; Education
Learning Center
Plans & pricing Sign in
Sign Out
Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>



  • pg 1
									                ECONOMIC VALUE OF EDUCATION

Education as Investment

Education in the traditional view for decades understood as a form of social services to
be provided to the public, in this context of education services as part of
the public service or public service to the community of nations that do not provide a
direct impact on the economy of society, so that educational development is
not attractive to be       the theme       of the  attention,     his     position does
not attract attention in the construction steps.

Opinion of the education sector development is precisely the sector that is consuming the
budget without any obvious benefits (especially economically). Such a view is to
bring people to doubt and even distrust of education sector development as the foundation for
the progress of development in all sectors.

This uncertainty manifests itself in such small budget commitment to the education
sector. Allocate a budget for the education sector is considered a waste of money that is
not useful. As                a               result, the               budget allocation
education sector usually remaining after the others first.

The way this view is now beginning displaced in line with the finding of the
thought and scientific evidence of   the    role and vital function of education in
human understanding and position as a major force as well as a prerequisite for the
progress of development in various sectors.

The         concept        of education as an investment (education as investment) has
developed rapidly and increasingly believed by every state that the development
of education sector is      a key prerequisite for     the       growth        of other
development sectors. The concept of investment in human resources (human
capital investment) that can support economic growth (economic growth), has
actually started          to think           about since           the            days
of Adam Smith(1776), Heinrich von Thunen (1875) and other classical theorists before t
he 19th century that emphasized importance of human skills investment.

This new scientific   ideas take an     important    milestone in the    1960's when a
speech Theodore Schultz in 1960, entitled "Investment in human capital" in the face
of the American Economic Association as the location of the basic theory
of modern human capital. The main message of the speech was simply that the process
of acquiring knowledge and skills through education is not a form of mere consumption,
but also an investment.
Schultz (1960) then noticed that   the education sector to human development     as its
core focus has contributed directly to a country's economic growth by improving the
skills and production capabilities of its workforce. Discovery and outlook have
prompted interest in a number of experts to examine the economic value of education.

The main reason of this change in outlook is the growing interest and interest during the
1960's the economic value of education. In 1962, Bowman introduces a concept
of "human investment revolution in economic        thinking”.      Other researchers such
as Becker (1993) and others participate in the testing of this theory of human capital.

These developments have affected the pattern of thought of various parties,
including governments, planners, international        institutions,     researchers and
other modern thinkers, as well as the executor in the education sector development and
human resources development. In developed countries, in addition to the aspects of
consumer education is also believed to be an investment in human capital (human
capital investment) and a "leading sector" or one of the major sectors. Hence the
government's attention to the development of this sector in earnest, for example, the
political commitment of the education budget is not inferior to other sectors, so
the success of educational investment is correlated with macro development progress.

In the     1970s, studies on      the     relationship between education and economic
development had stalled because of the emergence of doubts about the role of
education to economic growth in some countries, particularly in the United States and
developing      countries that     receive aid from the     World Bank        at    that
time. This doubt arises,       in        part         because of        criticism among
educational sociologists Gary Becker (1964, 1975.1993) says that       the        human
capital theory emphasizes this dimension of            human material so            that
less human than take into account the socio-cultural dimensions.

Becker’s criticism would open the perspective of the philosophical belief that education
is     not well calculated solely as      an     investment but      it     is     more
economical than the social, cultural oriented human     dimension is more      important
than economic investment. Because education must be made by the related cause of
humanity itself (human dignity).

Some        others      neoclassical    studies,   can reassure the    importance     of
scientifically educated people who are directly supporting economic growth across all
sectors of          development that other       macro. On       the      basis      of
scientific belief that eventually the    World Bank re-realizes    the   program     of
international assistance in various countries. Contribution of education to growth is
becoming increasingly stronger after taking                 into            account the
interaction effects between education and other physical investments.
That is, physical capital investment will double the value added in the future if done at
the same time also human resource investment, which will directly be doers and
users in the physical investment.

Now recognized that a country's human resource development is an essential
element for prosperity and growth and for effective     use      of physical        capital
resources. Investments                    in human capital are an integral component of
all efforts development. Education must include a broad spectrum of social life itself.

Trackbacks Value of Education

Human resource development through education contributes directly to economic
growth, and hence expenditure on         education should     be   viewed        as
a productive investment and not      simply seen     as something that benefits the
consumer without a clear reversal (rate of return).

A number of relationships have been tested in the framework of the conclusions. For
example, the World Bank study of 83 developing countries showed that in the 10
countries that have the highest real growth rate of GNP per capita between 1960 and
1977, the state literacy rate in 1960 averaged 16 percent higher than other countries
Also been described that investment in education has a direct impact on
individual productivity and earnings. Most evidence comes from agriculture.

Studies of farmers who are       educated          and the      uneducated on low-income
countries show, when the          inputs like fertilizers and seeds are       available for
farming techniques better, the annual yield of a farmer who is not educated.
Although this     input is    less, the      income        of    the farmers who remained
highereducation 8 percent (World Bank, World Development Report, 1980).

The      role     of women in nurturing and raising    children is   so important to make
education for       girls to  be very meaningful. The      studies showed a    significant
correlation between the level of maternal education and child nutritional status and life
expectancy. Furthermore, health                  benefits and better              nutrition
and lower fertility rates caused by other investments in other development sectors.
Another     study by the      World Bank and conducted for        the World Development
Report presented in 1980 to test the estimated economic rate of return (rate of return) to
investment in          education in 44 developing               countries. It        was
concluded that the benefits revert all levels are well above 10 percent.

Various other studies always show that the relative value of human capital reversal is
greater than physical capital. There is no country in the world that is progressing rapidly
with the support of low-educated human resources. So if we do not expect to
make progress with        the development of       human      capital (education sector) as
the main prerequisite, it is the same as "the bird missed the moon".

Problems of Education in Indonesia

According to Prof. Dr. Dodi Nandika (2005), Secretary General of the Ministry of
Education, in his            lecture at         the Postgraduate Student Administration
Education Program UPI Education, argued that the problems and challenges facing the
field of education in Indonesia, among others:
    1. Relatively low level of public education
    2. The     dynamics of changes in population structure has not been fully
        accommodated in the development of education
    3. Inequality of education levels
    4. Good Governance is not running optimally
    5. Facilities are not adequate educational services and equal
    6. The quality of education is relatively low and has not been able to meet the
        competencies of students
    7. Higher education still face obstacles in developing and creating science and
    8. Management education has not run effectively and efficiently
    9. Development budget has not provided adequate education.

The      above problems are the        problems faced by many developing       countries
including Indonesia. The role of education when examined in the economy, it will
contribute to the role of government and society to the impacts will be experienced
by the country of Indonesia in the long term future with the development of education as
a basic policy of the country's development.

In the 2005-2009 Strategic Plan of Ministry of Education, emphasized the role of
education improvement effort:
   1. Expansion and Equitable Education
   2. Quality and Relevance of Education and
   3. Governance and Accountability.

   The third program is an effort for the development of education equally to all parts of
   Indonesia, that left    behind in the     field  of human       resources       quality
   improvement can be improved so it is not left behind by progress among
   Asia Pacific countries.

Economic Value of Education

According          to Ari A. Pradana (2005) cites the      opinion of       Professor Joseph
Stiglitz, in Jakarta "Provide         the best education possible and can        be achieved
easily by all citizens", said Nobel Economics laureate, as fit             on          a daily
Kompas (12/15/2004). Stiglitz posed this            question when         responding       to
questions about what          kind of    economic policies necessary Indonesia. He       also
commented that           the      question     of education is one     of     the blunders of
neoliberal policies adopted by Indonesia.

The role of the technical language of education in human capital (human
capital) in economic growth are not too long into the literature of economic
growth theory. Presented by Ari A. Pradana confirmed the opinion of Lucas
(1990) and Mankiw, Romer, and Weil (1992) which revised neoclassical
growth theory of Solow (1956) is legendary.

In his studies, they showed that the standard Solow theory can only explain how a
country's economy could grow, but not enough to explain the level of per capita
income gap between countries in the world. Only when the human
capital variables included in the calculation, some of the gap can be explained.

However, a number of mysteries remain. Level of education in developing
countries actually have increased dramatically in the years 1960-
1990.Easterly (2001) showed that the median primary school enrollment rate increased
from 88 percent to 90 percent, while for secondary schools from13 percent
to 45 percent. Furthermore, if in 1960 only 28 percent of the world's primary
school enrollment rate reached 100 percent in 1990 to more than half.

In fact, the increase of the level of education in developing countries does not explain
the performance of economic growth. Take the example of Africa. Between
the years 1960 to 1985 the growth rate in the continent's schools by more than
4 percent per year. In fact, the economies of countries in Africa grew
only 0.5 percent per year. That, too, because there are “economic
miracle" in Africa, namely Botswana and Lesotho.

Most other African countries actually recorded negative growth in that period.
Senegal experienced an extreme case of having school enrollment growth
of 8 percent per year, but has a negative economic growth.

In the same period the East Asian countries experienced economic growth
rate higher than the growth in school enrollment. However, the differences
were not many, only 4.2 percent compared with 2.7 percent. That is, if education is the
secret to economic growth; the difference should be much larger.

Besides cannot explain the performance of economic growth, education also failed
to explain the phenomenon
of growing inequality in income percapita. Pritchett (2003) showed the degree of
convergence between countries in the world of education. Throughout 1960-1995, the
deviation standard in education level fell from 0.94 to 0.56. But, at the same time, the
standard deviation for income per capita across countries increased from0.93 to 1.13.

The basic assumption in assessing the contribution of education to economic
growth and reduction of educational inequality is increasing worker productivity. If
the increased worker productivity, economic growth will increase.

On the other hand, rising productivity means rising incomes. Alwaysassumed that the
benefits of education increase in the aggregate will be greater for the poor. Thus, if the
level of education increases, the income of the poor will also grow
faster and eventually inequality will shrink.

The problem, such assumptions cannot always be generalized. The
benefits of education in terms of productivity and income of workers increases apply
only to certain types of work. As a result, increase the level of education is not
necessarily beneficial to the growth and equity. Especially if we talk about the
benefits of education for the poorest groups.

Studies of Foster and Rosenzweig (1995) regarding the impact of education on
farmers in India during the green revolution can give some idea. Agricultural
sectors in countries such as India (also Indonesia) are very relevant in the discourse of
economic development because the majority of the population, including those that fall
into the poorest, there is in this sector.
In these study farmers who have a basic education is far more productive than those
without school. However, there was no significant difference between a secondary
education and basic education only.

In addition, in areas of natural and geographical conditions of ugly, productivity is
often determined more by experience, not education. For farmers in
places like this, go to school but not very useful, it also makes them lose so many
years of experience working in the fields.

One could argue either; with education a person may experience social
mobility. They do not have to continue to be farmers and the poor if we could get an
education. That's the problem. In many other developing countries for social mobility is
not always possible. In India caste is one of the barriers to social mobility, in addition
to many other obstacles. In countries such as Indonesia, corruption is entrenched down
to the reception staff could be another reason why social mobility is relatively difficult.

Specific Economic Intervention in Education

Argument that education and educational policy is not beneficial to the prosperity of a
country. This is completely unfounded opinion is impairs. The message is there are
many other things that lead to the positive contribution of education is not
very big in promoting economic growth and equity in other words, education is not
a magic spell. Consequently, government intervention in this field should also
be done carefully.

Form of prudence is not stuck to measure the magnitude of the role of
government budget allocations for education. Budget is important, but not on how
much, but planned to use for what, why and how. In some developing countries in Asia
that although most teachers are paid too low, from the ADB study said that an
additional budget for buildings and equipment results in greater improvement of
education quality.

In terms of the level of education where the budget should be allocated,
Booth (2000) writes that in Indonesia in 1980 to 1990's World Bank report that is
too large government subsidies for higher education led to growing inequality. The
reason, college graduates are the most benefited from the economic boom during that
In addition to the budget problem, the level of education in a country may face another
problem outside funding. Here are the specific needs of government intervention to
address those problems. For example, in Kenya found that the low quality
of basic education due to lack of nutrition of primary school pupils due to intestinal
worms. Distribution of worms bat for primary school students was more effective in
improving the quality of education there.

In conclusion, there is no government policy that can be universally predictable in all
countries. This is the core of the populist critique of neoliberal policies. This is the
opposite also applies, no populist policies that apply universally. And not
everything can be solved with a bigger budget.

According to Mohammad Ali (2005), Malaysia proposed that the high progressing the
development of human resources, as in the reign of Prime Minister
Mahathir Mohammad, has launched the future development of human resources by
investing in a high enough rate of 28 percent of state budgets,
and PM Mahathir administration that runs for 17 years.

Looking at these successes, the country of Indonesia to the 1945 Constitution as
amended to mandate the government to establish the education
budget 20 percent of the state budget as set out in Article 31 Paragraph 4.

Investment in human resource development is a long process and to support the
success of such planning, education and training should be used as a
benchmark to build a country. But the study described as a horse-drawn carriage, which
means that the success of the educational process is the contribution of labor across
sectors, namely industry, economy, culture and so forth.

To top