Education and Susteinable Development III

The Rising Returns to Education and the Supply Response

We’re taking a life cycle approach to human development and the accumulation of human capital. Human capital measuring the investments in health nutrition and education, which enables us to be productive citizens and productive members of the economy.

We’ve seen that it’s crucial to make investments in all stages of the life cycle, especially not missing the early years. We’ve seen, as well, that primary education has gotten a big boost. Especially during the millennium development goal period. While there are still tens of millions of children, especially in conflict areas, not in school, though of primary school age. Enrollment rates have increased markedly and enabled a closing effectively of the gender gap as well so that young girls, like young boys, are in primary school. But we know that the investments in education have to continue, that there remains a significant gap into secondary education, which should, like primary education, be targeted for universality. Of coverage access and results during the next phase of the global development goals as part of presumably the sustainable development goals of 2015 to 2030.

831There’s plenty of evidence that the benefits to society of helping the young people not only complete secondary school, but go on to higher education, are very, very high. We’ve already looked at this graph that you are now looking at again. The wage premium for college graduates compared to high school diploma holders. We can see, remembering the forces of globalization and technological change, how since 1979 onward that wage premium for getting a university degree has soared. And this is a market signal not only in the United States, but around the world that to the extent feasible children should aspire to complete primary, secondary education, and then go on for some kind of higher level education. Whether vocational training, specialized skills, craftsman, skills, artisanal skills or to go on to a higher degree in a tertiary university. Now when the market sends the signal that something, some activity or some kind of project has a high rate of return, you would naturally expect a, an increased supply of that activity in other words, more investments in that high return activity. You would expect, therefore, for example, in the United States where the returns to higher education have soared, that more kids would be completing a bachelors degree.

To some extent, that’s happening, but something odd is also happening, and for the United States a very notable phenomenon. Have a look at these, this graph showing the percentage of 25 to 29 year olds. That is completing a college degree. For high school level, the top curve, you see nearly 100% high school completion. Unfortunately, not at 100%, because there are still too many kids not even getting a high school diploma. Which, in the context of the U.S. society, and U.S. labor market, is almost a, a guarantee of poverty and trouble. Look at the lower curve, which is the curve showing the proportion of kids getting a four year bachelor’s degree. Now what this is measuring is a specific age cohort, 25 to 29 year olds. And asking of, in any year of the 25 to 29 year olds, what fraction of that age group has a four year bachelor’s degree. What you can see is that from 1940 to around 1975 that proportion increased a lot, from around 5% of that age cohort to around 20% of the age cohort. The line went up gradually but persistently so that more and more young people were going to a four year university getting a degree, and we know enjoying the higher earnings that came along with that. But then that upper sloping curve has a kink starting around 1975. It’s still rises but very, very slightly. There’s almost a stability in the share of the 25 to 29 year olds with that four year degree. Something doesn’t make sense. Just when the returns are going up, the proportions of young people actually completing the four year degree stop rising, or at least stop rising at the pace that they had been rising. And so, while at a bit over 20% in 1975 have a four year degree, by the time you reach 2009, 2010, maybe it’s 30%, but it’s not much above that. And so the proportions have really stopped increasing at anything like what we would expect from the signal that the benefits of going to university are so high. What’s going on?

Well, there’s clearly some kind of bottleneck on the supply side. And the next graph gives us some suggestion of the nature of that bottleneck. Tuition costs are large and also rising and so, just when society ought to be helping young people to make that investment in higher education. Tuition costs and bottlenecks in the university system are holding back the supply response. We see here the sharp increase of net tuition costs in this case for public institutions of higher learning and in general by almost any category again in the US context especially there have been soaring tuition costs. What’s the implication of this? The implications are two and they really are quite troubling. 832One implication is that a very large part of our, our young people even in a very rich country like the United States, are not able to enjoy the benefits for themselves and for society of a complete higher education. Still, two thirds or higher proportion of young people don’t make it through a four-year degree, even though the markets are screaming out, if you want to be part of the middle-class, you want a stable job, go to university.

But, the tuition costs are so difficult. That, that proportion has leveled off. The second very troubling aspect of this is that those who make it, of course, are those who are coming from wealthy families. And so there is an exacerbation of income inequality in the United States, and a reduction of social mobility as a result of this bottleneck. If one looks at the proportions of kids according to ethnicity that achieve a four year university degree in the United States of white non-Hispanic kids, it’s something around 35%, with the tendency we’ve seen for that number to rise. For African-American kids young people age 25 to 29, only about 16% have a completed four year degree. For Hispanic young people age 25 to 29 it’s only around 11%.833

This means that this bottleneck in society is not only holding back the benefits that technology and globalization have given to more training, more specialized knowledge in an information society, but are creating a kind of filter making it even harder for poor, young kids to make it. And thereby reducing social mobility as well as increasing inequality in society because those who do make it coming from more prosperous families are getting the added boost of earnings and job security. And it’s the poor kids from the poor families who aren’t making it. There’s another irony to all of this. And that is that the mechanism that the United States at least has used, to this point, to address this crisis, has really proven to be inadequate. The US by virtue of its libertarian traditions always looking for the market solution, even when the market solution isn’t necessarily very wise. Essentially said to the generation of young people, go to university, and take debt, borrow, in order to do it. And the government helped to create a rapidly rising level of student loans. The double irony of this is, of course, it’s the poor kids who take the loans because the kids from wealthier families are able to afford the tuition straight out usually from the household, the parents providing the tuition. And the added burden, which has created a real mess for millions of young people, is that poor kids are taking student loans and then also not completing the four year degree. Maybe taking enough loans for one year or two years, but not able to make it all the way through university. Then the calamity is obviously multiplied because the benefits of those added years of schooling from the point of view of earnings are quite small, but the burden of the debt is enormous. And this graph that you’re looking at shows how rapidly the debt has been growing in recent years, from an estimated $250 billion total of student debt in 2003, to 10 years later a fourfold increase to the point where there is $1 trillion of student debt outstanding.834

Much of this debt owed by young people who did not complete a four year degree and will not complete it and will not have the means; therefore, out of that expanded income to repay what they borrowed. It’s a calamity. It’s a rather serious miscategorization of public policy, looking for a market solution where a market solution is not all that adequate and there’s going to have to be innovation in approach. One important aspect of innovation, I think can be obvious even in the way that we right now are interacting. You’re watching me online, and what that means is something I think with potentially great significance more generally. Online information technologies which continue to fall in price, and with new innovations of best ways to combine online and in the class, and in person education. Give the chance to end that bottleneck through dramatic reductions of the cost of tuition. Making it possible to reach many, many more young people, I hope all over the world. We can envision within reach, I think big breakthroughs in all of our acts as to new information, new ways to learn and new kinds of university settings. That gives us the hope that, just as society and the markets are sending signals. Gain skills, get an education, go for more advanced training. Those same technologies that are giving the added returns to education, are going to give us the ways to also give the added supply to make it possible for education to reach everybody using the wonders of information technology. Hope it’s working for you because I hope that it can work generally for young people around the world


Education and Susteinable Development II

Early Childhood Development

One of the most significant advances in our understanding of human capital over the life cycle is the absolutely crucial role of early childhood development. So much focus 20 or 30 years ago was on the formal public education system. That there was not the understanding of the pre-school environment for the young child. The health and nutrition, the safety of the physical environment. And the, preschool preparation for school itself. Research has shown, startlingly important effects, of the early childhood, especially during the first three years when the brain develops in so many dynamic and important ways. If those first three years are period of environmental stress great stress of the child maybe in an unsafe environment in, in dangerous, noisy, stress-filled environment.

821If there’re periods of chronic infection or, or under nutrition or lack of cognitive stimulus and preschool preparation ,the liabilities that a young child will bring to even the entry to primary school itself. May be impossible to overcome in practice. Investing in the early health, well-being safe environment and cognitive development of young children turns out to be absolutely crucial. This is an area where this concept of cumulative investment, is so essential. Scientists studying brain development of young children and overall physiological, development have come to the view that the cumulative amount of stress that young children. Face shapes the formation and the, the help of the neurological system, and if there is an over accumulation of stress, biophysical pathways in the body can mean a lifetime o Physical and mental difficulties. This is shown in this graphic from one of the great laboratories of early childhood at Harvard University, where the biology of health is emphasized to be cumulative over time. And embedded during very sensitive periods, especially during brain formation. Now, several studies have tried to take a look at the overall evidence that has been gained on what this great Period of risk really means in terms of raising a, a healthy child that meets potential. Exposure to biological and psycho-social risks, being in an unsafe environment, in a violent environment, in a noisy environment. Can affect brain development and compromise the subsequent development of the child, both cognitively and physically. That inequalities of childhood developments start at a very, very young age. And a child that is raised in an unsafe environment will come already, by age six or age seven.

822To primary education with the huge, disabilities and liabilities relative to what those children fortunate to be raised in, in a safe and secure environment. That means as the studies show and as this study summaries that reducing inequalities across the children required integrated and very early interventions in safe environment and cognitive development and preschool learning and proper nutrition and healthcare for young children. And that the time for those investments is at a very young age because these investments are very, very hard to make and much less effective if made as a rescue for a child already five or six or seven years old. So, societies have their work cut out for them. Don’t lose the child early on. The consequences can last for generations, can last throughout the entire subsequent life of that child. And the consequences for society, can be absolutely enormous. A partner study to that study, also published in 2011, In Lancet emphasized therefore, that early childhood development should be envisaged as an integrated strategy, one that looks at all of the different aspects holistically of the child’s environment.

From the point of view of safety, from the point of view of low stress, from the point of view of stimulus for brain development, for preschool, for early awareness of numbers and letters at age three and age four is a preschool readiness of children being read to, of. Hearing lots of words and beginning to socialize in ways that will help them to be successful as they enter the formal school system. This report also summarizes the evidence that making those investments. Which requires leadership of government to ensure that even very poor families, those that don’t know, or wouldn’t be able to afford these interventionson their own, has a tremendous social return, one that has very large gains for the society in many, many ways.But ultimately, as measured even in the national income, because of the productivity of the population, the ability of children well raised in a healthy environment to become highly productive members of the Work force when they become adults. One of the economics profession’s leading scholars, Professor James Heckman, a Nobel laureate economist at the University of Chicago, who’s been studying this issue of investing in human capital, throughout his career, has mad a graph of the kind that you are looking at now. 822On the horizontal axis is age. And on the vertical axis is the rate of return to investing in human capital. And look at where those returns are. Absolutely the highest in the preschool age. And then as the age of the child and the individual is higher, the returns that one can achieve by incremental investments in human capital are lower. Missing a year of investment. In human capital when a child is two cannot be made up by that same investment when the child is six. Too late. The returns are very high in the formative years of the brain and early socialization and development of personality and that cognition and scholastic aptitude, and physical well-being. And cannot simply be replaced by investments, later on. Now, this means that, societies that succeed in making investments broadly in the preschool years of children, are likely to see many benefits, not only in higher productivity, but also in a more inclusive society. Because which children are bound to be disadvantaged by the lack of public investments? It will be the poor children. Children growing up in wealthier households typically will have a safer physical environment. A better access to nutrition and more stimulus for cognitive development and more school readiness by virtue of of the. environment, that these children are raised in. And so, the next graph shows something really quite interesting and quite important. Compare societies according to how they differ in the equality or inequality of educational attainment. Consider in a country for example the, average educational attainment of kids that are, growing up in the poorest 20% of the population, versus the, richest 20% of the population. So look at a country. Divide the households into so called quintiles or 20% units. Look at the education achieved by the poorest group and by the richest group. Look at how big that gap is. Countries that are unequal, that are not inclusive, will of course By definition have a very big education gap. Now, consider the extent of preschool early childhood development. So some kind of pre primary school enrollment in, in a preschool education. In this graph, on the horizontal axis is the measurement in a country of how much pre-primary education enrollment there is. On the vertical axis is the extent of the education inequality, or education gap between the richest and the poorest. And what you see here is a scattering of countries, but basically, a downward-sloping line, a tendency that for countries that have more coverage of pre-primary school programs, there will be a smaller gap on average. Of the attainments of the richer children versus the poorer children. In other words, investing in preschool lowers the extent of inequality, and in the right way, not by pulling down anyone from the top, but by raising kids from the bottom who otherwise won’t have the opportunity. The Perry preschool program, which gives intensive help to poor kids in preschool, that has been measured with a tremendous amount of specificity. To show that the returns to these investments, just as in Professor Heckman’s downward-sloping graph. Are indeed very, very high. And in a way somewhat unexpected. This Perry preschool program, as an example of a specific pre-primary or early childhood development education program Has expected benefits in one area, and that is raising the annual earnings of these children by the time they reach the labor market. And so this is a longitudinal study, means that it’s taken over a long period of time. And children that were enrolled in this program have higher earnings by the time they become adults and enter the workforce. But there’s another major category of social gains to this program, and that is the reduced cost of crime. Both the direct costs of crime and all of the costs of a criminal system. In the United States, where tragically so many people and an excessive number of people are locked up in prison. One finds that a lot of the prison population are young Kids simply without skills. Without literacy, for example. Without the ability to hold jobs. And often, their difficulties trace all the way back to having grown up in very, very poor neighborhoods, perhaps, with a father who was illiterate or in, in prison, Himself so that the poverty is replicated across generations. And what we know is that investing in a young child so that that young child has a chance at school to stay up with their class level, to be able to graduate, Primary and then secondary school to be able to get vocational or higher education training. Has a huge effect in reducing the probability that they will be caught up in crime and themselves end up in the criminal justice system. And this means big savings for society because this is a, not only a human tragedy, it is a huge economic cost. When young people are not productive and when society is spending a fortune actually in a penal system of courts and prisons and – And other programs that would have been far better spent on early childhood development in the first place, where the returns are truly high, and where you’re helping to ensure that the child gets on a healthy and productive path of life. Conclusion, Societies around the world are recognizing now based on rigorous biophysical evidence, the evidence brought by pediatricians and psychologists and physiologists, as well as the evidence that economists are bringing to bear, That investing at young ages, even before primary education is reached, in an integrated way, in the safety of the environment, in a low-stress environment, in decent nutrition, in freedom from chronic infection and other blows to health. And in preschool readiness is the best investment that society can make. It is the investment in society’s own people, in their own children. And not only does this lead to efficiency in the sense of high returns, But it is the single best pathway to social inclusion as well, to ensure that every child has a chance, a real chance, so that by the time they enter the public school system, they can keep up, and then use their education productively To become productive citizens and productive adults.