The social utility of education

First insertion on Heterodox Gazette Sam de Wolff: 25 june 2018

E.A. Bakkum is a blogger for the Sociaal Consultatiekantoor. He loves to reflect on the labour movement.

The Gazette increasingly pays attention to the national economy. The present column analyzes the theory of the policy of education. Learning theories of adults are discussed, notably the cognitive and humanistic theory. The theory of human capital and the theory of screening are explained. A summary is presented of the recent policy theories with regard to the primary, secondary and tertiary education. Finally, the views of Van Kemenade and Tinbergen are discussed briefly.

Education is one of the pillars of the welfare state. Both the individuals and the state benefit from a highly educated population. The Gazette is evidently mainly interested in the effect of education at the macro level of the economy. The institutional education has three goals1. First, it is indispensable for the development of individuals. Second, education improves the productivity of the individuals. It is an investment in human capital. Moreover, education certifies the made effort to learn with a diploma, which provides useful information on the labour market. And third, the students learn collective morals during their education. They become acquainted with the social institutions. The school is indispensable for the socialization of the individuals. Thus the bonding (cohesion) within the state is strenghtened, so that social capital is accumulated. So the benefits are partially material, and partially immaterial.

The policy must aim at optimizing the supply of education. This is not simple, among others because both the benefits and the costs of education are difficult to measure. Economist do realize since half a century, that knowledge is an important production factor. In a column about innovation the Gazette has already paid attention to models, which describe economic growth as an endogenous process of advancing knowledge. But such models are speculative2. It is undeniable that the traditional compulsory education provides for a sound basis of the educational system. On the other had, there is an increasing expectation, that adults continue or supplement their education. At the same time it is clear, that education leads to high costs. The present column makes a first attempt to present a cost-benefit analysis. Note that the analysis can lead to different conclusions for the individual and society.

Learning of adults

Your columnist obtains his technical information about education from the books Volwassenen-educatie (in short VE) and Leren en veranderen bij volwassenen (in short LVV)3. They place the individual in the focus of their analysis of the benefits, and not society. Learning is defined as a process with durable results, so that the individual expands his behavioural potencies (p.80 in VE). Learning is a source of morals and meaning (p.154 in VVL). All things get connected, as it were. Nevertheless, learning can be quite negative, namely when the learned behavioural potencies are an obstacle to efficient and effective actions (p.160, 194 in LVV). The institutional education obviously tries to make learning positive (p.81 in VE). This will only succeed under favourable conditions.

There are roughly ten theories of learning for adults, which each have their specific domain of application. For the present theme notably the cognitive theory and the humanistic theory are relevant4. The cognitive theory assumes the individual mental system, that is to say the frame of reference. This is also called a concept of self (p.88 in VE). The basis of the theory is the methodological individualism. Many individuals learn, because they want to realize a goal, in other words, the motive of learning is extrinsic (p.28, 59 in LVV). Consider for instance the income motive. The individual freedom is restricted by the group morals (p.64, 212 in LVV). The environment also affects the individual by means of cognitive dissonances (p.25, 213 in LVV). Individuals learn by observing the behaviour of others, and by imitating successful behaviour (p.21, 211 in LVV). Therefore learning becomes an evolutionary process.

Quartet card Volwasseneneducatie Overijssel
Figure 1: Quartet card

The humanistic theory assumes, that thanks to human nature the individuals are inwardly motivated (p.83 in VE). The desire to learn is autonomous (p.223 in LVV). People learn for the sake of learning, in other words, the motive to learn is intrinsic (p.28, 59 in LVV). This is apparent from the pyramid of Maslow, who is a founding father of the humanistic theory. Therefore education must not try to form them externally. An environment must simply be created, where the individual can unfold relatively freely. Since the goal of learning remains vague, then the results of learning can not be measured (p.83 in VE). The humanistic theory and the cognitive theory are difficult to reconcile.

The subject-matter of tuition transfers cognitions (knowledge), or skills, or morals, also for adults (p.187 in VE, p.48 in LVV). Here the teacher plays a model role for his pupils (p.51 in LVV). But they are autonomous individuals with their own identity, preferences and responsibility (p.84-86 in VE, p.74, 156 in LVV). They are self-assured. They choose their own goals for learning, and this motivates them (p.87 in VE). Then education must build on the existing mental system. The learning plan or curriculim must be sufficiently flexible in order to allow open learning (p.91 in VE). The pupil must have a say in the subject-matter, and this also holds for the judgement of the progress (p.90-91, 169, 187, 190 in VE). Successful experiences encourage repetitions and imitations (p.60, 137 in LVV). The cognitive theory sees this aspect clearly, whereas the humanistic theory attaches little value to material successes.

Obviously the practice of education is sometimes different. The subject-matter is commonly presented in an abstract manner, because this increases the field of applications. The danger is, that the pupil does not see a relation with reality. He does not succeed in translating knowledge in a personal construction, which has meaning within the personal mental system (p.56 in LVV)5. Furthermore, an open curriculum is risky for the teacher, when he derives his authority mainly from his professional expertise (p.85 in LVV). Book-learning reinforces the passive orientation of the pupils (p.85 in LVV). It also discourages personal planning and evaluation (p.136 in LVV). Then the curriculum remains hidden for the pupils themselves (p.142 in LVV). The pupils must listen and obey, in order to avoid sanctions (p.137 in LVV). They become uncritical followers (p.144 in LVV).

Summarizing, those who want to understand education for adults, must use a mix of theories of learning. The cognitive and humanistic theory differ in their view of man. The social utility of education can be analyzed better with the cognitive theory than with the humanistic theory, because in economic life the extrinsic motive of income dominates. Furthermore, the modern society is pluralistic, so that every (local) group has its own collective morals. Since some morals are better than others, there are good and bad schools. This problem will be discussed again in the following paragraphs. An example: education can teach a passive orientation to pupils. This is the hypothesis of this column: not every education is good, and education is not always good.

The school of human capital

This paragraph mainly consults the contents of the books Modern labor economics (in short MLE) and Labor economics (in short LE)6. Nowadays the theoretical school of human capital dominates in the economic analysis of the institutional education. Being educated is interpreted as a decision to invest. The potential student weighs the costs C and benefits B of education (p.281 in MLE). The material costs are the costs of studying, and the time spent on studying, which is lost for earning an income. But there are also immaterial costs, namely the effort of learning. The benefits of education emerge only in the long run, namely better paid jobs, in a challenging and autonomous function. The probability of work pleasure (job satisfaction) during the career increases (p.92 in LE). The humanistic theory also identifies immediate benefits, due to the pleasure of studying (p.285 in MLE).

Suppose for the sake of convenience that the costs C are made at the time t=0. The yearly benefits B(t) are uncertain, and are only received during the course of the working life. Benefits are valued less, according as they are farther in the future. For each year of delay of certain benefits the individual devalues them with a discount factor δ. Obviously δ<1 holds, so that one can write δ = 1/(1+d), where d>0 is the individual discount rate. Let T be the duration (in years) of the career. Then the nett present value of the investment in education equals (p.283 in MLE)

(1)     NPV = -C + Σt=1T  δt × B(t)

An investment with a size of C only makes sense, as long as the nett present value NPV is larger than zero. According to the formula 1 the discount factor determines, whether the education project at t=0 is profitable. Each individual has unique preferences, and therefore has its own discount factor. However, d(δ) can be transformed into a profit rate r by calculating it for a project, which exactly covers the costs (NPV = 0). The calculated r is called the internal rate of return (in short IRR) of the project. Thanks to this method the various projects can be compared by means of their IRR. Furthermore note, that the costs of the totally received education is determined by the yearly costs of the study and by the number of years of education. At the end of each study year it must again be decided, whether a continued education is profitable. In this manner the marginal costs of education ∂C/∂t are calculated (with t≤0 in the model of formula 1)7.

Graph of salary development
Figure 2: Salary development
    secondary and university education

The presented model gives a simple insight in the decision to (continue to) learn. For instance, some individuals dislike learning, and therefore during the education their yearly costs ∂C/∂t are relatively high. Then the investment in learning will sooner lead to losses (p.284 in MLE). Other individuals are a bit myopic with regard to their future, and therefore have a low discount factor δ. Also for them learning will soon create losses (p.286 in MLE). In other words, this type of individual requires, that the discount rate d of the education is high. Risk averse individuals will invest less in their human capital, because the benefits B(t) are uncertain (p.292 in MLE)8. Levelling of the wages will also discourage the formation of human capital (p.291 in MLE).

In this argument the immaterial costs and benefits are always taken into account. In general, empirical studies of the effects of education merely measure the income during the career T. Evidently such studies do not elaborate on the individual discount rate d, but on the average profit rate r. According as individuals have learned for a longer period, their income between the age of 25 and 40 increases faster, at least on average. In the United States of America university graduates on average end on double the wage of individuals with merely a secondary education (p.294 in MLE; p.67, 74 in LE). See the figure 2. Partly the rising wages are caused by company trainings and the acquisition of skills (p.74 and further in LE). It turns out that on average the profit rate r (here in the sense of IRR) of education varies around 5-12% (p.304 in MLE; p.96 and further in LE).

Furthermore, the formula 1 shows, that investments in education are less profitable at a later age. For, older individuals have a shorter remaining career T (p.288, 297 in MLE). Moreover, they receive a relatively high wage, which is given up for each year devoted to studying (p.289 in MLE). Older workers are sometimes educated merely in order to replace their outdated knowledge. Apparently human capital also requires replacement investments9.

Education as a method of signalling

Until now this column has assumed, that workers become more productive thanks to their learning efforts. This is undoubtedly true for primary education. However, from secondary education onwards it is dubious whether knowledge and skills are really useful for doing a job. Individuals have already developed their own personality from their adolescence onwards. They differ in efficiency, discipline, zeal, creativity, innovation, or responsibility. It is obvious, that precisely the most talented individuals suffer least from the immaterial costs of learning (p.308 in MLE). According to the formula 1, they will learn for longer periods than their less talented contemporaries. Thus engaging in education is a signal of the already internalized individual skills. A column of more than two years ago has explained, that thanks to the certificates of the applicants the enterprises can indeed distinguish between the individual talents.

According to this theory, education is simply an instrument for screening the most talented individuals. This talent has not been created by education, but it is already present in the individual, by its genetic hallmarks and by his early formation, socialization and experiences. So this view deviates from the school of human capital. It has the important consequence, that education must last exactly sufficiently long to fulfil its function as a signal. Therefore less education than is presently common is possibly sufficient. Finally, politics must decide about the investments in secondary and university education (p.311 in MLE; p.80 and further in LE). The costs of over-education lead to a loss of welfare. Therefore the screening theory warns, that not all education is good.

The screening theory clashes with the theory of the education of adults, which has been discussed in the first paragraph. For, certainly the cognitive theory is convinced, that individuals truly learn new useful skills. Yet, on reflection the screening theory is less odd than its appearance suggests. Empirically it has never been proved, that education leads to economically more productive individuals (p.88 in LE). And also the humanistic theory supposes, that talent is intrinsic. Few students complete their professional education with the explicit intent to become more productive. Most want to show, that they are smart. Or they want to distinguish themselves by their diploma10. One must indeed conclude, that an enterprise hires its (young) workers on the basis of their certificates (p.314 in MLE)11. During the application procedure the enterprise does not measure the productivity of the candidate. When workers have proved skills, then the diploma obviously becomes less significant12.

State intervention in education

The policy of education must determine the size of the offer of education. Here the profitability, that the investment in education has for the individual and society, must be taken into account. This implies the application of the formula 1. However, this evaluation is very difficult, because various immaterial costs and benefits emerge. For instance, politics must decide, whether investments in shared social morals (knowledge of social institutions) may hurt the economic growth (welfare loss). Etcetera. Actually the state should base its policy on a social welfare function. But in reality this is clearly impossible. Some will even argue, that the material and immaterial factors are mutually incommensurable. The present paragraph will analyze mainly the material profitability, as a first step towards a complete evaluation of costs and benefits.

Again, it has never been proved empirically, that education indeed increases the productivity (p.88 in LE). Partly for this reason the screening theory has been proposed. Nevertheless, it can be concluded, that during the past half of a century the expenditures for education have increased globally13. Apparently, it is generally recognized, that it is desirable to improve the education of the population. Then the question is evidently, which level of education (and with it the size of the budget for education) is optimal for society.

The theory commonly distinguishes between the various human phases of development. Children until the end of the compulsory education (5-16 years) are still insufficiently capable of making decisions about their own education. The parents and the state act as their guardian. The state dominates the parental authority, due to the compulsory education. Social justice requires, that each child obtains equal opportunities to develop autonomously by means of education. Incidentally, this is also desirable for an optimal productivity, because all innate talents must be used optimally. Apparently sometimes morals and efficiency are interwoven14. At the end of the compulsory education there is still the obligation to qualify.

The compulsory education includes the primary and secondary education. After the compulsory education and during adulthood the individuals are considered to be capable of making responsible decision. In particular, during the tertiary (higher) education there is room for free markets. The present column elaborates on these aspects, and the compulsory education and the higher education will be discussed separately. Four books have been consulted thoroughly, namely The economics of the welfare state (in short EW), Économie et finances publiques (in short EF), Economics of the public sector (in short EP), and De prijs van gelijkheid (in short PG)15.

Primary and secondary education

The foundation of the education of individuals is laid during the formation years of todlers. The early socialization is mainly the task of the parents. When during this phase a child develops poorly, then his chances for success in regular education diminish. According to some researchers investments are most profitable during the earliest phases of formation16. Pre-school childcare would be more profitable than the infant school, etcetera. A good preparation is half the work. The effect of the earliest formation is mentioned merely in passing in the consulted books, and it is somewhat beyond the knowledge of your columnist17. However, other researchers state, that most profits are acquired during the subsequent education! Perhaps this is different for each state18. Such differences do not support trust in the practical applicability of these scientific analyses. See the figure 3.

Graph of development of profits
Figure 3: Profitability of education
    according to various sources: Blankart (p.82),
  Cahuc/Zylberberg (p.99), and Jacobs (p.179)

Various books do conclude, that the inflow in the tertiary education is furthered most by investing in the secondary education. This has the result that the students become more positive about continuing their learning, so that the individual discount rate d falls. Here the intervention of the state is acceptable, because by nature highly educated parents attach more value to education than less educated parents (p.313 in EW; p.427 in EP; p.408 in EF; p.181 in PG). This process threatens to thwart the social mobility, and perpetuates (reproduces) the social classes. Therefore the innate talents do not get sufficient opportunities for unfolding19. So qualitatively good education not only encourages better results, but also leads to a better choice of the subsequent education.

Primary education is indispensable for functioning in society, because of skills such as reading, writing, and computing (p.405 in EF). But it is definitely conceivable, that secondary education is already partly a signal to future employers (screening) (zie p.297, 309 in EW). Interest groups and the administrative bureaucracy could unnecessarily increase the offer of education (p.302 in EW). On the other hand, the income tax can discourage attending education, namely when the profit rate r of education is affected (p.194 in PG). See the formula 1, with r substituted for the discount rate d. A falling willingness to continue a study affects the productivity (at least in the theory of human capital), and therefore leads to a welfare loss (p.194 in PG). This is partly a reason for offering secondary education for free (p.197 in PG). The free supply is naturally also logical because of the compulsory education.

Education is not a public good, because it is consumed individually (p.426 in EP). The marginal costs per student of the school are not much smaller than the average costs. However, educations had several positive externalities. First, a continued education leads to a higher income, so that the tax incomes rise (p.298 in EW)20. Besides, it is assumed, that the behaviour of highly educated people is an example for the less educated (p.298 in EW)21. It turns out that a high level of education is favourable for the flexibility of the labour market (p.298 in EW), and it makes the economy more innovative (p.427 in EP; p.184 in PG; p.101 in LE)22. Well educated individuals are relatively healthy, and therefore cause less costs of health care. It is sometimes stated, that this is due to the learned attitude and morals at school (p.406 in EF). Education also lowers unemployment (p.414 in EF; p.68 in LE)23.

Furthermore, schools are a bonding factor at the local level, so that they represent social capital (p.298 in EW; p.427 in EP; p.412 in EF). This argument naturally refers to the moral socialization during education. Thus education also furthers the political functioning, and it stimulates good citizenship (p.410 in EF; p.184 in PG; p.92 in LE). Here it must be noted, that group formation can also be negative, namely when it is too much inwardly directed. This leads to biases and even discrimination. Care must be taken not to segregate education. Nevertheless, in general the positive effects justify the compulsory education, as well as its free supply. This is to say, the costs are covered by taxes.

Since education is a consumer good, it is logical to give a free choice to the parents. A free choice evidently only makes sense, when the schools are allowed to somewhat distinguish themselves, and thus obtain a certain autonomy. Then the schools can mutually compete, or perhaps focus on a certain target group. In principle the primary and secondary education can even be offered by private enterprises (p.428 in EP)24. In such a system the inflow of pupils in the school depends on its educational results. The state pays the school a certain sum for each pupil. In its most pure form the system provides vouchers for education to the parents, as a kind of personal budget (p.314 in EW; p.433 in EF).

However, it is controversial whether the parents must have the right to personally choose a school for their child. For, the free choice can lead to homogeneous schools, so that the children are insufficiently trained to cope with diversity. Then the schools will improve their results by mainly selecting the best pupils (cream skimming) (p.312 in EW). There is a moral hazard, where the most popular schools pick the good risks (p.318 in EW). Difficult pupils are hard to place, and get concentrated in problem-schools (p.435 in EP; p.95 in LE)25. Note that also here the causal relation is controversial. Perhaps the popular schools perform well, because they attract enthusiastic pupils. Thus it is uncertain, whether the quality of education itself leads to better results (p.93 in LE).

A quasi-market, for instance by means of vouchers, must be regulated strictly26. External supervision on quality is needed, because the pupil consumes education only once. The quality can not be established by the market, because then some pupils will become the victim of unsound suppliers (p.303 in EW). Parents are often not capable of judging the quality of the school (p.304 in EW). It has been suggested, that precisely the poorly educated parents will fail here (p.315 in EW; p.433 in EP). Therefore a free choice must be supported by sufficient information. For instance, the schools can be forced to periodically test their pupils, and to publish the results (p.309 in EW).

An important question is the degree of centralization in education. Nowadays there is consensus, that more decentralization is desirable (p.438 in EP). It increases the autonomy and made-to-measure programs in the school. However, the desired equality of opportunities makes some centralization inevitable. This could be done be means of performance indicators. However, the previous column about privatizations has explained, that it is difficult to develop indicators, which indeed result in the desired incentives for the concerned institute (see also p.438 in EP). And some municipalities are simply so poor, that they have little means available for education (p.439 in EP). At least a minimum curriculum must be dictated by the centre - but this again reduces the local say (p.440 in EP).

Strictly speaking, the policy of education must be based on a comparison of the profits of the various investments in education (p.446 in EP). At the beginning of the paragraph it has been stated, that the decision is subjective and therefore political. The choice can be made to maximally support the weakest pupils (p.446 in EP). Then in the end the maximin principle emerges, which has been proposed by Rawls. In practice this is difficult to execute, because the social profits of the various investments in groups of pupils are empirically not well known (p.446 in EP). Generally the conviction does dominate, that it is socially desirable, when individuals can continue to study after the end of the compulsory education, at least as long as they are capable to do so. Often the state subsidizes continued studies (p.317 in EW; p.411 in EF).

The tertiary education

The consulted books consider in their discussions of the tertiary education mainly the universities27. Since the sixties the universities have become places of mass education. In some respects, the higher education exhibits the same phenomena as the primary and secondary education, but there are also differences. Thus much information is available about the quality of the various universities, whereas the pupils (students) are more or less capable to make their own conscious choice (p.323, 327 in EW; p.441 in EP). Therefore the offer of education can become more diverse, for instance by means of a modular structure (p.323 in EW). Nevertheless, the children of poor families are still under-represented. This is mainly due to insufficient incentives during their time in the secondary education (p.338 in EW; p.179 in PG)28. Also here it is true, that a good preparation does half the job.

The student invests in himself, because university graduates receive a significantly higher income than less educated people. When the tertiary education would be (almost) free (like during the sixties), then the poor families pay the continued learning of students coming from wealthy origins. This is a regressive system (p.329 in EW; p.441 in EP; p.175 in PG)29. This makes it just to base the payment of the costs on the principle of benefit. This is to say, the students pays a significant tuition. Since also the children of poor families must be able to study, they can contract a loan for their study (p.324 in EW). Such a loan is a levelling of incomes during the course of life, because it is a claim on the later earned high income (p.327 in EW).

Picture postcard Fré Cohen
Figure 4: Poster
      (Fré Cohen, 1930)

It is also an investment, and therefore risky (see the formula 1)30. The risk can be reduced by coupling the manner of repayment to the later earned income (p.326, 330 in EW; p.442 in EP; p.430 in EF). Since commercial banks can not insure this risk, the loans are supplied by the state. Children from poor families could obtain a supplementary scholarship, in order to correct for their high discount rate d (p.327 in EW; p.423 in EF).

Furthermore it is worth mentioning, that the state affects the preparedness to study by imposing taxes, first of all those on income (p.187 and further in PG). Only a poll tax (imposing a lump sum on all incomes, this is to say a single universal payment) would not affect the decision to study. But such a tax would be extremely unfair, and therefore politically impossible. The state must construct the tax system in such a way, that it does not discourage studying. However, this is such a complicated theme, that the discussion will be postponed to a later column in the Gazette. See here and there in PG.

The tertiary education also creates positive external effects. The state must further these by offering subsidies. This is for instance the case for studies, which spread knowledge about the social development, including culture (p.331 in EW; p.412, 422, 430 in EF; p.184 in PG). Consider studies such as Literature or Philosophy. They are actually a public good. Furthermore, the universities obtain income from donations of alumni (graduates) and of rich philantropists (p.424, 430 in EF). In this regard the university is similar to other non-profit organizations.

The debate about decentralization is also relevant for the secondary education. For instance, the state can conclude a contract with the institute of education (p.427 in EF). Or the state delegates the supervision to an independent committee of experts (p.428 in EF). It is interesting that N. Barr propagates a variable tuition, depending on the type of study and the concerned university (p.336, 340 in EW). Moreover, Barr advocates the establishment of elite universities, which can satisfy the needs of the most talented students (p.340 and further in EW). Such a system makes the education more expensive for the students, but it also creates additional funds for education and research.

Two social-democratic thinkers: Van Kemenade and Tinbergen

According to Jacobs education makes social-democracy tick (p.175 in PG). This may well be true, although there are also objections31. In this paragraph the ideas of two leading social-democrats will be discussed, namely Jos van Kemenade and Jan Tinbergen. Two books of these thinkers have been consulted, respectively Geloven in de oogst (in short GO) and Income distribution (in short ID)32.

Van Kemenade

Van Kemenade emphasizes two functions of education, namely the selection of the future job (p.87, 105, 169 in GO), and the socialization of the pupils (p.18, 84, 87, 105, 126, 176 in GO). He appreciates the school as a local community (p.29). Since individualism in society increases, education must offer more variety, for instance by means of flexible curricula (p.127), brief courses and modular education (p.95, 126, 185). This becomes increasingly simple, when the various institutes of education cooperate. Therefore the present partitions must be removed (p.129). Definitely in the higher education demand steering is indispensable because of the international competition (p.128). Training during the career becomes essential, because knowledge becomes obsolete more and more rapidly (p.127).

One gets the impression, that Van Kemenade prefers the perspective of the screening theory above the theory of human capital. He is clearly worried about the reproduction of the ruling order in education (p.171). The partitions between the institutes of education and the curriculum are still an obstacle for the children from less educated families, who can or want to continue their study (p.172, 177). Van Kemenade cites the French antropologist and neo-marxist P. Bourdieu, who perceives durable social classes (p.175). This could be caused by an unequal distribution of cultural capital. Therefore the mentioned partitions must be removed. All in all the view of Van Kemenade is down-to-earth rational, although he still tends to unreasonably see the "labourers" as victims of a supposed class society. Since then many of his proposals have been realized33.


Tinbergen believes that the spread in attended education is an essential cause of the inequality of incomes. There is notably a scarcity of higher educated people, and therefore these receive a high wage. However, Tinbergen believes that an egalitarian distribution of incomes is desirable. In principle the welfare of the various categories of workers must be equal34. This can be realized by a mix of policy measures. Om the one hand investments can be made in education, so that the scarcity on the labour market is eliminated (p.114, 151 in ID). The policy reduces the profits on investments in education. This affects the supply side of the labour market. On the other hand, the income can be redistributed by means of a progressive income tax (p.110).

Perhaps the scarcity of higher educated people is partly a reflection of the innate capacity to learn within the population (p.121, 148 in ID). Tinbergen supposes, that a tax could be imposed on such innate talents! Even your columnist, who is yet an energetic adherent of psychological research, believes that this is an unrealistic proposal. There are no reliable measurements of talent. And the distinction between innate and learned talent is diffuse. Learning of talent must not be discouraged (p.195 in PG)35. Jacobs warns on p.199 in PG, that high subsidies for universities will lead to over-investments in education and to welfare losses. Moreover, they are regressive, and this increases the inequality (p.199 in PG). On p.200 in PG he prefers the levelling by means of progressive taxes. In general the utopian desire to increase equality (of incomes) has disappeared from science.

Tinbergen remarks, that the economic structure is dynamic, so that the supply side of labour changes. The technical progress creates a growing demand for higher educated persons. Therefore the profitability of higher education will rise. Thus the policy of education and the technical progress become involved in a race, and its effect on the social inequality is not in advance clear (p.156 in ID). Tinbergen, who firmly believes in central planning, advocates to control the technical progress in such a way, that there is no selective scarcity on the labour market (p.156 and further in ID)! Here Tinbergen shows that he is a traditional social-democrat. Nowadays this view is not very popular. The consulted books (EW, EF, EP) all prefer private markets in higher education and in research36.

In conclusion, although the analysis of Tinbergen is fascinating, nowadays his solutions are seen as outdated. Incidentally, in Income distribution he develops an empirical model, which allows to numerically calculate the effect of education on the economy. This demand-supply model will be discussed in a future column.

  1. See p.295 in The economics of the welfare state (2004, Oxford University Press) by N. Barr. Remarks about the shared morals are also found on p.298. (back)
  2. On p.299 in The economics of the welfare state Barr makes the interesting remark, that the former Leninist block in Eastern Europa invested a lot in education, and yet suffered from a stagnant economy. (back)
  3. See Volwasseneneducatie (1990, Bohn Stafleu van Loghum), edited by W. van Zon, and Leren en veranderen bij volwassenen (1995, Uitgeverij Coutinho) by S. Bolhuis. Your columnist read these books 21 years ago, as part of a project to get a better understanding of learning processes. The then consulted series of books covers almost all conceivable theories of learning, including the humanistic psychology and the critical theory. At the time it did not yield much, but now this knowledge is yet useful. (back)
  4. See p.82-83 in Volwasseneneducatie, and chapter 5 in Leren en veranderen bij volwassenen. The two consulted books also mention the behavioural theory (stimulus/respons), the symbolic interactionism, the psycho-analytic theory, the (liberating) critical theory, the learning by experience, the Leninist theory of learning, and the exemplaric learning. This series contains quite a few theories with a clearly political character. The critical theory includes among others the South-American liberation theory of Paulo Freire (p.38 in LVV) and the philosophy of the School of Francfort (Horkheimer, Marcuse, Adorno). It wants to stimulate a critical political conscience (p.83 in VE). The exemplaric learning has been developed by Oskar Negt for use in the trade union movement. It wants to stimulate a class conscience among the labourers (p.83 in VE), and is closely related to the critical theory. The Leninist theory by Vygotski, Davidov and Gal'perin is cultural-historic, and states that thoughts are merely a reflection of reality (p.78 and 109-110 in VE, p.214-217 in LVV). The human identity is formed by the type of society (materialism). The politically motivated or even revolutionary theories are based on the image of man of the homo politicus. According to such theories the teacher must no longer restrict himself to transfer knowledge, but he must be a preacher. This is wrong, and it is strange that Van Zon and Bolhuis pay so much attention to them. Is this an echo of the New Left? In Volwasseneneducatie the learning by experience of Kolb is often mentioned. In Leren en veranderen bij volwassenen concepts of the cognitive theory are often mentioned. (back)
  5. The Gazette gives an interesting example of this. Each separate models gives little insight in reality. But all models together show something of the richness of ideas. It is always necessary to combine and deduce. (back)
  6. See chapter 9 in Modern labor economics (2009, Pearson Education, Inc.) by R.G. Ehrenberg and R.S. Smith, and chapter 2 in Labor economics (2004, The MIT Press) by P. Cahuc and A. Zylberberg. Your columnist read Modern labor economics five years ago. Apparently for the present theme it is beneficial to dispose of extensive reading. The book was once bought second-hand at De Slegte in Groningen, which at the time had just reopened for a continuation after its failure, for the rather high price of 49.50 euro. Labor economics is advanced, and describes various mathematical models. Your columnist bought it from a German scientist. (back)
  7. See also p.99 in Labor economics. The marginal costs and benefits are usually calculated for the following college year. They can also be calculated for a higher diploma, such as in primary, secondary and tertiary education. However, note that within a type of education (for instance primary, secondary, tertiary) the marginal costs and benefits are still different for each year. (back)
  8. The calculation of the benefits must be done carefully. For instance, the less educated people are more often unemployed than the well educated ones. So a continued study does not only increase the hourly wage, but also the average number of working hours. See p.91 in Labor economics. The discussion of the uncertain benefits is deferred until the paragraph about tertiary education, because here the individual really makes a free choice to continue his study or not. For, the compulsory education has ended. (back)
  9. See p.406 in Économie et finances publiques (2017, Economica) by L. Weber, M. Zarin-Nejadan, and A. Schönenberger. On p.74 and further in Labor economics a model is described, which takes into account the obsolescence ("depreciation") of human capital. Sometimes the company trainings are rather specific for the concerned enterprise. They hardly increase the market value of the worker, because the knowledge is company-bound. When the enterprise pays the training, then the situation of a lock-in results. The productivity increases, and the worker has the opportunity to engage in a hold-up, where he bargains about the distribution of the surplus value. The bargaining has been modelled in a previous column. Only when the worker is relatively powerful, can he completely appropriate the value of his increased productivity. (back)
  10. The screening theory is a surprising find. It is absent in the books Volwasseneneducatie and Leren en veranderen bij volwassenen. Although it is common in the economic literature, the theory of human capital is probably more popular. On p.314 in Modern labor economics it is concluded, that there is a wide support for the educational system. The screening theory has not changed this. However, on p.313 it is remarked, that education does not improve the cognitive capacities of the pupils. They do not develop their own mental models. Incidentally, this statement is difficult to reconcile with the statement, that individuals learn social skills during their education (socialization). On the same page it is stated, that graduates of elite schools earn more than average. On p.102 in Labor economics it is concluded from empirical data, that education is not purely an instrument for signalling (screening). On p.297 in The economics of the welfare state it is acknowledged, that productivity is determined partly by the genetical factors and early formation. On p.319 in De prijs van gelijkheid (2015, Prometheus - Bert Bakker) by B. Jacobs the screening theory is questioned. The counter argument is, that education does yield a social profit. Your columnist does not understand, why this fact would refute the screening theory. Incidentally, the many adherents of the screening theory are obviously not all incompetent fools. (back)
  11. See p.415 in Économie et finances publiques. It is justly noted, that the diploma is merely a rough indicator of the qualities of the applicant. (back)
  12. See p.415 in Économie et finances publiques. (back)
  13. Those people who doubt this, can read paragraph 2.1 in Labor economics. On p.93 it is stated, that empirical uncertainty exists about the effect of the expenditures for higher education with regard to the results of education. It is suggested that better results are connected to higher expenditures per pupil, and to experienced and expert teachers. But it is also conceivable, that qualitatively outstanding schools simply attract better pupils (cream skimming)! Or perhaps such schools attract pupils with a preparedness to cooperate. Also p.431 in Economics of the public sector (2000, W.W. Norton & Company, Inc.) by J.E. Stiglitz can not find an empirical proof, that higher expenditures lead to better results. Higher expenditures on education do turn out to correlate with higher wages during the later career. However, the direction of the causality is unknown. (back)
  14. On p.197 in De prijs van gelijkheid (2015, Prometheus - Bert Bakker) Jacobs states, that thanks to the compulsory education the reproduction of poverty has diminished. He believes that this is a better argument than the paternalistic argument of fairness. On p.186 he makes the interesting remark, that thanks to the compulsory education and the ban on child labour the pupils in primary and secondary education no longer forgo an income during their education. On p.197 he remarks, that the poverty trap discourages work, and therefore also attending education! On p.198 Jacobs yet mentions the equality of opportunities. On p.311 in The economics of the welfare state also Barr mentions the humanistic argument of unfolding and autonomy. (back)
  15. See chapter 13 and 14 in The economics of the welfare state (2004, Oxford University Press) by N. Barr, chapter 9 in Économie et finances publiques (2017, Economica) by L. Weber, M. Zarin-Nejadan, and A. Schönenberger, chapter 16 in Economics of the public sector (2000, W.W. Norton & Company, Inc.) by J.E. Stiglitz, and chapter 6 in De prijs van gelijkheid (2015, Prometheus - Bert Bakker) by B. Jacobs. Textbooks all copy each other, and therefore guarantee, that the contents is well-considered. It is hoped, that in the midst of all these intellectual arguments something of the truth shines through. (back)
  16. See p.82 in Öffentliche Finanzen in der Demokratie (2011, Verlag Franz Vahlen GmbH) by C.B. Blankart. On p.319 in The economics of the welfare state the importance of a good formation during the first years of life is stressed. On p.299 it is stated, that the investments in primary education are more profitable than in secondary education. On p.448 in Economics of the public sector Stiglitz suggests, that formation and education may be mutually substituted. This is to say, a bad formation could be corrected at school. According to some publications, the capacity to learn is significantly determined by hereditary talents. See p.180 in De prijs van gelijkheid, or p.90-91 in Geloven in de oogst (1991, Uitgeverij Bert Bakker) by J.A. van Kemenade. Then potential parents, who want that their future children dispose of high profits on education, must choose a partner with the right genes. Although Jacobs and Van Kemenade are social thinkers, they do not contest this idea. Yet your columnist finds this statement difficult to digest. Perhaps some biochemical properties are indeed an obstacle for learning well. But a successful career depends on so many complex factors, that it seems impossible to trace even the most important ones. Your columnist hopes to once study the original publications about hereditary talents. (back)
  17. Somewhat, so not completely. Already twenty years ago columnist read a lot about this subject, ranging from Spock to Dreikurs. (back)
  18. See p.99 in Labor economics for rising profits after the end of the secondary education (for Sweden?). The marginal profits of the secondary education would be around 1%! On average over the modern industrial states the secondary and tertiary education have about the same profitability (p.98). On p.179 in De prijs van gelijkheid the individual profits are given for the primary, secondary and tertiary education in the Netherlands around 2005. They are around 9-11%, without a systematic trend. This contradicts the statement of Blankart - although this did not relate to the Dutch data. (back)
  19. Note that here a variant of the screening theory is presented. For, although these children are talented by nature, and therefore can realize a high profitability on education, they do not possess the right mental model. The reference frame blocks the right choice of education. (back)
  20. On p.429 in Economics of the public sector it is remarked, that the increase of the productivity is not per se the consequence of the learned knowledge and skills. The social socialization also makes more productive, for instance by a better discipline and communication. In other words, education reduces the transaction costs. In itself this is true, but perhaps this phenomenon yet is not a part of human capital. The improved insight in the institutions must be interpreted as collective morals or a mental model. The preparedness to cooperate is a social capital. On p.199 in De prijs van gelijkheid it is remarked, that a generic (universal) improvement of education changes little, because then the relative scarcity on the labour market remains intact. Apparently here it is assumed, that education does not create additional employment. (back)
  21. On p.307 in Modern labor economics it is also assumed, that the less educated people become more productive thanks to cooperation with the higher educated ones. (back)
  22. Your columnist has some difficulty with this external effect. When the innovator receives all the gains from his innovation, then there is no positive effect. Perhaps Stiglitz has innovations in mind, which improve the quality of life to such an extent, that the innovator can never be completely compensated. Your columnist is not completely convinced. In the same strain it could be said, that some innovations (such as fashion) lead to purely status goods, which are rationally a waste. (back)
  23. Your columnist has his doubts here. It is true that higher educated people will be less often unemployed than less educated ones. However, this merely shows, that the less educated are ousted from the labour market. It does not prove, that thanks to education the employment grows. This is precisely the reason for introducing the screening theory. This is implicitly acknowledged on p.184 in De prijs van gelijkheid. Here Jacobs warns, that the causality in such statements is unclear. For instance, it is conceivable, that by nature productive people are less often unemployed and study longer. Perhaps healthy individuals have a way of life, which stimulates learning. Or suppose, that at some time a correlation is measured between education and economic growth. The reason could be, that states in the growth phase start to invest more in education. Etcetera. In this way many positive effects can be doubted, and therefore also the need for state interventions! On p.185 Jacobs states, that empirically the positive externalities in education have never been proved. Your columnist concludes, that the view of Jacobs is not common. Also Jacobs remains ambiguous, because on p.197 he assumes that education reduces crime. See also p.101 in Labor economics. When this is true, then it is better to interpret this as a consequence of the socialization than as an external effect. On the other hand, it is good not to be very euphoric about the benefits of education. Perhaps the social psychology is needed for determining the direction of causality between education and positive phenomena. Again: definitely not all education is good, and education is definitely not always good. (back)
  24. According to p.423 in Economics of the public sector in the United States of America the primary and secondary education are almost completely owned by the state. On the other hand, 40% of the universities is private. On p.435 Stiglitz remarks, that the American trade unions reject private schools, because these would not improve quality. Stiglitz believes, that the trade unions support the state schools, because here the union density is high! (back)
  25. According to p.437 in Economics of the public sector the United States of America have experimented with the voucher system. Parents were not enthusiastic, and it did not introduce competition between schools. But in another footnote of this column it has been remarked, that according to The economics of the welfare state the voucher system gives satisfactory results in England. (back)
  26. On p.315 and further in The economics of the welfare state it is described how England has established such a system since 1988. It turns out that empirically the quasi-market leads to better results in primary education here (p.318). (back)
  27. It is wise not to be naive. The books have been written by professors, so that the authors themselves have a personal interest. (back)
  28. According to p.178 in De prijs van gelijkheid nowadays more than 90% of the Dutch pupils in secondary education continues in higher education! On p.183 it is remarked, that therefore it pays to use a policy, which encourages children from less educated families to continue learning in the secondary education. On the other hand, when the screening theory is accepted (which Jacobs does not do), then such an encouragement is only useful for children, who are productive by nature. So the problems are complex. Moreover, Jacobs believes, that the preference for a short education is often the result of hereditary talents (p.180). (back)
  29. On p.178 in De prijs van gelijkheid the interesting comment is made, that families with studying children have somewhat older bread-winners. And income rises with age. So the regression is at least partly an effect of age, and only indirectly an effect of welfare. (back)
  30. On p.421 in Economics of the public sector Stiglitz points out, that the benefits of a study can change due to changes on the labour market. It is difficult to predict the future. In De prijs van gelijkheid here and there it is remarked, that (any change in) the tax system affects the benefits. According to p.408 in Économie et finances publiques the benefits can vary due to the conjuncture, but also due to an increased inflow of workers with the same education. According to p.419, therefore the central planning of education is not very useful. On p.176 a time series of the average individual profitability of college education is presented for the period 1980-2010. This profitability varies from 5% (1990) to 9% (2010). The increase would be due to the rapid technological development. On p.181 in De prijs van gelijkheid Jacobs states, that for such a high profitability r the high discount rate d of children from poor families can no longer be an obstacle. But this high discount rate naturally mirrors various irrational views and biases. (back)
  31. For instance, according to Karl Marx only the productive labour creates value, like in agriculture and the industry. Intellectual labour must be paid from the surplus value, which is created by the productive labour. So in a way it is a parasite on the material production, although sometimes it is still indispensable. V.I. Uljanov (alias Lenin) writes on p.499 in Über den Parteiaufbau (1958, Dietz Verlag): "Die Arbeiter und Bauern [müssen] klar den Unterschied kennen zwischen den notwendigen Ratschlag des gebildeten Menschen und der notwendigen Kontrolle des einfachen Arbeiters und Bauern über die Schlamperei, die bei den Gebildeten eine so gewöhnliche Erscheinung ist". (back)
  32. See Geloven in de oogst (1991, Uitgeverij Bert Bakker) by J.A. van Kemenade and Income distribution (1975, North-Holland Publishing Company) by J. Tinbergen. A more recent PvdA view on education is the contribution of R. in 't Veld, in chapter 6 of the volume Leven na Paars? (2001, Prometheus), edited by J. Bussemaker and R. van der Ploeg. However, the arguments of In 't Veld are extremely liberal, and therefore not representative of the social-democracy. Your columnist read Geloven in de oogst 14 years ago, as a part of a searching historical study of the social-democracy. Around 1983 Van Kemenade is the most important candidate-successor of PvdA leader Den Uyl. Den Uyl and the radical left-wing PvdA chairman Max van den Berg actually prefer Wim Kok, but he is then not (yet) available. At the time the doctrinaire PvdA militants propagate a bizarre utopy (by the present standard), and believe that Van Kemenade is ideologically too moderate. Then the chairman Van den Berg (at the time yet already in his thirties) still propagates a socialist planned economy. He believes that the Dutch recession around 1980 is a capitalist crisis, although in reality it is caused by years of bad (demand-side) policies. He is an energetic adherent of the polarization strategy. He believes that the VVD is principally unacceptable as a coalition partner, and views also the CDA as hostile. Van den Berg rejects the foreign policy of the American president Carter. He even wants, that the PvdA distances itself from the German sister party SPD, which he believes is too right-wing. Besides he uses hollow radical-left slogans, such as "exploitation by the international capital" and "imperialism". Therefore his view contains much, which at the time was bad in the PvdA. It is actually surprising, that Van Kemenade and Van den Berg are in the same party. See Koers en organisatie van de PvdA (1979, Uitgeverij Xeno) by Max van den Berg. Your columnist has a copy, which was previously in the archive of the illustrious historian Ger Harmsen. (back)
  33. Loyal readers know, that for years your columnist has done field studies in the PvdA. This explains why the Gazette regularly describes the views of leading social-democrats. An interesting point of debate is the introduction of a loan system for students. All recently consulted books (including the book by Jacobs, who himself was once a member of the PvdA) advocate the system, because (a) then more money is available for college education, (b) later the students can easily pay back the loan, thanks to their high salary, and (c) then it is no longer necessary to let the less educated people contribute to taxes for college education. Therefore in the cabinet Rutte-II the PvdA minister Jet Bussemaker has introduced the system in the Netherlands. Then PvdA chairman Hans Spekman already complains: "Jet is too attached to ideas of profitability". But it will get worse. At the end of 2017 Spekman says: "I was also an adherent! (...) Perhaps this is our blind spot: that we acknowledge the facts, but not the feelings, which the people experience. (...) In hindsight I should have adamantly protested". And: "Another blind spot is the abolishment of the subsidized study [EB: meant is the universal scholarship]. Also here we have created uncertainty". And "We should not have agreed with the abolishment of the subsidized study. (...) The son of the butcher and the daughter of the teacher became nervous due to the disappearance of the subsidized study". It is difficult to understand, that the PvdA chairman wants to maintain an obsolete system, which redistributes income from the poor to the rich. Of course the Public choice theory gives some insight in this mechanism. Politicians want to win elections, and therefore they are always searching for social support and for the support by pressure groups. Since the rise of Nieuw Links the PvdA has strong ties with students. This makes the party susceptible to rent seeking pressure groups of students. Then apparently the party does not really listen to the advise of experts, so that the general interest is sacrificed in this political game. (back)
  34. Social equality is not the theme of this column. Yet it is worthwhile to briefly mention the arguments of Tinbergen in favour of equality. According to p.129 and further in Income distribution individuals are principally equal. Therefore they have a right of equal utility or well-being, this is to say, of an equal socially determined happiness. Notably each professional group can claim the same well-being. The individual himself remains responsible for his private happiness. Incidentally, Tinbergen admits on p.130, that in practice the private and social happiness are difficult to separate. The criterion of fairness remains abstract. Furthermore, the practice is now already, that politicians take into account in their policies the utility of each group in the population (p.130). Apparently there is an innate aversion against social inequality. (back)
  35. De prijs van gelijkheid is a difficult book. When your columnist understands it well, then Jacobs believes that a lump-sum tax will not be accepted. Taxes are always somewhat dependent on income. But as soon as this is the case, higher taxes discourage both working and continued studies. (back)
  36. Barr, who usually argues with nuances, blatantly abhors central planning. On p.336 in Economics of the welfare state he states, that central planning hurts the quality of college education. It impedes the functioning of the price mechanism. On p.342 he demands, that the state does not interfere with the height of the college tuition. He calls this "the end of communism"! (back)