Chapter 4 School Finance as

Investment in Human Capital

Education & The Economy

Throughout history, few believed that educating all citizens would benefit the society’s overall economy.

The Old Concept

• For the most part, government limited education to the elite & not to the masses

• Labor, the working classes, and the poor remained largely uneducated

Early Times

Early civilizations valued sheer numbers of people for protection, hunting, & gathering.

Developing societies prized individuals first for how well – and later for

how much – they could produce.

Early U.S. View • Adam Smith’s The

Wealth of Nations (1776) included human capital in the fixed capital equipment of manufacturing goods

• Society’s members’ acquired abilities as part of the fixed resources

A revolutionary concept for the time, it followed naturally from the founding fathers’ discussions about a literate society’s importance to their democratic republic government.

A New Concept

Until Theodore W. Schultz’s work on investment in human capital gained popular acceptance in the 1960’s, society valued labor primarily for their physical rather than intellectual attributes.

Theodore W. Schultz, “Investment in Human Capital,” American Economic Review 51 (March, 1961), pp. 1-17.

Now a Popular View

The World Development Report of the World Bank & other journal reports have shown that

investment in education

explains the sustained development of many countries & the lack of development in others.

An Educated Citizenry Raises Everyone’s Standard of Living

• Makes a better workforce• Creates new products & services that

enhance quality of life • Raises revenues for social programs• Reduces social service programs’

costs for persons with increased levels of education

• Creates safer neighborhoods

Education Level is Closely Associated with Increased Earnings

High School Dropout $20,000/year High School Diploma $30,000/year Bachelor’s Degree

$50,000/year Master’s Degree $60,000/year Doctorate Degree $78,000/year Professional $93,000/year

Average Earnings, U.S., Age 25 & Older, Full-time Employment, 2000.

Source: U.S. Department of Commerce, Bureau of the

Census, 2001.

Education & Lifestyle

An individual with a bachelor’s degree, on average, will earn about 2 ½ times that of a high school dropout.

The High School Dropout• The high school drop out

earning approximately $20,000 per year will make $800,000 over his working life

• If he pays a federal tax rate of 10% of those funds, he will have contributed $80,000 in federal taxes

• Income minus federal taxes of $720,000 over his lifetime

The College Graduate• If the college graduate

earns approximately $50,000 per year for the 40 years of his working life, he will earn $2,000,000

• If she pays a federal tax rate of 20% of those funds, she will have contributed $400,000 in federal taxes

• Income minus federal taxes of $1,600,000 over their lifetime

HS Dropout/College Grad Economic Comparison

Dropout GraduateAnnual Earnings $ 20,000 $ 50,000Lifetime Earnings $800,000 $2,000,000Total Fed. Taxes* $ 80,000 $ 400,000Total Earning Minus Taxes $720,000 $1,600,000

* Over 40 years work life

More Education Means a Better Economy

The highly educated earner spends and contributes significantly more to the economy than does the less-educated earner.

Education Produces Money & Stimulates the Economy

• More education• More taxe.• More discretionary income

• More $$$$ to stimulate the economy

• More $$$$ to the tax base• More $$$$ to charities• Fewer social programs• Less crime

% of Work Force Participation by Education Levels

Ages 20-24• W/o Diploma 70%• W/ Diploma 82%• W/ AA Degree 85%• W/ BA Degree 84%

Ages 25 & up• W/o Diploma 43%• W/ Diploma 65%• W/ AA Degree 78%• W/ BA Degree 80%

SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, Office of Employment and Unemployment Statistics, Current Population Survey, 2000.

A Lack of Education Has Negative Effects on Individuals & Society

Those who do not graduate from high school:

• Earn less money than all other groups

• Vote less frequently • Receive incarceration at

much higher levels than is either the general public or the public grouped by other levels of educational attainment

Spending $$$ on Education Reduces Crime*

A significant part of lower incarceration rates results from the higher wages that high school graduates earn as compared to high school dropouts

A 1% increase in the high school graduation rate would save the

U. S. as much as $1.4 billion per year in reduced crime costs and would result in $1,170 to $2,100 per additional high school graduate

*Lochner, L. and Moretti, E. “The effect of education on crime: Evidence from prison inmates, arrests, and self-reports” 2001 Joint Center for Poverty Research, Policy Brief, vol. 4; no. 5, p. 26.

Education Increases a Community’s Quality of LifeVoting frequencyHealth insuranceVolunteerismCharitable contributionsLeisure activities

Cultural activitiesChildbirth inside or before marriagePrenatal careCrime victimization

Voting Behaviors & Education

Individuals with higher levels of education vote more frequently than do individuals with lower levels

of education.

Voting Behavior By Educational Attainment

1-3 years 4 years 4 years High School High School College +

+US Congress

1974 25% 42% 59% 1994 13% 31% 57%Presidential

1964 61% 76% 86% 1984 29% 49% 75% 1992 27% 50% 79%

Health Insurance & Education

Individuals with higher levels of education tend to have health insurance compared to those of lower levels of education.

Health Insurance & Education, cont.

In 1999 those who had a college degree or higher were 300% more likely to have health insurance as compared with those who did not have a high school diploma.

Health Insurance & Education, cont.

Those with health insurance tend to maintain health with regular checkups and healthy lifestyles

They also place less of a burden on social service networks and public hospitals

People Without Health Insurance by Education Level, 1999

W/O Health InsuranceNo HS Diploma 27%HS Graduate 18%Some College 15%AA Degree 13%Bachelors or Above 8%

Source: U.S. Census Bureau, Current Population Survey, March 2000.

Education & Health• Current research

is finding biological proof of education’s possible protective effect on a person’s health

• A recent study finds a correlation between the more years of formal education & the less likely individuals were to exhibit Alzheimer’s disease symptoms of dementia

• People with 22 year of formal education, showed less effects of the disease while living & the disease had less effect on their cognitive test scores

Volunteers & Education

Those with higher education levels tend to volunteer more frequently than those with lower education levels.

They provide important services to neighbors and their children that would otherwise either go undone or would have to be paid through increased taxes or fees.

Volunteers & Education

• 2/3 of the college graduate population performed some sort of volunteer work during a year compared with somewhere between 30% and 43% of high school drop outs

Percent of Adult Population Doing Volunteer Work, 1998

% of Population Average #

Volunteering Hours/WeekElementary School 30% ---Some High School 43% 3.9 HoursHS Graduate 43% 2.8 Hours Trade, Technical, Business School Grad 54% 3.5

HoursCollege Graduate 68% 3.1

Hours Source: Saxon-Harrold, Susan K.E., Murray Weitzman, and the Gallup Organization, Inc. Giving and Volunteering in the United States: 1999 Edition. (Copyright and published by INDEPENDENT SECTOR, Washington, D.C., 2000.

Charitable Contributions & Education

Persons with lower levels of income tend to donate fewer total dollars but a larger percentage of their incomes to charities.

Charitable Contributions by Household Income, 1998

Household Income All Contributing Households Average $$$$ % of Household

Income

Under $10,000 329 5.2%$ 10,000 – 19,999 495 3.3%$ 20,000 – 29,999 552 2.2%$ 40,000 – 49,999 951 2.1%$ 75,000 – 99,999 1394 2.6%$100,000 & up 2550 2.2%

Charities Impact Quality of Life

• Arts, Culture, Humanities

• Education• Environment• Health• Human Services• Public, Societal

Benefit• Youth Development

Charitable Contributions, 1998 % of Average

Type of Charity Households $$$ Contribution

Arts, Culture 11.4% $221Education 12.6% $382Environment 12.4% $194Health 20.8% $234Human Services 27.3% $250Public,Social Benefit 11.1% $134Youth Development 21.4% $174

Leisure Spending Impacts Quality of Life

• Well-educated people seek and bring free time activities to their locales

• They also work at maintaining and improving their own homes

Leisure Spending

Leisure time spending Stimulates the economy Increases home assessments &

local tax revenues Provides more jobs & employment Improves the quality of life – for

neighbors locally and nationally

% of Participation in Leisure Activities by Education, 1997

Education Level Attendance/ParticipationMovies Sports Exercise Home

Improvem’t

Grade School 14% 13% 46% 40%Some HS 52% 25% 66% 59%HS Graduate 62% 38% 74% 65%Some College 78% 48% 81% 71%College Graduate 82% 59% 87% 76%

Source: U.S. National Endowment for the Arts, 1997 Survey of Public Participation in the Arts, Research Division Report No. 39, December 1998.

Spending on Leisure Activities

Individuals with more education spend more time in sporting & leisure activities

They spend more on the consumer goods related to their recreational hobbies

This leisure spending helps stimulate the economy

Education & Leisure

Higher levels of education are associated with spending in leisure activities that stimulates both the economy and the cardio-vascular system.

% of Sporting Goods Purchases by Education, 1998Household Head’s Jogging Camping Exercise

GolfEducation Level Shoes

Less than HS 3% 6% 5% 1%High School Grad 14% 20% 18% 13%Some College 33% 37% 36% 35%College Graduate 50% 37% 41% 51%

Source: National Sporting Goods Association, Mt. Prospect, IL, The Sporting Goods Market in 1999.

Education & Cultural Activities

There is a direct increase in cultural activities participation as the level of education increases.

Arts bring music, theatre, dance, and fine arts to a community.

People Who Attend Cultural Events Boost the Economy

• By eating in restaurants near their entertainment venue

• By purchasing gasoline for the trip, buying new clothes to wear for these occasions

• By providing employment for the artists and service providers

Cultural Events Attendance & Education Level, 1997 Attendance at least once in past 12

months Jazz Opera Theatre Art

MuseumGrade School 2% --- 3% 6% Some HS 3% 2% 7% 14%HS Graduate 7% 2% 9% 25%College Grad 21% 10% 28% 58%Grad. School 28% 14% 37% 70%

Source: U.S. National Endowment for the Arts, 1997 Survey of Public Participation in the Arts, Research Division Report No. 39, 1998.

Child Bearing & Education

• Almost 2/3 of first births for high school dropouts were premarital

• Fewer than 10% of first births before marriage for those with a college degree or higher

Child Bearing & Education, cont.

• ONLY 25% of the children born to high school dropouts were conceived after marriage.

• More than 87% of children born to college educated individuals were conceived after marriage.

Childbearing Statistics Have Large Economic Implications

Two-parent families form more stable environments to raise children

They have more money & other resources to meet their children’s and own personal, health, social, & educational needs

They are more likely to raise children who value education have fewer special learning needs develop good work habits prepare for well-paying careers contribute to their community

Marital Status of Women, 15-44 Years, At First Birth by EducationEducation # Births % Premarital %

Conceived (per 1000) Births After Marriage

Not HS Grad. 1304 64 26HS Graduate 2612 39 47Some College 2192 31 57BA, or Graduate 1751 7 87 Degree

Source: U.S. National Center for Health Statistics, Fertility, Family Planning, and Women’s Health; New data from the 1995 National Survey of Family Growth, Vital and Health Statistics, Series 23, No. 19, 1997.

Prenatal Care & Education• Receiving adequate

prenatal care impacts the baby’s birth weight and overall health

• Healthier babies have fewer learning problems & make fewer demands on education & social service agencies

Prenatal Care & Mother’s Education, 1991-1995

Education Level Months Pregnant When Starting Care Less than 3-4 Months 5 Months + 3 Months or No CareNo HS Diploma 79% 7% 14%HS Diploma/GED 89% 6% 5%Some College 95% 3% 3%BA Degree or 94% 2% 4% Higher

Source: U.S. National Center for Health Statistics, Fertility, Family Planning, and Women’s Health: New Data From the 1995 National Survey of Family Growth, Vital and Health Statistics, Series 23, No. 19, 1997.

Crime Victimhood & Education

Persons with higher levels of education are less likely to be victims of crime.

We infer from previous data that higher education brings higher income.

Crime Victim Status & Education

• For those making $60,000/year (the average salary for an individual with a Masters degree) about 1/3 are victims of a crime

• For high school dropouts in the lowest income categories, between 1/2 - almost 2/3 are crime victims

Crime & Education Quality of life has to do with where

& how we live. If education helps individuals live in nicer & safer neighborhoods, it means that those with higher levels of education are less likely to live near or associate with individuals who commit crimes and, consequently, are less likely to become a victim of one.

Crime Victimization by Family Income (Education)

Rate per 1000 persons, age 12 and upIncome All Crimes Robbery Assault Theft

Less than $7500 66% 6.6% 54% 1.7%$7500 – 14,999 51% 5.8% 41% 1.8%$15,000-24,999 41% 3.6% 34% 1.3%$25,000-34,999 43% 6.9% 28% 1.6%$50,000-74,999 33% 2.8% 28.5% 1.1%$75,000 & above 34% 2.9% 29% 1.0%

Source: U.S. Bureau of Justice Statistics, Criminal Victimization, Annual; and Criminal Victimization 1998, Changes 1997-98 With Trends 1993-98, Series NCJ-176353 (Revised 25 August 1999).

Education as a Wise Investment

• Education, more than any other social investment, raises the standard of living by increasing employability & income level, thereby increasing tax revenue to support even more education

• The interaction between education and economic health creates a synergy

• Education also increases many quality of life issues, not only for the educated individuals themselves, but throughout the entire community

Education Is a Wise Investment

The money spent for education pays clear dividends in human capital that any financial analyst would envy in a long-term investment portfolio