Nama : Idha Rahma Iswianti

NIM : 19080304009

Accounting Education 2019 I

Philosophy of Education

Capital and Cost of Education

I. Human Capital Is An Intangible Asset

I.1 Human capital definitions

a. Wide: Productive capacity of individuals;

b. More narrow: Productive capacity related to knowledge and skills.

I.2 Improvements in labour quality may take many forms

a. Healthcare;

b. Learning in families and neigbourhoods;

c. Formal schooling;

d. On-the-job training.

I.3 Empirical studies typically focus on formal education.

I.4 Education is regarded as an investment.

I.5 Investment entails costs – direct costs and opportunity costs of forgone earnings.

I.6 To be willing to undertake the investments, individuals must be compensated with

higher wages ex post.

I.7 For employers to be willing to pay higher wages, individuals with higher education
must have higher productivity.

II. The National Wealth Approach: Calculating Human Capital Residually

II.1 Calculate resource rents from all natural resources (renewable and non-renewable).

II.2 Decompose Net National Income (NNI) into the returns from the inputs i.e.
physical capital, natural resources etc. Human capital is calculated as the residual.

II.3 Capitalize the income stream from the human capital component.
Nama : Idha Rahma Iswianti

NIM : 19080304009

Accounting Education 2019 I

III. The National Weakness Approach : Strengths and weaknesses

III.1 Strength

a. Making the “intangible” comparable to other (measurable) assets;

b. Based on (mostly) existing national account figures;

c. Based on rather simple methods and calculations.

III.2 Weakness

a. The methods are not (necessarily) forward looking

In particular: demographic trends are not taken into account

b. The human capital estimate is a residual

c. There is (usually) no attempt to isolate the contribution to human capital from

education

IV. Human capital measuring : What should be the role and ambitions of NSOs?

Three possible strategies :

a. Developing databases on human capital for research and analyses

b. Developing methods for output measures in the Government sector (NA)

c. Full integration of capital measures in the National Accounts

V. Cost Analysis In Education

V.1 Individual Costs or Private Cost

a. Individual costs or private costs of education are those costs of education

incurred by a learner or by his/her parents/guardians or by the family as a
whole.

b. Individual costs are of two types :

 Direct Cost : These are those costs that are directly visible. They include
all money expenditure incurred on different items by the student.

 Indirect costs : Costs which are not directly visible. These costs are
sometimes called ‘opportunity costs or foregone earnings’. Opportunity
costs refer to the value of students’ time or earning forgone to continue
the study.
Nama : Idha Rahma Iswianti

NIM : 19080304009

Accounting Education 2019 I

V.2 Institutional Costs of Education or Public Costs of Education

a. Costs incurred at the institutional level (government, private or mixed) are

called institutional costs or public costs of education. Public costs are those that
include financing by the government on the basis of taxes, loans and other
public revenues. The institutional costs of education are, generally, analyzed
using the following variables.

b. Variable and fixed costs of education.

c. Recurring and non-recurring costs of education.

d. Current and capital costs of education.

VI. Type of Costs Education

VI.1 Total Cost

VI.2 Total Fixed costs and Total Variable Costs

VI.3 Current Costs and Capital Costs

VI.4 Opportunity Costs or Foregone Earnings

VI.5 Social or Total Costs of Education

VI.6 Unit Costs of Education

Nama : Idha Rahma Iswianti

NIM : 19080304009

Accounting Education 2019 I

Questions and Answers

1. What is included in fixed costs?

 Purchase and construction of land and buildings;

 Purchase of furniture ;

 Purchase of durable equipment;

 Costs on other non-recurring items.

2. What is the function of capital costs and current costs ?

 Current costs are incurred on consumable items within a given financial year.

 Capital costs refer to costs incurred on durable items like land, buildings,
equipment and so on that rendered useful service over a period of years.

3. Why the concept of opportunity cost emphasizes the factor of choice ?

Because the resources are scarce, we are forced to choose. If we choose to have more
of one thing, we shall have to accept less of another thing. This type of cost plays a
very important role in decision-making.

4. What is measured in a cost-benefit analysis ?

In a cost-benefit analysis, output is measured in monetary terms, and in a cost-

effectiveness analysis, output is handled in terms of the level of achievement of
objectives. Cost benefit analysis is also known as "rate of return" analysis.

5. How to step the human capital residually ?

 Calculate resource rents from all natural resources (renewable and non-renewable)

 Decompose Net National Income (NNI) into the returns from the inputs i.e.
physical capital, natural resources etc. Human capital is calculated as the residual

 Capitalize the income stream from the human capital component