Beyond the Market Designing Nonmarket Accounts for the United States (2005) / Chapter Skim
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5 Education
5 Education
Pages 93-116
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From page 93... ...
The focus then tends to shift from formal to informal education and from school-based learning to workrelated training as individuals become adults -- but education continues. Because its benefits are realized over an extended period, education should be thought of as an investment in human capital.
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From page 94... ...
. Separate education accounts would contain data essential for improving our understanding of how investment and the capital stock, defined more broadly to include both human and nonhuman capital, affect economic growth.
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From page 95... ...
The value of nonmarket inputs to education could well be larger than market and government expenditures for education, estimated to be approximately $628 billion in 2001, though without specific estimates for the value of nonmarket inputs it is difficult to know for sure.7 To begin conceptualizing how a satellite account might be structured to give a more comprehensive picture of education, it is useful to identify the relevant inputs and outputs, as is done in Table 5-1. Market inputs include paid labor, materials, and fixed capital; nonmarket inputs include volunteer labor, students' and parents' time, and social capital.
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From page 96... ...
An education satellite account can incorporate nonmarket inputs and outputs. In addition, there may be more flexibility to experiment with alternative measures of market inputs and outputs in a satellite account.
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From page 97... ...
. Intermediate inputs to the private educational services industry, such as books and supplies, are excluded from GDP, while government expenditures for intermediate inputs are included in GDP.
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From page 98... ...
98 Other 6 6 7 Higher education 24 24 22 Uses Elementary and secondary education 70 70 71 Expenditures Private education services 11 10 12 11 12 13 state Education local, Total Within and federal grants-in-aid 3 2 7 6 4 4 of local Percentage a State and government 88 88 87 89 87 86 as 1952-2000 Expenditures Sources Federal government 1 1 1 1 1 1 GDP. in a Expenditures, reflected a GDP Total education expenditures as percentage of 3 4 6 6 5 6 Education expenditures 358.6 527.4 5-3 Nominal GDP (billions)
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From page 99... ...
It includes investment and capital stocks of the private educational services industry and educational structures held either by the federal government or by state and local governments. The full capital service flow corresponding to these stocks, and others, could be estimated by making assumptions regarding the net return to capital; the depreciation component of the capital service flow is already included in GDP (see National Research Council, 1998)
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From page 100... ...
More and more up-to-date information on student and parent time inputs to education clearly is needed. Recommendation 5.2: Information on time-use patterns from statistical agencies and other sources, together with a consistent set of demographic data, should be used to estimate the amount of time spent in school and in educational-related activities by students and their parents.
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From page 101... ...
Jorgenson and Fraumeni (1989) use an opportunity cost approach to value parents' time inputs to education.
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From page 102... ...
Although Murphy's parent time estimates are available only for 1976, they are of particular interest because he also presents estimates for three variants of the opportunity cost approach (gross compensation, after-tax compensation, and net compensation) to value time inputs.
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From page 103... ...
Recommendation 5.3: The value of the time that students and parents spend in educational activities should be estimated and included in satellite accounts. In principle, the time cost for students should be estimated using a modified opportunity cost approach.
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From page 104... ...
104 at c valued is Students Parents) rueger 7.664 'time 36.039 92.240 Garrison- K (K-16 and 125.227 203.112 students ollegec Students of Parents)
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From page 105... ...
Accordingly, while a satellite account for human capital (broadly defined) would estimate the value of the child care services schools provide as well as the value of the education they offer, an education satellite account would include only the latter as output.
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From page 106... ...
Many implications of the sorting model are similar to those of the human capital model, so it has proved difficult to distinguish between the two perspectives, although studies of the effects of changes in compulsory schooling requirements provide some support for the human capital model. In principle, the strongest evidence regarding the existence of educational externalities could come from studies that estimate how differences in educational attainment across countries relate to GDP or how increases in education over long periods of time relate to GDP growth.
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From page 107... ...
national accounts,13 though some researchers working on foreign national accounts have used test scores and other indicators.14 In the remainder of this section, we outline an example of the output indicator approach that incorporates performance measures. This example could be extended to more accurately assess the "value" of output as proxied by test scores by looking at the relationship between scores and earnings or scores and housing values; at this point, however, this next step has not yet been taken.
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From page 108... ...
Whether NAEP scores map linearly into output is an open question. Garrison and Krueger (2004)
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From page 109... ...
And, the separate NAEP scores would have to be assigned weights to produce a single output indicator series. Test score growth rates then could be calculated and applied to the nominal dollar input expenditure in the base year to form a quality-adjusted output indicator suitable for a dollar denominated satellite account.16 16 An output index can adjust for change in output quality and change in the number of students.
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From page 110... ...
Drawing inferences about cohort trends from a single cross-section is complicated because aging can affect the cohort scores independently. Additionally, IALS results provide a broader measure of human capital than that associated with formal education alone.
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From page 111... ...
Incremental Earnings Approach The output of the education sector can be valued using information on how education affects earnings, either by looking at incremental earnings as a function of additional years of school completed or by looking at incremental earnings as a function of improvements in test scores. The prime example of the former approach, also called the present value or lifetime income approach in the literature, is the work of Jorgenson and Fraumeni (1989, 1992)
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From page 112... ...
One also might want to allow for the possibility that the effect of education on nonmarket productivity varies depending on the task involved; as discussed elsewhere in this report, there are certain tasks for which the productivity advantage enjoyed by more educated individuals seems likely to be relatively small. Other researchers who have estimated the nonmarket return to education report substantially smaller figures than do Jorgenson and Fraumeni.18 The studies that have estimated incremental earnings as a function of improvements in test scores focus on annual market earnings, rather than lifetime market and nonmarket income.
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From page 113... ...
They find that a 1-year increase in schooling is associated with a 0.17 standard deviation increase in the average person's score on the Armed Forces Qualifying Test. Housing Value Approach Hedonic housing price models provide another possible technique for estimating the output of the education sector, or at least the output of public primary and secondary education.
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From page 114... ...
One potential advantage of estimates derived from the hedonic housing market literature vis-à-vis the earnings literature is that housing prices presumably take into account the nonwork value of improvements in human capital, or at least that portion of the nonwork value for which parents are willing to pay on behalf of their children (in grades K-12)
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From page 115... ...
using differences in house prices across school districts provides an attractive alternative approach for measuring the value of the output of schools, when the output is measured by performance on standardized tests. On the input side, information on market inputs usually can be found, but obtaining information on nonmarket time inputs and estimating an appropriate wage for valuing those time inputs may be difficult.
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From page 116... ...
And it is possible for the market for human capital to be in temporary disequilibrium because supply can adjust only slowly over time to demand shocks. These concerns, of course, apply to many kinds of markets.
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