational institutions as an investment decision. Thus, an
individual will purchase education if the present worth of the expected stream of benefits
resulting from the education exceeds the present cost of the education. The expected
stream of benefits include the additional lifetime money income resulting from such
education; and the additional social and intellectual amenities, which a person might
expect to receive as a result of having acquired such education. The cost of education
includes direct money outlays (in the form of tuition and fees, books, differential living
costs, and other outlays incident to going to school). It also includes indirect financial
burdens (in form of opportunity costs, as measured by the loss of income incurred while
in school); and the non-monetary costs (which include such things as the burden of study
and for some students, the pain of being away from home). Investment in education, like
other investments, involves risks such as that of failure to complete an educational cycle
and risk of unemployment on completion. Consequently, the theory of educational
demand assumes that individuals act according to estimates of a rate of return with due
allowance for the risks attached to their investments. Ordinarily, the individual is to
compare the expected rates of return with some appropriate interest rate. An individual
acquire a level of education if the expected rate of return exceeds the rates of interest. On
the other hand, the individual does not acquire the education if the interest rate exceeds
the rate of return. An aggregate demand schedule for enrolments derives from arranging
demand. Moreover, demand schedule for enrolments derives from arranging individuals
according to their expected rate of return (from highest to lowest). The total number of
enrolments demanded would be the same as the aggregate of all enrolments for which the
rate of return exceeds the rate of interest. The rate of interest is the yardstick against
which economists compare individual's net benefit. This is because the theory of
educational demand assumes that loan capital will be available to all those who wish to
purchase education. However, this is not always so. This is because students, especially in
developing countries, fail to obtain loans from banks to pursue their education, owing to
lack of collateral. The supply of credit for educational lending is still imperfect, and most
individuals must depend upon personal or family resources, personal loans, gifts and
scholarships. Consequently, aggregate demand measures through comparing individual's
rate of return with some appropriate interest rate, may be relatively insensitive to changes
in market rates of interest. Enrolment demand is likely to vary when there is a change in
factors affecting the expected rate of return. For instance, a fall in expected money
income, or a reduction in the uncertainty of acquiring employment, and a fall' in returns
from educational investment and increases in the cost of educational investments would
lead to reduction in educational demand.
 Consumption approach: The consumption approach to the theory of educational
demand asserts that an individual will purchase education if the costs of enrolment are
relatively lower than the current consumer goods prices. In other words, for a given
population, enrolment demand should vary positively with the consumer price index and
negatively with the money and real costs of education. The stream of benefits expected

31
 from education includes the additional social and intellectual amenities that a person
might receive because of his/her education. This element of the expected benefits makes
education to look like a consumer durable, yielding a stream of future services over the
lifetime of the individual. In addition to these future services, an enrolment may bring
current consumption benefits such as social, intellectual and athletic activities available in
educational institutions. Although it is not easy to measure the value of these benefits, it
is approximately measured by the outlays an individual would have to make to buy a
substitute bundle of goods and activities outside the educational institution. Thus, the
higher the prices of consumer goods in general, the higher the current consumption
benefits of education, particularly the subsidized systems.

Factor Influencing Educational Demand: There are two sources of educational demand, namely;
private and social. Without intervention of government or donors, students (private) would be the
only source of demand for education. A student's enrolment demand reflects his or her (and the
family's) willingness to pay for education. Since education is in part, an investment, the private
demand for education reflects the student's desire to save and invest as well as their perceptions
of returns. It also reflects value to education as consumption good. Thus, the enrolment demand is
a function benefits a student expects to receive (in and outside the school) and the costs that a
student must bear while in school. The costs include direct outlays on tuition, accommodation,
hostel, uniform and transport. The costs also include earnings that a student would forego because
of schooling. The higher the salary of an employed prospective entrant, the less schooling becomes
attractive and vice-versa. The fundamental assumption, which relates to individual's
assessment of the rate of return of any particular educational decision is essentially a simple
application of the law of demand, which assumes that more and more of a particular
commodity will be purchased as its price reduces. Thus, when applied to education. it is
assumed that more education will be purchased at lower prices while less will be purchased
when its prices increase. As a rule, the quantity of education demanded increases when the
expected benefits increase and when the price decreases. For a good understanding of this
relationship, we need to make a distinction between cost and price of education. As earlier
defined, the cost of education refers to whatever an individual or government gives up for
the purpose of education or being educated. There is the money cost as distinct from the
opportunity cost of education. The money outlays on furniture, equipment, building,
salaries, consumable, tuition, books, uniforms, accommodation and transport are the money
costs of education. On the other hand, the salary foregone by students while in school is an
example of opportunity costs of education. Price of education is the amount of money
tagged on education. It is usually referred to as fees paid on educational service. In most
cases, the price of education is always less than its cost. This is because, by its nature as a
quasi-public good, education enjoys government’s subsidies. In many developing countries,
public education is provided free. Zero prices do not mean free consumption; neither does it
mean zero cost. What it means is that the cost is not borne by the recipients.

32
Apart from the price charged on education that affects the quantity demanded the following
factors cause shifts in demand for education:
(i) Price of substitute- changes in the price of close substitute affects the willingness and
readiness of people to enrol in school. If the price of overseas training drops while that of
local training remains constant, prospective candidates may switch over to the cheaper
substitute. This will adversely affect the demand for local training.
(ii) Price of complements: Holding the price of education constant, a change in the price, of a
complement such as books, school uniforms and dormitory, will affect the willingness and
readiness of potential entrants to enroll in school. The change in the cost of books may lead to
a shift away from education to some other activities. Some poor parents may become
discouraged and consequently withdraw their children from schools. Consequently, the
higher the price of complements to education, the less attractive is that education.
(iii) Population of consumers. A change in the school-aged population leads to a change in
demand for education, even when the cost of education remains constant.
(iv) Income of consumers. Holding the price of education constant changes in the income of
the parents or the potential entrants affect shift in demand for education. It thus implies that
the higher the income of consumers, the more the shift in demand for education. It is
important to note that there are three main decision-makers who take schooling decisions in
respect of their requests for places in the education system. These are the household
comprising parents and their children, the society or governments and institutions of learning.
All these decision-makers consume educational goods and service either directly or
indirectly.
(v) Taste and preferences of consumers. Holding the price of education constant, a change in
consumer’s preference and taste will lead to a shift in demand for education. The higher the
consumer's taste for education, the more is the shift to education and vice-versa.
(vi) Advertisements on education. Holding the price of education constant, a
change in the effectiveness of advertisements leads to a shift in demand for education. It can
therefore, be said that the more effective the advertisements on education, the more the shift
in demand to education. We can represent the above factors by the following functional
equation (4PITA):
( )… (1)
Where:
Ed = Enrolment demand
Pe = Price of education
PS = Price of substitute (ignorance is not an option)
Pc = Price of complement
P = Population of consumer
I = Income of consumer (income background)
T = Taste of consumer
A = Advertisement on education

33
Formulation of an Enrolment Demand Model: The above functional equation (1) equates
enrolment demand to seven main variables. Ideally, we need data on educational costs and
finance as well as expected differential streams of income of those eligible to enroll. These
data were rarely available in Nigeria. Since education has no alternative and that ignorance
which is the only alternative is not an option, the financial costs of schooling can be
represented by an index of tuition, deflated by the consumer price index (it is assumed that
other financial cost PS and Pc will tend to vary directly with the consumer price index). The
amounts and sources of funds used to purchase enrolments can also be represented by
estimates of real disposable income per household. There is need to adjust the real disposable
income per household for size of family or size of household. This is because larger families
with given incomes will have more difficulty in sending their children to school.
Nevertheless, this difficulty can be resolved by sending children to less costly schools and by
throwing a large burden of finance upon the student himself/herself. Studies of aggregate
enrolment demand are therefore not likely to be affected seriously by variations in family
size. Tastes and preferences of the eligible candidates are not economic variables that can be
quantified. These variables should therefore be left out of the estimated model.
Advertisement is a factor that can affect enrolment demand. Nevertheless, it will have an
insignificant effect on the model of enrolment since advertisement is still marginally utilized
in education. Consequently, the three main variables that can be used to formulate a useful
enrolment demand model are the real disposable income per household in year t, the average
real tuition in year t, and the number eligible children within a given school-age population.
The model can be expressed in the following equation.
Edt, = ƒ(Pet Iht, Pt)….(2)
Where:
Pet = Price of education (average tuition) in year t
Iht = the real disposable income per household in year t
Pt = Population of all eligible children in year t.

Assumptions:
 The enrolment demand function is homogenous or co-equal. That is, when all of the
independent variables are multiplied by a constant, “c”, the resulting function
becomes c (Pet, Iht Pt)
 That taste of eligible entrants remains constant or flat over the period of study.
 Enrolment ratio (GER) is a ratio of the enrolment in year t to the school-age
population in year t. We eliminate the effects of a change in population on the model
by dividing both sides of equation (ii) by Pt Thus,
GERt = ƒ (Pet, Iht) ........(3)
 Equation (iii) becomes the general form of the enrolment demand model, where ER t
refers to enrolment ratio in year t,

The Law of Educational Demand: The demand curve is expected to slope downward from
left to the right signifying that smaller number of people is always willing and eligible to

34
enroll in schools at higher price. That is, as price of education increases demand for
schooling decreases, and as the price decreases, the demand increases. The inverse
relationship between price and quantity of education rests on consumer theory which shows
that consumer responds to lower prices by demanding more. Which means that, people will
respond to free education by either obtaining higher qualifications if they have already
obtained some qualifications or pursuing an educational course if they have never
participated in any educational programme before. The inverse relationship between
price of education and the enrolment demands is called the law of demand. The inverse
relationship is due to two main causes or factors which are explained below:
 Substitution effect implies that when the price of education falls, it becomes cheaper
relative to other substitutes. A potential entrant, who is looking for ways of satisfying
his or her needs at possible minimum cost, will tend to demand more of the cheaper
commodity.
 Income effect occurs when the price of education falls and potential entrants
become more financially able to acquire more education with their incomes remaining
unchanged. For example, a school system may have earmarked a sum of N5000 a year
for textbooks and if the price of textbooks decreases, the school can afford to buy more
books with the same N5000. The resultant increase in ability to purchase textbooks is an
increase in real income, which prompts the purchasing of more units of the goods.

Limitations of the Law of Educational Demand: There are some exceptional cases
where the law of educational demand is not valid. These exceptional cases include:
 Ostentation, which makes potential entrants to demand education even when the price
of such educational services is rising. Example includes some private schools
established for children of the rich. Demand for such schools may not decrease as
tuition fees increase because of the desire of people to be exclusive, snobbish (snob
effect) or dissociate from common people. The higher the prices of private education
the more valuable people think they are and therefore, the more willing to attend such
schools.
 Speculation about increase or decrease in the price of education may cause a
breakdown in the law of demand. Sometimes, it happens that there may be a rise in the
price in the nearest future. Consequently, potential entrants will prefer to enroll in the
programme now rather than wait to pay a higher price in future. If many qualified
eligible entrants behave in this way, then a rise in the price of education may, in fact,
lead to an increase in the number of people requesting for a school place. Speculations
may create a bandwagon effect in which case people enroll in schools because others
are doing so. Both ostentation and speculation result in an exceptional demand curve,
which does not slope downward.
 (iii) Inferior educational services are those which attract less people as real income
rises (Geffen effects).The higher the price of inferior education the less the real income
of the people and therefore the less the willingness of the people to acquire a
supposedly inferior educational service. Nevertheless, if the price of such service
35
 drops, the real income of the people will rise and that will prompt them to acquire
more of superior education. The inferior education (e.g. public primary schools in
Nigeria) is usually patronized by the poor people because they cannot afford the
superior substitutes (e.g. private primary education). Once their incomes rise, there will
be a shift from the inferior to the superior education system.
Consequently, such inferior education service experience abnormal demand at lower
prices and normal demand at higher prices.
Elasticity of Educational Demand: Elasticity of education demand is the measure of the
degree of responsiveness of enrolment demand to changes in price of education, prices
of substitutes, prices of complementary goods and services (such as books and uniforms),
and income of consumer. Elasticity of enrolment demand is normally expressed as a
percentage. The main reason for measuring elasticity of educational demand is to find out
how much increase in enrolment results from changes in user charges or fees. If in
percentage terms, the price change exceeds the resultant change in enrolment, the demand
is said to be inelastic. If the reverse is the case, then the demand is said to be elastic. If the
resultant change is equal to the price change, then the demand is said to be of unitary
elasticity. The coefficient of demand can be expressed as:

The demand for education is generally inelastic with respect to the price of education. That
means the educational demand usually drops by much less that 1 percent when price of
education rises by 1 percent. For simplicity, the relationship between change in enrolment
and change in the price of education can be expressed as follows LOG = I

That is when e is:

(L) Less than one, there is an inelastic demand
(O) One exactly, there is unitary demand
(G) Greater than one there is an elastic demand

For example, if by increasing the total fee or price of education from N2000 to N2400, the
expressed demand fell from 30000 to 25000. In order to calculate the elasticity of demand
with respect to price of education, we need the percentage difference in both demand and
price thus:
e = (25000 - 30000)/30000
(2400 - 2000)/2000
= - 16.67%
20.00%
= 0.83
Ignoring the negative sign which indicates an inverse relationship between demand and
price, 0.83 is less than one showing that the price elasticity of enrolment is inelastic.
While enrolment demand dropped by 16.67 percent price of education rose by 20.00
percent at the same period. The coefficient of educational demand is negative confirming

36
the law of demand that assumes that there is an inverse relationship between price of
education and the expressed demand for it.

Measurement Problems: Most demand studies in education are not able to measure price
changes accurately. Some countries do not charge prices at all, and those that do, vary them
very slightly, which made it difficult to observe behavioural responses to price variation.
Tuition is not the only cost-related variable that affects demand for education. However, most
studies are able to use variations in tuition fees as a surrogate measure of the price of
education. When weighed by the share of price in total private costs, tuition elasticity can be
interpreted as a reasonable proxy for price elasticity. Various measures of price of education
which have been used include number of children of different age groups, total household
cost, distance to school, fees to parent association, availability of books, means wage for
children of different age groups and average tuition fee. Similarly, the measures of the
demand itself vary from household spending on education, through the probability of having
one child in school, to enrolment ratio. This difference in the measures of demand reflects the
various choices that families make about schooling. The measures of income also vary.
Some countries use husband's (father's) income, as household permanent income (or
expenditure), while some use household income per capita. Despite the variability in these
measures an increase in most components of private costs would result in a less than
proportionate decrease in the demand for education.

Movement along the Demand Curve and Shifts in the Position of the Curve: A shift in
educational demand should not be confused with a change in the quantity of education
demanded. A change in quantity of education demanded refers to a movement along a
demand .curve. Movement along a demand curve is as a result of change in the price of
education with other factors (such as prices of other goods and services, income of applicants
and their taste and preferences) are held constant. On the other hand, a shift in educational
demand refers to movement in the demand curve resulting from changes in one, or
combination of prices of other commodity, income and taste of consumers. In this case, the
price of the education under consideration does not change. That is, the shift in demand is not
associated with a change in the price of education. The shift in demand could be as a result of
changes in price of substitutes, price of complements and income of consumers.

15. Educational Supply

Educational supply refers to the quantity of education in terms of number of places that
institutions of learning are willing, ready and able to offer at a given price over a period of
time. Applicants as well as the labour market demand educational services. Applicants
demand admissions, while employers of labour demand graduates. However, in most cases,
educational supply means the number of places available for eligible applicants. For instance,
a private secondary school may be willing to produce 1,000 school leavers every year, but
may not be able to meet this target for one reason or the other. If eventually it produces 510
school leavers per annum, the supply is 510. It may even be that 1.000 students were actually

37
admitted with the hope of making them ready for the final examination. Therefore, supply, in
this case, is not the admitted but the number actually offered for employment. Unlike the law
of education demand, as price falls, quantity of education supplied falls since producers will
be willing to supply more goods at higher prices to make more profits. The supply curve is,
therefore, upward slopping. This indicates a direct relationship between the price and the
quantity of education supplied. Hence, the higher the price, the higher the quantity of
education supplied and the lower the price the lower the quantity supplied.

16. Market Equilibrium in Education

Equilibrium point will be attained at a price where the number of places demanded equals
the number supplied by institutions of learning. This can be illustrated through combined
curves of educational demand and supply. The equilibrium point is the point at which the
demand curve intercepts the supply curve. The equilibrium price or the market price
equates demand with supply.

Excess Supply of Student Places and Excess Demand for Student Places: Excess
supply of student places is a situation where the number of students enrolled is less than
the number of places provided. Excess supply occurs when the price of education
consequently some people are priced when the price of education exceeds what private
individuals can afford, the result is a surplus situation in educational supply. As a rule, an
increase in supply will cause the equilibrium price to fall and quantity demanded to
increase. On the other hand, excess demand for student places represents a situation where
the number of people seeking admission into an educational system is greater than the
number that can be accommodated. For example, 30,000 people may be seeking
admission, while only 15,000 spaces can be provided. The difference between 30,000 and
15,000 is the excess demand for education. Excess demand occurs as a result of low
contribution of students or parents to education in terms of fees and other forms of private
cost of education. As a rule, an increase in demand will cause an increase in both the
equilibrium price and quantity of education supplied and vice-versa.

17. Government Intervention in Education Pricing

Private market alone cannot lead to an efficient allocation in education. This is why there is
need for interventions through government's influences on both educational supply and
demand. Without such interventions, students would be the only sources of demand for
education. That is, enrolment demand would reflect students' willingness to pay for education.
In that case, demand for education would reflect the students desire to save and invest in
education. It will also reflect their perception of the returns from educational investment
relative to other uses to which they can put their savings. Further, enrolment demand would
depend on the individual’s valuation of education as a consumer good. Nevertheless, students'
demand is not likely to be the same as social demand for education.

38
Three factors can reduce students' demand below the socially desirable level. These factors
are:
 Un-diversified Risk: People seeking admissions are usually faced with risks of failure in
school and later in the labour market. Although the society is faced with these risks, it is
possible for the society to diversify the risks. The society can pull the risk of dropping out
to those students who have less risk of repeating or dropping out. That means, the number
of those who successfully complete would at the end compensate for the number of
failure. The risk of failure would therefore become minimal when one thinks of the
corresponding successes of investing in education. Subsequently, the society can afford to
invest in education in spite of the risk of failure in school and later in the labour market.
Society can pull or spread risks but an individual cannot. So individuals at risk will not be
willing to pursue education, except there is an assurance of risk aversion
 Difficulty of Borrowing: There are many students who consider investment in education
as important, profitable and necessary venture. Nevertheless, because of the difficulty
imposed by inability to obtain education loans, most people cannot afford education
without intervention. In many countries of the world, the ability to enforce loan terms for
students without guarantee is limited. In most cases, lenders would charge very high
interest premiums to compensate for default risk. Consequently, marginal students are left
out of the calculation of enrolment demand despite the fact that those who are at the
margins desired education and are willing to pay. Thus,( students demand), people will
not enroll in the educational system despite that investment in such educational system is
worthwhile.
 Externalities in Education. Individual potential students are largely concerned with
benefit accruing to them. Whereas, there are other social net benefits that might be
received by others from a student's education. Enrolment demand does not necessarily
reflect the social net benefits others might receive from a student's education, For these
reasons, there is need to intervene in the interaction between forces of private demand for
and institutional supply of educational places.

Apart from intervention at the demand side, the supply aspect must also be controlled for the
following two reasons:

 Inadequate funding for example for basic research: If there is no intervention in the
provisions made for basic research in the educational system, less than desired level of
such research will be carried out. Institutions may be interested more in contract than in
basic research. This is because the latter is usually not funded directly. Students would be
willing to pay for incremental quality of instruction resulting from basic research if they
were asked to do so. However, what the students will be willing to pay will be less than
the value of the basic research. It thus becomes important that the supply of such research
be influenced.
 Institutional monopoly: Monopoly within education institutions may make the prices
those institutions charge for instruction different from the actual minimum costs. The

39
 effect is to make prices exceed actual minimum costs. Some institutions have specialised
academic programmes owing to their location or their year of establishment. For example
the University of Ibadan has become a special university as a result of its age and past
glories. The vantage position of this university of Ibadan might confer some degree of
power on the university charge prices in excess of minimum cost when compared with
other university in the country. In addition, some smaller institutions may be forced to
charge prices below the minimum possible instructional cost in areas such as science and
technology that are more expensive to run than courses in arts and education.
Consequently, there is need to intervene in institutional supply to ensure efficiency in the
allocation of resources.

18. Resource Allocation in Education

Economics of education is concerned with how decision-makers and stakeholders make

choices concerning the use of the scarce resources available for education. All the decision-
makers in education system are often faced with the twin problems of scarcity and choice.
These are more so as the world economy experiences downturn as more people want more
and better educational services. A noticeable characteristic of resources in education is that
they are not always enough to provide all educational services. Consequently, educational
wants create a demand for the available resources. In other words, these wants are all
competing for the limited resources. Hence, we talk about the issue of allocation of resources
in education. This section therefore concerned the various problems of unlimited and
conflicting ends. As a preamble, the next section discussed the distribution theory of Douglas
Greenwald.

Distribution Theory: Allocation of resources is the act of giving to each its share of the
available resources. The distribution theory can provide the criteria that can be used for
determining the share of the national resources' that will go to education. It can also provide
the basis for distributing the share of education within the system. Distribution ' theory is
based on the notion that the optimum allocation of resources is achieved through the
workings of the price system in which resources move from less profitable to uses that are
more profitable and from less important to more important uses. One of the rules of the
theory is that producers should appraise correctly consumers’ preferences. This assists in
channeling resources into the production of goods that consumers want most and in
preventing them from entering the production of goods that consumers want least. Since the
expenditures of consumers are reflected in market prices, pricing resources. For instance,
when producers, there will be wrong-pricing, which will eventually generate an oversupply of
goods? Subsequently, their profit will decline. Unless they alter their policy, they will be
unable to pay for the resources they buy and use in the production process. Eventually, the
less efficient business will gradually lose out both in competition for consumers’
demands and in competition for resources needed in production. Finally, these businesses
will fail and go into bankruptcy.

40
Another distribution rule hinges on the concept that production techniques that will make
the greatest use of plentiful J resources or make the least use of relatively scare resources.
This is because resources that ate plentiful relative, There are some impediments to optimum
allocation. This thing can break the rules of distribution stated above. Among them is
monopoly or monopsony, which leads to different marginal product with difference uses and
this to misallocation. This is because a necessary condition for an optimum allocation of
resources is that the marginal product of any resource be the same for all its alternative uses.
With price competition in all products and resource markets, an optimum allocation is
achieved automatically. Others are ignorance of profitable opportunities, sociological and
psychological factors (e.g. lack of factor mobility), and institution restraints (e.g. labour
union and patents).

Prices and the Allocation of Education Services: As noted earlier, prices affect the
allocation of educational services. Governments charge low fees or none at all. Moreover,
these fees are uniformly low across various types of education; individuals and groups.
Consequently, fees do not play a large role in determining who obtains public education. The
allocation of educational services therefore, depends on privately incurred non-fee costs, such
as transport to the school, or on rationing in cases of excess demand. Price discrimination is a
necessary condition for efficient allocation of educational services. In most developing
countries, however, there is little attempt to use price to discriminate among users of
educational' services. Nevertheless, since excess demand is a common phenomenon in the
education systems in these developing countries, rationing has become an allocation criterion.
For instance, the common method of allocating university places in Nigeria has "been on the
basis of students' achievement in matriculation examinations and in secondary school

Allocation Rules (CLIP): The following four rules summarize the principle of resource
allocation in education:
 Consumers’ preference rule(C) which says that resources should be prevented
from entering users that consumers like least
 Least- scarce rule (L) which says that allocation should be made in such a way
that least use would be made of relatively scarce resources. This rule gives
prominence to the use of common local technology and indigenous manpower.
 Important-use rule (1) which says that educational wants should be scaled down in
order of their relative importance so as to make a choice between them, and
therefore, keep to the essentials.
 Profitable-use rule (P) employs the cost benefit analysis to decide on profitable
investment in education. For example, if cost of producing medical graduates is
higher than that of chemistry graduates, it is not enough to reject medical training in
favour of the latter on the ground of higher cost. One should evaluate whether the cost
difference is justified by the difference in earnings derivable from medical training.

41
19. Political Economy of Education Introduction

This section discusses six main thrusts of political economy of education, namely: the
distinction between economics of education and the political economy of education;
approaches to the political economy of education; education as an allocator of economic
roles; education and social class; education and income distribution; and education and
discrimination.

Economics and the Political Economy of Education

Economics of education and the political economy of education are two different faculties
of learning. While the two deal with human decisions about schooling, they focus on the
analysis of educational problems and issues from two different perspectives. Traditionally,
economics of education plays an important role in (a) altering individual characteristics or
attributes affecting the position of the individual in the labour market, and (b) increasing the
economic capacity of the individual to produce. The central aim is to estimate the
relationship among wage rates, individual decisions about schooling and .economic
development. The political economy of education, on the other hand, focuses on the effects
of the power relations among different economic, political and social groups in the society.
It answers questions such as: how much education an individual receives or does not
receive, what education is obtained in terms of type and level, who (the rich or the poor;
male or female; urban or rural) receives what (level and type) education. The role of
education in economic growth and income distribution are parts of those power relations. In
political economy of education, every study of the educational system is closely linked with
some explicit and implicit analyses of the purpose and functioning of the state. The theory
of the state is therefore fundamental in political economy of education. This is due to the
fact that power finds expressions at least in part through a society's political system of
government.

Education from the perspective of the theory of state has to do with seeing the state, in a
capitalist economy, as a mediator between the employers and the workers as far as meeting
their needs is concerned. In a democratic society, the state, to be legitimate must satisfy the
demand of the voting workers. At the same time, it must reproduce the dominance of the
owners and managers of capita over the investment and production process. This is to
maintain its revenue and the foundation of its social function. As a mediator, the state needs
education to play some reproductive roles with respect to the dominance of capitalist over
investment, production and profits as well as in determining wage rate and job mobility
among workers. Education, as a state's institution, supplies the skills of production, screens
workers for various kinds of jobs, socializes youth to work in particular ways and to accept
the work system, as well as sustains a general ideology, creed or dogma which promotes the
existing production (technocracy) and political (bureaucracy and democracy) systems as fair
and rational. The next section deals with approaches that political economists use to analyses
educational issues and problems.

42
Approaches to the Political Economy of Education

Three main approaches exist for the study of political economy of education (institutional
functionalism, Marxian structuralism and economic capitalism) and this section discusses
each of these as follows.

Institutional-Functionalist Approach: The view expressed by the institutional

functionalists is that the state creates some institutions through which the power of the
dominant group is expressed. These institutions include the school system, which has been
created by the state to preserve, promote and propagate the cultural arbitraries of dominant
groups in the society. The main idea is that schools have been established to reproduce the
existing hierarchical relationships between groups in the society. In other words, the social
class in the society serves as the basis of division in schools. As we have upper and lower
social classes in the society, so do we have upper and lower academic classes in the school
system. There is the police force in the society to enforce law and order, so do we have the
prefect, especially the labour prefect in the school system to enforce law and order.
According to the institutional-functionalists, the reason for reproductive function of schools
is to create the impression in youths that hierarchical relationship or dominance of certain
groups (say the rich) over others (say the poor) is legitimate. In essence, the school
perpetuates class society or the culture of dominance without resorting to violence or
revolutionary reactions. School teaches children to accept the culture of class/distinction
through the school evaluation and selection systems. Various hierarchical systems
characterized the school. There are students classified into grade levels such as classes one,
two, three and four. Students in a single class can be classified into passed or failed
categories. This is to select or separate the dominant-/class children for promotion to higher
grades while leaving children of the subordinate groups behind. School makes students to
believe that the class relations in schools arise from the situations, particularly student's
cultural capital, in the schools. The school makes students to accept failure as punishment for
personal inabilities rather than as an outcome of school or societal failure. This is done so
that students would later on in life accept their failure in the larger society as punishment for
personal inabilities.

Marxian-Structuralism Approach: The Marxian-Structuralisms criticized the institutional-

functionalist's view on two grounds. First, that it ignores the source of power of the dominant
group. As far as the institutional-functionalists are concerned; the dominant groups have been
able to use schools to reproduce their power because they (dominant groups) are powerful.
That is, power is the source of their power. Being dominant makes it possible for the
dominant group to have control over knowledge, learning, attitudes, values and skills. To the
Marxian-structuralism, the dominant group derives its power from its economic position as
the owner of capital and controller of investment. Consequently, the school system preserves,
promotes and propagates capitalist's dominant position through the inculcation of dominant

43
ideology. From this point of view, schools are not creator of class structure. Instead of this,
the capitalist's production system is at the root of the class struggle in the society. The school
system only embodies the same culture of class struggle that has root in the production
system.

Resistance to constituted authority in the school system constitutes another area of

disagreement between the functionalists and the structuralists. While the functionalists
believe in static or unchanging power relationships in schools as well as in the society, the
structuralists believe that no position is permanent as far as power relation is concerned. They
believe in the change of power between the dominant and recessive groups. To the
functionalists, the dominant group perpetuates the power relations by meeting resistance from
the subordinates by resistance. Students' resistance to authority they say is the source of
authority's resistance. If there is no resistance to the constituted authority, then there will be
no cause for disciplinary or coercive action from the authority. Consequently, absolute
compliance with the dominant ideology is enforced right from the school, to educate the
young towards compliance in the larger society especially in the world of work.

Contrary to the belief of the functionalists, the Marxian-structuralists argue that the
compliance of the subordinate groups with the dominant ideology, especially in schools, is
not total as it appears to a casual observer. Instead, resistance to the dominant ideology of
the authority is implicit and it manifests itself in reluctant acceptance to the state
apparatuses such as schools. Students just comply partially because they have no choice
and because they are socialized to comply with authority. According to the structuralists,
the actual power relation between the powerful and the less powerful groups is manifested
by five main characteristics: assumed consent of dominated group to domination;
internalized suppression (suffering and smiling); unexpressed repression (not openly
discussed); mystified position of oppressed (assumed omnipotent position): and violence
instead of real violence.

In the school system, for instance, class-consciousness still occurs in spite of physical
coercion. Sometimes, students resist dominant ideology through vandalism and physical
assaults to teachers. The Marxian-structuralists therefore, argue that the existing power
relation in school may change either in evolutionary or revolutionary manners. In other
words, power may move from dominant groups (school authority and governments) to
subordinate ones (students and staff unions) through real resistance to dominant ideology or
repressive apparatuses particularly if those in authority do not take care. This takes us to the
economic approach to the study of political economy of education.

Economic Approach: Fundamentally, economists believe in economic growth and changes

in inequality. The basic assumption is that changes in inequality and development occur
through the normal process of capital accumulation and shifts in power among groups
engaged in economic activity. For capital to be accumulated there is a need to extract surplus

44
from workers. The process of extracting surplus from workers can become inherently
antagonistic, always potentially explosive and politically uncomfortable. The State
establishes the education system to water down the inherent antagonistic and potentially
explosive behaviour that might accompany the economic effort of extracting surplus from
workers. In line with this fundamental implicit objective of education, the economic approach
to the study of political economy of education views education as economic instrument to
facilitate a smooth integration of youths into the labour force. According to them, education
system does this by legitimating .inequality and allocating students (through certification) to
distinct positions in the economic hierarchy (low, middle and upper level workforce). It
further does this by reinforcing patterns of class race and sex; fostering personal
development, which is compatible with each student in the dominating-dominated
relationships in-production. If a child is not promoted that child should blame him or herself.
The school does this to train the child to accept the reward system in the world of work.
Moreover, the school waters down the inherent antagonistic behaviour in children by creating
surplus of skilled labour or unemployment to put downward pressure on wages and therefore
extract surplus from labour.

Education system achieves these goals through the unconscious close correspondence
between the social relations, which governs close interaction in the workplace, and social
relations of education system. Like the Marxists, the economic approach to the study of
schooling assumes that a correspondence evolves between the school structure and the job
structure in response to political and economic struggles associated with the process of
capital accumulation, the extension of the wage-labour systems and the transition from an
entrepreneurial to corporate economy. In a specific term, economics focuses on showing the
relationship between production and education reforms.

Education as an Allocator of Economic Roles: The human capital theory hinges on the
belief that the more the investment in schooling, the higher the productivity of labour.
Consequently, the higher the level of education attained by an individual, the higher the
earnings. An increase in schooling investment is expected to lead to a corresponding
increase in productivity of labour and consequently to an increase in earnings of the
educated. That is, individual's schooling is a significant factor in occupational position and
earnings. This implies that additional schooling, directly accounts for additional earnings.
The questions pertinent to be asked are: Does this mean that increasing schooling produces
higher productivity? Do earnings equal productivity?

As far as schooling and productivity is concerned, individuals see schooling as investment

from where they can earn more by progressing further in school. This does not necessarily
imply that schooling always produce more total output. In some cases, less educated people
can be as productive as their counterparts. This is because school is an allocator of economic
roles, and therefore, assigns more earning to those with more schooling, and 1ess earning to
those with less. In fact, education or training is not an important factor in determining

45
productivity of workers. This is because productivity is an attribute of work, not of workers.
For instance, higher productivity job are usually associated with a lot of modern capital
equipment and queue by job seekers. Cost of training is the main criterion for selecting
workers for such jobs. Those who possess background characteristics that reduce costs for
training go to the head of the queue, and receive the best work. For instance, school leavers
are going to cost the employer more money to train than university graduates do. Employers
therefore prefer university graduates to school leavers on the ground of trainability. The
“queue concept”, the "screen concept" and "segmentation theory" do not support that there is
a direct link between education on one side and productivity and earnings on the other side.
The queue concept sees earning as unrelated to any specific knowledge that schooling
imparts to workers. Instead, schooling is good in identifying those workers who can be
trained more easily, based primarily on non-cognitive values by students in school. These
suggest that government's investment in education is not motivated by the expected link
between further schooling and workers’ productivity. Government's investment in education
may even be a subsidy to employers to make it easier for them to select workers for various
jobs. That is a transfer of resources from the public sector to owners of capital.

Similarly, the screen concept of education argues that schooling may act as mechanism to
screen desirable from less desirable employees. This implies that education does not
contribute directly to economic growth but served as a means to sort people for jobs (wage
scale are determined by the level of production). This also makes the labour- search to
become cost efficient, thus resulting in transfer of public resources to the employers of
labour.

Both queue and screen concepts of education suggest that education is sorter of individuals
for jobs of different productivity and earning levels. The belief is that while there can be
direct relationship between productivity and earning, the relationship between education and
productivity is a manipulated one. This is because education merely acts as a sorter of
individuals for jobs of various existing productivity levels. While the queue theory assumes
that more schooling will make students more trainable as workers, the screening hypothesis
rests on the certificate awarded students in schools. The criteria for screening people in the
labour market may not be cognitive, productivity, or even trainability. Instead, it is
certification (certificate as a meal ticket).

Segmentation theory talks about division of the labour force and jobs into two segments.
The division of labour is based on the pay level and the level of technology. The theory
argues that wages are a function of the kind of technology in a particular industry. Moreover,
there are barriers to entry into the high pay jobs. In fact, labour markets in the high
technology industries are characterized by different promotion rules and different payoffs to
schooling from the low paying industries. Education seems not to be an important criterion
for gaining access to the high technology and high paying jobs. This is because wages are
somehow structured by the nature of jobs, by job differentiation and not by the human capital

46
characteristics of individual workers. Experience has shown, for instance, that poverty cannot
be reduced by marginal increases in the skills of the poor since wage structure is best
explained by the nature of job than the level of education attained by people. In fact, young
people are mainly allocated to different occupations and earnings on basis of parents' social
class (income, occupation and education). Perhaps, the main function of schooling is to
legitimize the reproduction of unequal class structure through education and training. In
addition to being a screening device, schooling serves the class interest of employers in
perpetuating the capitalist social hierarchy. Consequently, schooling may have a negative
effect on economic growth, since it places priority on distribution of power (profit) and
hierarchical rules rather than on maximization of output.

Education and Social Class: One important issue in political economy of education is
education and social class. In the study of education and social class, education as measured
by the level and kind of education attained by an individual (educational attainment; is
usually correlated with social class of parents as measured by the income/earnings,
occupational status and schooling level. Intergenerational mobility is an important political-
economy concept in any study of education and social class. The interest is whether or not
one or combination of parents’ income, occupational status and educational attainment
affect(s) a child's social status (in terms of income and occupational status) and/or
educational attainment. Apart from studies on intergenerational mobility, there are some
works on education and earnings. These studies, situated in economics of education, relate
the educational attainment of a child with the earning level. Generally, schooling contributes
to intergenerational mobility (or the passing of social position from one generation to the
next) but parents social class (in terms of income and occupational status) seems to be very
influential in determining how much schooling a person gets. In fact, education is an
instrument of the state to maintain a status quo desired by the state and the economy.

The screening concept, the queue theory and the labour market segmentation form the
political bases for relating education with social class, while the human/capital theory
provides the economic framework. The main thesis is that education is an economic-political
instrument to allocate socio-economic status and select people from low paying to high-
paying jobs. The goal of linking education with social status is to maximise social mobility in
favour of the state and capital through increased parental education, income and occupational
status. This made upward mobility in social status dependent upon parental characteristics (or
social class structure) rather than on individual's educational attainment.

Education and Income Distribution: One of the issues commonly addressed in political
economy of education concerns schooling's role in intra-generational variance in earnings
(IVE). The goal of studying education and earnings is to minimize the differences in wages
and salaries among peers through educational policies such as increased average years of
schooling of the individual labour forces and increased investment in primary education
relative to higher education. This is in addition to microeconomic income policies such as

47
increased per capita income, increased number of days work annually (rise in employment),
and changing the wage or salary structure. Generally, economists believe that an increase in
the level of schooling, (average years of schooling) in the labour force contributes to a more
equal distribution of income (income in terms of salaries or wages). This is because a more
educated labour force is more likely to agitate politically for an equal wage structure.
Economically, we believe that there is a direct relationship between education and
productivity on one side, and between productivity an earning on the other side. Since there is
an upper limit (for instance Ph.D.) to the level of education people can attain, as a country
raises the average level of schooling, there will be an increasing reduction between the levels
of education attained by one worker and another, and salaries will also reduce. By extension,
as the gap in productivity among workers reduces wage and salary differential will
reduce. However, applying the queue and the segmentation theories, productivity becomes a
function of job rather than a function of workers’ personal characteristics. In this case,
changing the distribution of schooling has a negligible effect on income (wage/salary)
distribution. It would be the job or income structure that would be changed in order to
influence income distribution. Contrary to economics of education, political economy of
education upholds this view that income distribution does not depend on the distribution of
the individual characteristics but on the division of labour and wage structure.

Education and Discrimination: Discrimination (particularly based on geographical location,

income, colour and gender) has gained importance in political economy of education in the
recent years. Developing countries, for instance, is paying increasing attention to the link
between education of women and labour force participation. In estimating the relationship
between education discrimination, studies have drawn mainly from queue, segmentation and
human capital theories. These three theories have provided the explanatory framework for the
difference between blacks and white as well as between male and female workers with
respect to participation and earnings. Based on human capital theory, economists believe that
race and sex discrimination can be explained largely by a combination of employer profit-
minimizing behaviour and human capital differences between black/and white and between
women and men. Consequently, as human capital converges, productivity and, hence,
earnings equalize. According to these schools of thought, much of the differences in wages
between men and women can be explained by differences in work histories (experience) and
by difference1 in job investment and depreciation. However, political economy of education
regards wage discrimination as a result of a segmented labour market or occupational
segregation. In this case, women are limited in their occupational choices by employers (and
by male workers), and wages are customarily lower in women's occupation. In other words,
labour market conditions rather than human capital differences set lower wages. Capitalism
as part of the labour-capital conflict underpinned by neoclassic-power relation explains
discrimination in the labour market.

48
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