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Stromsdorfer, Ernst W.Review and Synthesis of Cost-Effectiveness Studies ofVocational and Technical Education.Ohio State Univ., Columbus. Center for Vocational andTechnical Education.Office of Education (DHEW), Washington,. D.C.Inf-Ser-5772 --151p.Supewintendent of Documents, U.S. ,Government PrintingOffice, Washington, D.C. 20402
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DESCRIPTORS. Bias;- community :Benefits; *Coat Effectiveness;Eaployment Programs; Manpower "Developnent ;*Methodology; Program Coati; Program Effectiveness;*Program Evaluation; *ResearCh'Reviews(Publieations); Sampling;: StatisticalTechnical Education; *Vocational Education'.
, IDENTIFIERS Minpolaer Development Training, Act; MDTA
ABSTRACTThe methodologY, to parting! benefit-Cost -studies
. exists, but''there is much ambiguity concerning the .implications ofsuch studies as a' result of using 'faulty methodology. ,For example,,control groups are a necessity, ae are adequate ,sampling prOcedtiresand adjustment for non-response\ bias' and self -selection-bias, and .allstliclies do.aot employ this methodology. Another limitation is thatcurrently a benefit-coe ti. study. will 'only show whether .or !not aprogram appears to. pay. Further judgments must be made on whether toexpand or cut back the:Program, -and What .to give up or .take :In.Spite of these and other limitations. .benef it-cost analysis ,.interjects4 systematic analysis inte; previOusly judgmental .area...The cost and methodological limitatiOns of'such.studies will .inhibittheir immediate widespread adoption. .This study,. written fornon-economists, surveys the various approaches to imprOving the v
,analysis of vocational education ahd related _manpower trainingprograms... (CD)
11;
UM. DEPARTMENT OF HEALTH.ECUCRTM1116 WELFAREOFFICE OF EDUCATION
THIS DOCUMENT HAS BEEN REPRO-DUCED EXACTLY AS RECEIVED FROMTHE PERSON OR ORGANIZATION DRIG.
. INATTNG IT, POINTS OF VIEW OR OPIN-IONS STATED DO NOT NECESSARILY
. REPRESENT'. OFFICIAL OFFICE OF EDU-CATION. POSITION OR POLICY,
Information Series No.57VT 014 707
REVIEW AND SYNTHESIS OFCOST-EFFECTIVENESS STUDIES OF
VOCATIONAL AND TECHNICAL EDUCATION
Ernst W. StromsdorferAssociate Professor of Economics
Indiana UniversityMoomington, Indiana
ERIC ClearinOonse on VOcatianal and Teehniad Edam*The Celt*. for Vocational and Technicel Education
. The Oldoltate Unbrersity1900 Kenny Road . Colombo, Ohio 43210
Most, 1972
The material in this publication *as prepared purivant to a contract with theOffice of Education, U.S. Department of Health, Edwatiord and Welfare. Con-tractors undertaking such projects under government sponsonhip are encouragedro express freely their judgment in professional and technical matters. Points ofview or opinions do not, therefcre, necessaHly represent' official Office of Educe-tion position or policy.
For ale by dui Superintendent ol Documents, Ui. .Ooaisnt Printing ohm Weddings, D.C. MN. . .
PREFACE .
The economics of vocational-technical education programs versus theeffects of a lack of such programs is considered extensively in this work.Cost-Effectiveness Studies of Vocational and Technical Education is designed toalert researchers and directors of education-related programs alike to the issuessurrounding this area.
. The author questions the validity of academic study as 'opposed tovocational-technical study in terms of future earning power for whites andnonwhites. He further relatei problems in this area to the length ofvocational-technical education programs..
. .
The bibliography is subdivided into four sections to allow the specialist toperuse those readings iiertinent to his field.
The profession is indebted to Ernst W. Stromsdorfer, Indiana University,for, his scholarship in the preparation of this review and synthesis report.Recognition is also due Michael E. BOrus, Michigan State University, J. RobertWarmbrod, The" Ohio State University, and Robert C7,-Young, The Center, fortheir critical review 'of the manuscript prior to final revision and publication. J.David McCracken, information specialist at The Center, coordinated thepublic ation's development.
Robert E. Taylor,Direc torThe Center for Vocationa! and
Technital EducttionERIC Clearinghouse on Vocational.
and Technical Education
INTRODUCTION
This study seeks a synthesis of the var!ous approaches to improving theanalylis of vocational education and related manpower training prograins. Thiswill be an economic analysis since the programs in question are designed toimprove the efficiency of the United States labor force and increase the overalllel of welfaie or well-being in the most general sense of this term. However,this study will also discuss the implications of noneconomic benefits to theseprograms*. as they relate to cost-benefit analysis. This study will achieve thissynthesis by investigatinibie current state of the art of economic evaluation ofthese educational prisgfinuN:,
. Both cost-benefit and cost-effectiveness studies of vocational educationand related manpower programs will be summarized to deterinine the current"state of the art" and to draw policy conelusions concerning the optimal letiel ofinvestment in such programs. LikeWise, the methodological literature will ,besummarized, to serve as a, reference point for judging the extant cost-benefitstudies as well as to serve as a general guide to the conduct of such flutireanalyses:
While this study, is intended' for noneconomists, economic analysis andtheory will be used; However, much of the methodology of dbst-benefit analysisis relevant to any rigorous social sciena to that, with appropriate developmentof ideas and economic concepts, the materials covered should be of use to theinterested noneconomist. :
As in any survey of the literature, this study draws very heavily on theWorks of others, ind the present author has only a marginal claim to originality.In this regard, therefore, j would like to express my appreciation to thosenumerous people on whose Works I have relied.
Specifically, I would like to thank the editors of Socio-Economic PlanningSciences for permission to use sectiont of My jointly authored article, "SPecialProblems in the Economic Analysis of Human Resources," in Chapter I. Thanksare due to Einar Hardin and_ Michael E. Borns for permission to repreduce datafroni their stildy; Economic Benefits and Costs of Retraining (Lexington, Mass.:Lexington Books,: D.C. Heath and Co., 1971). lAure M. Sharp likewise gavepermission to dupliCate data from her study, Graduates of Vocational-TechnicalProgranis in Junior Colleges. Also, rwould like to Thank Gerald G. Somers forhis permission tO use part of my jointly authored article in his book, VocationalEducation: Today and Tomorrow,
Thanks are especially due to my former colleagues, Jerome Moss of theUniversity of Minnesota, Teh-wei Hu of the Pennsylvania State University andMaw Lin Lee of the University of Missouri, who graCjously consented to allowme to reprint or adapt from portions of our previously published articles.
Finally, parts of Chapter III are based on analysis previously shown inReport of the Analysis Group, HEW Vocational Educoon Review Task Force.
I would like to reaffirm that I alone am responsible for any remainingerrors in this study, including any possible misinterpretations of authors' worksor ideas.
.Ernsi W. Stromsdorfir
:
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TABLE OF CONTENTS
PageTHE RATIONALE OF ECONOMIC ANALYSIS OF EDUCATION ASAN INVESTMENT 3
Optimum Allocation of Public Expenditures for VocationalEduca ti on 3Benefit-Cost Analysis and the Investment Criterion 11
Constraints Which Invalidate the Rate of ReturnCriterion 14Constraints Which Invalidate the Present ValueCrite rion 16Constraints Which Invalidate the Benefit-Cost
. Ratio Criterion 19Summary 20
METHODOLOGICAL ISSUES IN THE ESTIMATION OFCOSTS AND BENEFITS 21
Definition of Cost and Benefit 21General Considerations 22Practical Issues and Suggestions in the Measurementof Costs and Benefits . 30Summary ao
A REVIEW AND SYNTHESIS OF BENEFIT-COST ANDCOSTEFFECTIVENESS stpmEs 45
Summary of Results: Broad Program Effects 49Impacts of Vocational and Manpower Training onSelected.Sociodemographic Groups 69Effects of Vocational and Manpower Training by ProgramArea and Skill 87
SUMMARY, IMPLICATIONS, RECOMMENDATIONS 101
Summary and Implications 101Research in Progiess 104The Future of Benefit-Cost Analysis inVocational Education 105
BIBLIOGRAPHY 107I. COncepttial Issues 107II. Vocational Education 120III. Manpower Programs 128IV. General Works . 139.V. Bibliographies 141
4.7:7
LIST OF TABLES
1. Constraints on Decision Rules 16
2. Differential Shadow Price Estimates of the Value ofClassroom Space, Greater Los Angeles Area 32
3. Objectives and Population to be Served for SelectedFederal Manpower Programs 46
4. Student Characteristics by Race, Sex, Ar, and Program,in Percent, 1969 . 48
5. Comparative Analysis of Cost and Benefit Estimations of Select IdStudies of Secondary Vocational-Technical Education 50
6. Comparative Analysit of Cost and Benefit Estimates ofSelected Studies of Post-Secondary Vocational-TechnicalEducation and Junior College Education 54
7.j Comparative Analysis of Cost and Benefit Estimates ofSelected Studies of MDTA Institutional and On-the-JobRetraining and ARA Reiraining . . 58
8. comparative Analysis of Cost and Benefit Estimates ofSelected Studies of the JOBS and CEP Programs . ° 60
9: Comparative Analysis of Cost and Benefit Estimates ofSelected Studies of the Job Corps and NeighborhoodYouth Corps (NYC). ; . . . 64
10. Comparative Antlisis of Unemployment Reduction.of MDTAand ARA Institutional Retraining 66
11. Comparative Analysis of Percent of Time Employed forVocational Secondary Education 68
12. Net Effects on Earnings (in dollars) and Employment(in percentage points), Vocational Versus Comprehensive
_Graduates for Separate Regressions by Race and Sex . . yo.13. Effects of Racial Discrimination on Earnings and
Employment for Graduates from Selected SecondaryCurriculums, Three Northern Cities, 1959-60-1966 72
14. Dropout Rates of High School Students by Program andAbility Quartile 74 °
15. Present Value of Earning Streams for Males Age 17, byOccupation; yens of School Completed, and EthnicCategory, for the United States, 1960 75
...
I
16. Impact of Manpower Training on Selected SociodemographicGroups, Percent of Time Employed in 18-Month Post-TrainingPeriod . 79. .
17. Impact of Training on Selected Sociodemographic Groups, 0
Total 18-Month Post-Training Earnings, in Dollars 83
18. Estimated Net Expected Internal Rates of Return to SelectedTrainee Sub-Groups 85oo r
19. Impact of Manpower Training on Weekly Earnings and HoursWorked per Week for Selected Disadvanttged Groups . . o .... . 87
20. Social Economic Benefits of Training bi Socio-EconomicGroups for Varying Lengths of Training, in.POilarll 88
21. Percent of Time Employed in Percentage Points ahd Averagebefore Tax Monthly Esmings for Nontollege AttendingVocational-Techriical High Schoo; Graduates ... 89
22. Regression Analysis of Starting Wage, Current Wage, AierageMonthly Earnings and Percent of Time Emplpyed, by ProgramArea, for Secondary Vocational Graduates , 91 .
23. Relative Hourly Wage Rates, by Progam Area, for JuniorCollege Graduates . . 92 .
Regassion Analysis of Wage Ratc on Fint Job, War Rate onLasr Current Job, and Average Monthly Earnings, by
, Education Level, for Separatekegressions by Program Arta . 93
25. Regression Analysis of Wage Rate on. First Job, War Rate onCurrent or Last Job and Average Monthly Earnings, by ProgramArea, by Education Level ' 94
26. Regression Analysl; on Wage Rate for First and Current orLast Job and Average Monthly Earnings, by Program Ares, forVocational High School Post-Secondary Vocational School andJunior College Graduates, Separate Regressions . 96
27. Impaet on Manpower Training on Weekly Earnings and HoursWorked per Week, Males and Females . , . 99
28. Multiple Regressions of Weekly Earnings 'sifter Training, andthe Components of Weekly Earnings after Training, on RespondentCharacteristics: Training Status Classified by TrainingOccupation. ... . 100
:
I.
LIST OF FIGURES
:-.:?
Figure Page
1. Hypothetical Benefit-Cost Curve for the VocationalEdu Cation Program . .' 5
2. Hypothetical Benefit-Cost Curves for VocationalEducation. and Maniower. Development Training Prop* . . . . .... . 6
3. Time Income Stream:4 an Individtial with MtiltipleCost Outlart ........ . : .. .... . . . . . 15
4. The Switching of InVestment Alternatives . . 17
5. Hypothetical BeforelAfter: Earnings Profile ofStructurally Unemployed ManPower Trainee . 39
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10
A
THE RATIONALE OF ECONOMIC ANALYSISOF EDUCATION AS AN INVESTMENT
.
Benefit-cost analysis or cosi-effecti4eness analysis is simply a popular termfor economic analysis of any program or action. This analysis can be part of akirger decision-making. strategy, sueh ,,as systems analysis or of programbUdgeting, oi it may be performed within its own narrower framework:1n eithercaseijt is quantitative analysis Whoselnient is to provide a criterion Or itandardfor decision-making.so as to allocate in a rational and optimal way a given set ofscarce reiources among nUmerous competing needs.
Thus, benefit-cost analYsis- is. a technique which concerns ittelf with the .optu ion ofnum allocat.resources. lt. is a . tool Of inalYsis *filch assesses the. .
alternative cOurses of action in order to help decision makers maximize thenetbenefit to society. The essence of this analysis lies in its ability to evaluate thetotal.Value of benefits against the total coits.
OPtinium Allocation oi Pisblic Expenditures for Vocational EducationA basic assumption in economics is that goods are scarce and that persons
prefer to have more goods rather thanks's. Therefore, it is geneially 'desirable to.employ .resources in those uses which have the highest productivity. Given thetotal .amount of:resources 'available for public and private education;Of all types,it is relevant to determine .the optimum allocation, of expenditures 'on thesedifferent prograna.
Thoretical Criterion. Assuming that the goal of society is, given its valuesand objediVes, to maximize its sociiil welfare,. which includes both economic andnoneConoinic cOmponents, it is ,possible to demonstrate the rule by which thisWelfare may be maximized.-Society has,a variety of goals and objectives, tome ofwhich are complenientery to each Other and some of which are competitive. Foreducational programs alone, there -are several goals. Theis are the goals of (1)economic efficieney-7eachieving' the maximitm outpUt for a given set of inputs,(2) immediate consumption and future consumptiOnthe enjoyment of theprocess of education arid the ability to achieve greater or more varied enjoymentin' the futUre due to,:cine's. education, (3) equitythe realization of a more*tally desirable dietribution a wealth, and (4).socializatiOnthe inculcation ofsocially-desirable values and behavior. . . .
These goals. Can be measitred by appropriate indices of output, Theteoutputs can be, Combined ,to ". represent : an overall measure of welfare orsatisfaction. Thus, we can specify a social welfare function either with respect tothe outputs of all soCial programs:including education, or we can specify a'morerestricted social welfare function which expresses only that part of social welfateaffected by a particular set of programs.
.1
1.2 / 3
Thus, the social welfare function can be written in the form:
l) W = w(gi, g2, - gn)
Where W represents social welfare (or can be denoted as social benefits) and theg's represent the output of different social programs, The maximization offunction (I) is subject to the constraint of the social budget, namely
2) B = (ai + cigi)i=1
Where_ ai is the fixed cost of the ith social program ci is the marginal cost of theith social program, and B is the total resources available to society.
The Lagrangian multiplier, is used to solve the maximization problem, that
3) w.(g1 g2, gn) A E cigi) 13] z
where, ). is the Lagrangian multeplter. Differentiating this expression with respectto gi, then: .
Aci=0
awwhere wi = is the marginal benefit of the ith program. From this itfollows that: ail'
5) wi = ci 6, j = 1, 2, .. njci
and also that:
6) wi X
Thus, in equilibrium, as shown in equation (5), the maximization *Of _socialbene fits is achieved if the ratio of marginal benefit in this example of two' .
goierninent programs* is equal to the ratio of the marginal Cost of these. programs.; that is, the nginal benefit is proportional tO the marginal cost.
(Marginal means the incremental increase in total cost Of benefit due to addingone more Unit of output to a program.) . . .
',An application Of- this principle to die optimum. allocatiOn of publicezpenditures on vocational education versus say manpower development trainingis to spend resources on each prograin to the *point where the marginal,benefit-marginil cost ratio of vocational education is eqUal .to the marginalbenefit-marginal cost ratio of manpower development training. In other words,other conditions being equal; such as the population of persons being screed, if"'the ratio of marginal benefits to Marginal costs of Vocational education is higherthan that of manpaler development training, then the government shouldincrease its expenditures on vocational education Up In the point where the tworatios are equal. This can be done within a flied budge: by duffing funds front
'manpower, training to vocational education or by . expending any mxtra publicfunds on vocational ed9cation . as 'additional fundi beCome available.. More
4
explidtY,Ilte iiiiiicuitfimountof-public_expenditures for vocational educationand manpower development training is at the point wiliiiiike-additional benefitsfrom an additional dollar spent on these two educational progrimt would beequal.
This analysis points out the necessity of coptristing the marpfnal benefitswith the marginal costs of competing educational programs in order to discoverwhich among a set a alternatives is relatively -more..desirable. That is, theadditional benefits of adding one more unit Of output (a student) must be .
. contrasted with the marginal or extra cost of that unit of output (i student). 7
Marginal cost-benefit calculations; are not sufficient, however, .to mike acomplete. decision With respect to investing in social programs such as vocationileducation. In addition to the relative effectiveness of a program as measured bymarginal benefits and costs, it is often important to know What the absolute.level of effectieeness of a program is; that is, in the long run-does the programoperate in the black. To make this detenninaliox of absolute effectiveness, ameasure of average costs and benefits must be performed, for a program ouldbe relatively more effective than some set of alternatives, yet it may .not becovering its long rim average costs. Such a condition will be reason for rejectingthe educational program if other non-efficiency gonls do not intervene. Thus,average costs, thai ia, total cost -divided by the totil 'units of outPut, must becompared with average benefits, total benefits dieided by. the total units of
FIGURE I .
HYPOTTIETICAL BENEFIT-CM CURVE FOR THEVOCATIONALEDUCATION PROGRAM
-Benefit
01110 =1, aim Output Expansion
., Path of ProgramI
VMM IMM 0 .11110
0
.4Coat
output, And, the present value of net average benefits (benefits milui costs)should be zero or positive. . ,.
A Diagrammatic Exposition These principles can, perhaps, be bestillustrated by means of graphs. (See Glennan, 1969, I.) Given that .a decision isto be made on whether to spend an additional sum-of social resources on either .
vocational education or manpower deielopmenflriitting;-the prOblem its :tochoose 'between the two..That IS, Wlich will yield the greater addition tObenefits for the alloted additional resources? Figure 1 showa. the differencebetween average costs and benefits and -marginal coats slid benefiti. Figure 2contrasts the marginal and average cOsts and benefits of the two progiams. Thediipams are hypotheticiL.
In Figure 1, assume the vocational education program is operating at alevel where total cOsts are equal to-Oci and total benefits are equal tO ob1 . The .
average benefit-cost ratiois given by. This ratio is also equal to the slope of.oc
the line segmentoa 1., . .
lSuppoSe the program is expanded Out-to point a2 by adding resonrces
equal to c1C2. Then c1c2 represents marginal costs, the addition to total costs;'and bib2. represents Marginal benefits; the increase in total benefits, due to the
. . .
increase in costs. The marginal benefit-cost ratio is equal to1c2
and slope ofcbib2
the ate ala2.
FIGURE 2HYPOTHETICAL BENEFIT-COSV CURVES FOR VOCATIONAL.
EDUCATION AND MANpOWER DEVELOPMENT TRAINING PROGRAM
Benefit
b '
2
b2
. b.'
6
-
Vocat ional Education
Output ExpansionPath
Manpower TrainingOutput Expansion Path
,
Cost
*Thus, it can clearly beeeen that marginal and 'average costs and benefitsand hence, their ratios, usually differ, the difference.depending on the level ofoutput. . . . . . . . -
In 'Figure. 1, given that costs and benefits are Measured in the same units,average benefits are °greater than average costs, as depicted in the graph. The nextquestion is to compare two posterns-vocational edOcation and manpowerdevelopment trainlog. . _
r_i_Figiie.2 mit the current funding level of oc1, manPawer training has a
higher average benetit-cost ratio,_.°111 ' than- does vocational education with an ...oc 1. ,ob .
.atierage benefit-coit ratio of ---1l -. However, if we expand both programs by theoc
same amount of increased resources, crit,'2the incremental or marginal.
i
benefit-cosi 'ratio:of Manpower training .,12'IL-1? Thus, since both programs are-
benefit-cost ratio of vocational is than the marginal. . .
1
.
covering their average costs, i.e., each is operating in the black, the extra. -S resources should be applied to the vocational education program and not to the
manpower development training program in this hypothetical example. To applythe extra reiources, ,c1c2, to- manpower training rather .than to vocatiPnaledmition would result in a smaller addition to totel output.,'' N.
A Model for Cost-Benefit E:iduai:on ofe Program.. An evaluative mo'del is .
needed to achieve the estimates of costs and benefits to perform tha analysis-above. This evaluative model should have several Components. First, it shouldexamine the nature, of the outpUt processes of competing programs which aredesigned tO fulfill a given set of objectives for a target population Seeond, theModel ihould determine which program and its output procesi is most efficient.As suggested above, this type of evaluation has 'several. major gtaracteristics.Firit, it is mmilitative. There must be Some estimate of cats and benefits.Usually, but not necessarily, these costs aitd benefits are expressed in monetary. ,.termr.s. Second, the evaluation must be .direcily ielated to the specific purposesbeing served by the program. The appropriate specification of the objective orset of O!..)jectives of the program is crucial id the evalintion. Aii impreperspecification of objectives as well as an ill-Conceived choice and construction ofindices to measure the attainment of objectives will result in an invalid'eialnation of the program. Third, the .beiefit-coat evaluation must link benefits-with cats. Treatment of either benefits Of costs in isolation.cannot provide valid
1 information in- making choices among social programs. Vocational education .isnot less efficient Or less 'desirable simply because it costs more, both on theaverage and in margnal terms, to educate a student in a vocational program thanit does td educate hhn in an Academic program in a comprehensive high school.
_ .
In summary, an mippropriate model t evaluate arty program within. .
vocational, education or a similar social p m in education' should 'have:the following steps: ...
1) The 'program objectives Of desired program outcomes must be specified.
-It
2) The processes or activities used to implement the propam must be.specified. In economic terms, this means that the production functionOf production process mist be specified whereby the output of mygiven activity is related to.a relevant set of inputs to that activity.
5) A cost function or cast relationship bard on the production functioMgiven for each activitY must be speCified. .
4) A benefit function (s) must be specified bued on an approrriate indexor set of indices designed to Mauro program outputs. .
5) Costs and benefits mud be cOMpared
Program Objectives Ed Outpost. The objectives of a social pMgrem such esvocztional education must be made explicit. If objectives are stated in terms ofall-encompassing goods nich . as "the improvement of happineee," the programcannot be evaluated since there is no wty to Measure ant a broad outcome si"happiibmis," let alone define it with clarity.
Vocational and technical education are, however, more efficiency orientedand lend themeelves to a benefit-cost framework more readily then other typesof education eitcept manpower trainhly However, the objectives of vocationaleducation are still multklimendonal and the specification of a single functionelrelationship which uniquely encompasses all of these Mulhouse objectieee isextremely difficult and remains, as yet, to be done. It is for this rearm that theestimation of program benefits is generally so much mote difficult then the..estimation of provam costs, although, as we *ell see below, some of the relativedrnplicity in the estimation of costs is more apparent then real, sines costs andbenefits are simply two sides of the sem: coin. Costs ars motive benefits endbenefits are negative costs. The same reral economic principle of foregonealternatives or opportunities governs the:libncePtttal. identification of each t.
, Neverthelese,:without a singe index of benefit: (and Cods) to Joanne themultiple dimension of objectives(andlusth econosnic ard non-economic costs),the practice his been to estimate a Ingle dimension, nth as aarnor wanerate per hoUr, and treat it Is an index of the objective of "efficiency." Thus,..wage rates Of a dmilar unique measure implicitly cotes other dimeadone of theefficiency concept such as the reduCtion of unemployment or At potential ...increase in output due to Misused labor mobility or job athfaction.
To continue; the output of vocational, technical or manpoiVer training isthe acquisition of rertain behavioral capabilities. The objectives of these types ofeducation, whose fulfillment depends in a . functionslly related way on theacquisition of these capabilities, have been emmverated above but bear repeating..These objectives are:
1) Economic efficiency (h1)2) Consumption (h3)
3) Equity (h2)4) Socialization (h4)
The program objectives (W for welfare or well-being) can be expreseed as: ,
W w(h1 , h2, h3, h4)
17
, .
'
A specificition of the relative weights of eich component of welfare, theirgeneral functional form;, that is, whether they are linearly or non-linearly relatedto welfare, as well as knowledge . of the interactions, complementaritiei andconflicts among them would complete the specification of this "objectivefunction.", The next step would be to minimize the total value of this function,given one's limited reieurces. .
However, fa repeat, the prOblem is that we do not have a unique index toMann' W and, in fact, we do not even have a unique. index to measure thecomponents of W, such as h1 or h2. Also since certain affects of these objectivecomp on e nts are almost surely- jOintly created, that is, a given inputsimultaneously creates more than- one type Of Output, the choice of an index torepresent I component which iijointly deterinined with another component willlikely result In liiError in ascribing costs. .
..Production and Cost Punctiont Cost functions can be estimated directly
from cost and output data Without performing the intermediate itep ofspecifying the production function, the proceu whereby the-Program producesthe desired output: However- without an understanding of the- productionprocess, that is, the way in Which program inputs are related 'to program outputsand any interactions among the.inputs, it is very difficult to estimate-the impactof a program. This is a crftical stage in the evaluation procesi since al yet there isno widely accepted theory es to, how vocational capabilities are imparted 'endwhat variables are critical to the efficiency and effectiveness of the learningprocess.
. Therefore, the production process is usually one which in practice isspecified through trial and error by attemptkig to statistically "fit" variousempirical relationships. This, is unsatisfactory, however, since the availableindependent variables which can UfVe U candidates to explain a given learningprocess ire limited only by the .researchir's ingenuity at generating additiOnalvariables, as is demonstrated by more than one study discussed below..
However, leaving these problems aside, if educational administrators act sothat they try to maximize a set of objectives f vocational education, then theproduction process can be specified as:
Yi Xi2, Xin) .
where Y1 is a complex index of output performance of vocational education forthe ith student, and the Xi's are the input used to produce the output ofvocatiOnal edUcation for the ith student.
If inputs can be ravened in money. terms, costs can then be expieised asa functiOn of the production recess, ai_follows:. Z/ f(Vi) where Z is totalcosts, V is program enrollment, i stands for the ith program of a given type. Thiscost function could be expressed ifi linear er nonlinear form; and variables Otherthan enrollment could be added to .the function to account for coit-influencingfactors whose ...fleets one may wids to hold constant. The readt of estimating atotal cOst function will be an estimate of marginal cost.-4he extra cost of trainingone additional student.
The Linksie ot Costs and BenefittIf benefits are nonmonetary, then for aparticular program the achievement of a target level of program performance at
:1.9
,
2.
.;
the -lowest cost (both. monetary...1nd "ndnmonetary) identifies the desirableprogram. Or, .a 'given cost can be set and that' 'program whiCh achieves tilegreatest increaent of 'improvement in output performance is the desirableprogram. For situation; Where costs and benefits aro in moneteri terms, the*general economic rule is to maxingize the presentvalia of net benefits. However,several investment. criteria 'exist to achieve this, . Such is the internal rate of .
return, the benefit-cost ratio, 'or net present value. In the real World, constraints .
usually exiat which invalidate each of these criteria to a degree. Thew problemswill be discuseed below. .
. The Generality of the Model.: This simile Model Outlines the generalapproach One would take to evaluate the efficiency of vocational and technicaleducition programs". Given thst objectives ire dearly.. apecified and thatpefformance indices to ,measure .the achievement of 'the objectives can bedeviaed, then. alternative projects to achieve the objectives can beinvestipted.Input combinations betWeen alternative projects will likely vaiy. Also, inputcombinations. can be varied within a given project. The effects of both types of.variation can be noted.%) both output ind input costs. Ideally, the combinationof inputs for a given cost. which will maximize a given type of output can bediscovered and (Waal educational efficiency can be hnproied.
The Specification and :Measurement of Inputs. The specification andmeasurement of inputs into the process by which voCational Capabilities areimParied to', students suffer from the lack of a widely accepted theory oflearning. In the absence of.in unambiguously acceptable theory, the problem ofspecifying the input variables becomes more complex. There are; however, three .
broad classes of variables to %madder, and,- of course, there are unknowninteractions 'amain These three sets of variables con be dallied asstudent inputs, educational Prom Mputs, and socioeconomic influences.
. The educatiOnal prOcem starts with students, each of whom differs withrespect to characteristics*which affect his ability to learn at the time he enters :the partk,ular vocational program. Students differ in relevant aptitudes,achievement, motivation, and health which create variation in their ability tolearn. One must adjust for :he effects of these factors on anticipated programoutputs.
The educational `Process' In which the students arc engaged hascharacteristics which provide the kerning experience: Students *re encouragedto respond in particular ways, all under the guidance of an instructor, withcertain. characteristics. Finally, the activity takes place in particular phydcal andpsicho-socW learning environments.
In addition 10 the student -characteristics and. the specific educationalprocess which is to be evaluated, the act of learning is affected by otherexperiences and conditions in the students' environment which could influencethe proper identification and meuarement of net educational outcomes. Thetaexperiences can- take place at any time after the educational process begins andbefore the outcome fa mleaured. For example, students, Might take a variety ofother courses which. differentially alter their ability to learn the content of thegiven educational process which, is to be evaluated. Or, for instance, economicconditions could alter the availability of particular kinds of 'jobs after
10 19
graduation. Of course, if one is able to ttructure an experimental model with aproperly .foimed control group, the last set of influences may not be too seriousan obstaCile.
In summary, dozens of variables can be used to account for the three typesof influences noted above, and thus far, little conceptual guidance exists, todictate their choice or their functional form.
Specification' and Measiweinent of -Educational Outputs. The generaldifficulties involved in constructing a properly specified index of output havealready been discussed. However, additional practical problems eitist.
A benefit can be defined as any result of the vocational ethication process.that increases individual or social well-being or welfare. This increase in welfarecan be either economic or non:economic. With rcipect to economic welfare,benefits occur either 'directly by increasing prodle:theity or indirectly by freeingresourcel for alternative vies. With respect to non-economic welfare, theeducations', inoceu 'resuits in an increased level of latisfaction for thoseparticipatingin the educational process.
. The problem tif selecting and weithting relevant output indices becomeseven moiti complex when programs with varied mixes Of "general" and"vocational"' components 'are compared. ! Typically tie output indices chosenare apPropriate to vocational objectives hut slight. the intended outputs of thegeneral education component; this raises serious questions about the validity ofthe resultant program comparison. In i'inore generalized sense, it epitomizes thetype of bias that can result from judging any program on the bails of a narrowly
'conceived set of outputs, without regard for the program's concomitant,effect(positive or negative) upon other desirable outputs.
. Conceptual difficulties also arise when the amount of education isconsidered as a relevant Variable. When holding power o. amount of furthereducation, for example, is utilized as a dependent variable,' education is beingtreated as an end in itself. In other instances, the education variable (like holdingpower) might be considered an independent variable, and its ultimate and actualeffect upon othu outputs Measured.. The choice of treating the amOunt ofeducation' u a dependent or' independent variable changes with the evaluationcontext and ritionale, but making the Choice cannot be ignored,'
Finally, greater attention must be paid to. the iPecification andmeaiurement of developmental outputs. The effect of educational processesupon career patterns, as one illustration, should be determined.: Longitudinaldata are therefore required.
Benefit-Cost Analyais and the Investment Critesion
Given that costi and benefftrhave been successfully estimated, there aretwo additional elements to benefit-cent analysis: time and the interest rate used,to discount costs and benefits to their present value. Both the costs aid benefitsof inveinment in -vocational and other forms of education occur through time.Different investment alternativei are likely to have different time profile:. The
.. Purpose of diacounting is to attach relative weights to them cost and benefittime profiles in order to account for the productivity of investment and social or
private time praerence. (For further, discussion, see Prest and Turvey, 1965, I;Eckstein, J961; 1;'Hirshleifer, 1960,1: Solomon; 1959,11.)
. .Discounting is theoretically justified for I number. of reasons. Thelhat isthat the interest rate _Used in discounting represents the opportunity cost ofinvestment funds; that is, invested wealth usually earns a positive rate of return.Thin, "Y" dollars invested today will yield "Y + X" dollars at some time in thefuture due to the productivity of - the investment. Therefore, reversing theprocess, to relate this frotwe income to itspramt vilue, one must discount thefuture incOme itream to the present time when theinvestment decivion is beingcontemplated. Second, future income is alued lesi than present income. Peoplehave a positive time preference, that is, they dislike postponing consumption.(See Baumol, 1961, 1, pp. 410-413; for a brief theoretial rationale of timepreference.) .
Investwit Criteria A variety of investment criteria is available to theeducation decision-maker. At the simplest level of analysis benefit differentialsand cost differentials can be estimated. The piy-backLperiod an 'also be..estimated. The net expected present value, the benefit-coat ratio, and theexpected internal rate of return can be calculated. Under certain conditions,these last three measures are equivalent and provide the mine guidance todecision-making. The conditions are noted below and exceptions to these ..
conditions comprise the bulk-of this discuidon. .
The Correct Oiterion. There . Is condderable confusion 'oar . whatjconstitutes a "Correct" investment criterion. Thb is due to the fact tat there is
confudon between specification of the appropriate investment rule as distinctfrom the criterion to achieve the goal of the rule. The appropriate investmentrule in benefit-cost analyds is to maximize- the nit present value of benefits.Depending on the nature of constraints, ani,of the last three criteria above mayachieve this rule.. However, there are both practical and theoretical conditions .
which either commonly exist or can be devised whic demonstrate that no instilinvestment decision criterion le theoretically correct for all lnvestnient
..situationi. (See Hirdileifer, 1958, I, pp. 329-352, and Bailey, .1959, pp.476-488.) This di:cation concentrates on only three of the above criteris:theexpected internal rate Of return, the expected net present velue; add 'thebenefit-cost ratio.
Cost end Benefit Differentials t, Cost and benefit differentiali represent a+, necessary but incomplete stage of analYsis. These differentials show the
configuration of the 'data and provide the inputs to the proper (for a given nit ofconstraints) investment criterion. Alone they are not a useful guide todecision-Making, yet,, one commonly perceives misunderstanding of this fact.For instance, a given education program A, costing X dollars more than analternative education program B, is averred (by, its advocates) to be of "higherquaiity"..or (by its detractors) to be "too. costly." But "Walter quality" or-"toocostly" in what sense? Both these statements, taken by themselves, irenoLilense in terms of the efficiency and effectivense of the program. Costs and.benefits must always.be related to each other.. .
Me Pay-Beek Period. The pay-beck period is a dmple ratio of total costs,C, to constant marginal benefit, b, with the constant benefit measured over a.
..given time unit such as a month or-year. Thus, b/C eqUds the pay-back period. .
1221.
This simple index relates costs end benefits to each other and different prograinscan be crudely judged as to their relative effectivcnesi. The criterion is to selectthe investment with the shortest p0-back period.
The pay-back criterion suffers from a variety Of conceptual flaws. First, itignores the fact that costs and benefits of competing investments are distribuVd_through time and have differeit time profiles. Education yields its benefits overan entire lifetime. Diseounting is necessary to make the different benefit-Costprofiles commensurable. Second, the absolute size of net benefits betweenalternatives may differ but the use of the ratio wJlMbscure this. Thkd., as With. I
the internal rate'of-leturn, the pay-back crit n breaks down completely inthose cases where 'investment' alternativesfr mutually exclusive. Thus,' the .
pay-back period criterion has serious Conceptual limitation:Asa decilon-makingtool, and is not highly recommended. .
A Consideration -of Three 'Otte*. The net expected present value'criterion can be stated es follows:. Given the apPropriate interest rate by which.to discount, one should adopt any. program for whiCh the present value of the,discounted .stream of net benefits is greater than zero. Or if More than oneprogram has net discounted benefits greater than zero at the given tate .ofinterest, adopt the program with the highest -present value of net benefits.
The benefit-cost ratio tells the decision-maker to invest in Mose programsfor which the ratio of the present 'value of benefits to the present value of costs .
is Unity or greater..
The result of calculating a rate of return is a simple percentage which callbe compared against that interest rate which rePrerents an acceptable .rate ofsocial or private investmentrethrn. Briefly defined, the internal rate of return isthat interest rate Which makes the discounted value of costs equal to thediscounted value of. benefits.(See Blaug, 1965, I, p. 155.)
A .CWtiqbe of the Three Otte*. Much controversy exists over whatconstitutel the proper investment criterion. The discussion in the literaturecenters aroUnd a critique of the present value and the internal rate of return
_criteria. The benefit-cost ratio is not widely considered. This latter fact isespecially significant in light of federal government practice to employ thebenefit-cost ratio as an investment criterion.
Many. Writers argue thav: the present value rule is most correct since itautOmatically assures that the present value of benefits is at a matmum. Asnoted, previously, this pOsition is taken becanie of a confusion between whatidentifies the correct \maximand as against the appropriate criterion to achievethat maximand. How er, to repeat, both the 'present value' and internal rate ofreturn criterion Wilt re t in-the proper and identical investment decision giventhat: capital markets aèç perfectly competitive, investment alternatives are notinterdependent, all releiant investihent choices are'completely divisible so thatmarginal adjustments cn be -made, and all net returns are reinvested at theoriginal rate of return r higher up to the end of the Project with the longestbenefit stream: (Blaug, 1965, 1, p. 168.)
In this context both are correct and neither is to. be preferred over theother. However, It is unlikely. thut. 'these conditions will pier be met
13
La
.;.%
, . .
. simultaneously. Tne mil world imposes constraints such that each of these ridescan, at times, give advice which will result in the decision-maker's notmaxinizing the present value of net benefits. The following sections' considerthese constraints in turn.
veiConstraint.; Which In Mite the Hate of Retirn Criterion. -
Interdependency. Where two programs are mutually exclusive, the uie ofthe rate of return criterion breaki down At Ii possible under this condition. ofinterdependency to invest "pan activity which has a higher internal tate of returnbut lower present value than an alternative project. This criticism is quite relevantfrom the view of an individual Contemplating an educational investment in him-self. When an individual makes a decision that cominits him to an educationalprocess for a specified period of time, he ear:inter, all other eduCational actionshe may have taken for. the period which Is subst4uently comMitted. In addition,'once he has undergone training during that time period, that exnanse of time isirretrievably hist. Thus, if he decidei to take training as a carpenter, he usu. laily can:not simultaneously take training as a psychiatrist: The two investments are mu-tually exclusive and thus, interdemident-taking one course of action affects theability to take the Other course of action. In short, In this ciintext one can thinkof the human as a site.or locus upon which, in general, only one type of trainingor edncition can occur at a given point in dine. Thus, educational or
! :oecupational investiments in specific human beings have the general Characteristicof being mutually exclusive.
This* criticism of the internal rate of returnAjuet as binding from thesocial standpoint but the relative magnitude of the consequences stemming fromit are probably not as serious. For exaMple, if the Lenstruction of acomprehensive high school on one end of town proves to be an ecomimicmistake, one can always constrat an area vocational-technical school on' adifferent .site in 'another part of town. Or, an incorrect investment in IndividualA does not preclude a correct investment decision to be made With respect toIndividual II, since While one indtridual ia not divisible, a group of individualsfrom society's standpoint is diVisible.
Suceessire Cost Outlays. More than one Cost outlay.occurring Over timecan result in . more than one rate of return beingrestimated for *the lamebenefit-cost stream. The same number of rates can exist is there are inflectionpoints where the cost stream switches to a benefit stream and vice verm. No onecf these rates is necessarily correct. . 1,
From the private or individual standpoint the *occurrence of multipk Costoutlays , is a theoretical possibility due to the risk of unemployment. The
\ 'individual can perceive at least part of the -expenditure necessary to Maintainhim during periods of long-term cycliCal unemplajmeat, as costs incuried tomaintain- his productive capacity in a given skin.. Thus, lie -nay have. a timestream of benefits and costs as appears in Figure 3. Here, as many is fourinternal rates of :return conld exist. However, it is nOt likely that thort-terMcyclical or seasonal unimployment would result in any measurable illdeterioration. Long-terM structural unemployment could; hoWevert .
14
\..
.,
FIGURE 311M2-INCOME STREAM OF AN INDIVIDUAL WITH MULTIFLE
COST OUTLAYS
NetBenefit
OrCost
\ , . . .
,
.The uneniployinent eximple is Similar 'front the standpoint of society.Although one could argUe -that society. in any case is commitved to keeping .
,.. its members alwe, or .st least.a certain number of them, in order to assure its ownContinuity, society may still incur differential . costs which are uniquely 'associated with maintaining a given skill structure and level of ability. These .
costs shoiild be counted as necessary costs to assure the viability of the originalskill leveL..... . , . . ..
,
-FinallY, from both society's and.the private or individual viewpoint; if the2 person had to reinveit in himself due to the fact that technological change had .
destroyed the economic' relevance of his .previous skill, this new investment costand the benefits flow* from it should be trealed &Sari entirely nevibenefit.Costsequence. . . ..
,
Chasing Rate of Interest. Investment hi licational education over time' Will likely change the dittribution of inconie and hence, other things equal, wilalso' change the social opportunity costOf inviitment funds Which depends; inpart:' On the distribution of income. In ads case,X uniqyely calculated rate of
. return becomes conceptually:jzielevsnt shice it does not reflect the' changingsocial opportimity cost rate o investment funds. .
Constraints Which Invalidate the Present Value CritedonMultiple Interest Rates. An individual may invest in himself by using
personal savings, borrowed funds, or by reducing his current consumption. Adifferent private interest rate may be relevant to each of these sources of funds.Assuming the individual did not use "some weighted rate of interest to representthe interest rates which apply to personal savings and borrowed funds plus therate of time preference he attaches to foregone consumption but instead choseto discount the stream of costs and benefits of .different alternatives by eachrate, the ranking of alternatives at one rate may differ from the ianking ofalternatives at the others. it is then unclear u to which relative ranking is thecorrect one.
TABLE I
CONSTRAINTS ON DECISION RULES
a
, Difficulties Dow With.
Oresent Value ., . Internal Rate' of Reties' When
. , ,
i. Different discount rates areused to evaluate a set ofprojects with dissimilartime-benefit streams.
.fResult:. Different rankingsmay occUr for each discountrate. .
,2. Discontinuities occur such-'. that project costs become.. large relevant to current
.I.A.:.
.-,tf4fte., resource*: .
Reault: Adoption of a given-,. pioject on the basis of its.., ...higher present .vilue may
preclude the adoption 'of twoor more smaller projectsAue summed present value.is larger than the original"project.
.
. Budget constraints occur.-
Result: This is 'a Variant ofthe discontinuities constraintand, again, the likelthood
, may be that failure tomaximize present value willOCCur. . -
,
1.
.
2.
.
3.
,Pr oject s a.re mutuallyeapt_ive.Result: A hth rate of returtrproject muy be adopted.which preclUdes thepossibility of maximizing netpresent value.
The market interest rattvaries over the life of theproject.
...
Result:' The single computedrate of- return becomesconceptually irrelevant since'all time periods are treated ona par. This it the: mast,fundamental conceptual'failure of the rate of retamrule.,
.. .
More than one cost outlayoccurs over time. . .
Result: a) Mutliple rates ofreturn are Computed no oneof . which is conceptuallycorrect;, b). Problems of .,
mathematical estimationbecome extremely difficult.
16
25
,
.
In addition, th many practical situation when .a angle unambiguous ratecannot be donut; advice is. often given that more than one rate of intarest*mad be wed in order .to provide a range-of eathnnes of discounted costs andbenefits. This again. may result in a switch in the differential rankings of .
- alternatives vis-a-visythe different rates. The fault will be betweenin vestment alternatives wdl become indeterminate if oes at pts. to employ
. both renkinp. ; .
. A aggeited solution to this twitch* problem involves the 'diction ofthat interest rate whiCh makes the net premat value of the set of alternatives all
! equal. This- rate then ones is the ecut-off point in selectincthe appropriateranking, and hence, the appropriate investment. Int Flows 4, the present valuesof education progresni A and B are equal at an interest sate of 5. If the social.t) preference rate is dways liiiiiiWc-pethaps-rets-c-thewthiepresent-value-ofprogram A is always &eater than programa end program A thould be chnen inpreference to S. But, if. dthgreement Wits as to what is the proper acid thnepreference rite, (for butane, ."is its value to the left or rigu of. e?"), then one isno better off than before. The dilemma remains:
FIGURE 4MS SWITCHING OF INVESISIENTALTERNATIVES
NetPresent
Vilpe
'Interest
Rate
Budget amstraint. The present endue rule will sometimes prove to beinvalid when a Lbudiet-constraint_Or_investment -dikontinuities face the
ciecision-Maker, If one follows fin adviee to iinest first in thit activity which hasthe highest present yob., it may still.be that some alternative combination of .
lineaments *ill prove :possible, each of which requires a smaller investmentoutlay but which, when taken together, yield a summed present value greater ..Alum the single larger investinent. The proper strategy when budget constraintsor discontinuities occur, then, as long as the alternatives are not mutually 7
exclusive, is to exhaust the budget by choosingthi set of alternatives with thehighest internal rates of return. This Will actually maximize present value for theset orinvestmenti. .
Such a constraint is a major problem from the standpoint of the individualseeking to educate or otherwise iniest in himself. As kweitors; etudents have
----Ihnited-ebeess-to-investmentsources-Alsootildents are relatively unproven in-the labor market so that there is a great deal of risk and uncertainty concerningthe benefit stream of an investment in them. Capital markett are relativelyimperfect in the area of human resource inveitineni due, in part, to theunwillingness of neditors to accept a person's own self as loan'collateral as wellIs the quasi-illegality of indenturing oneself.' The capital created by theinvestment in educatioxis real, 'but it is embOdied in and cannot be separatedfrom the human agent. It cannot be used as collateral in the same way thatphysical capital can. It cannot be sold. High risk and liquidity premiums wbuldhave to be charged in addition to the' opportunity cost rate of 'capital if thecapital market were to make funds prierally- available to investors in this area. .
(Becker, .1964, I, p.. 35.),Institutional constraints are such that these very highinterest ratet are not charged. Instead, lower rates are set and 'the pool ofinvestment funds is rationed aMong thole projects which qualify st the lOwerinterest rates. As a result, investment funds are not generally, available to fmanceone's self-investment in education and similar human capital investment.. .
Perional loans are made strictli on a person's representation thathis actualor expected income stream and, hence, his expected pipits! value, is of suffidentsize and certainty of being realized that he can pay back the loan. Thus, in suchcases the loan iemade on the basis of accepting the person's expected capitalvalue as ecilisteral, but this practice occun normally titer and not before theperson seeking the loan has created the Capital valise which is embodied in him.In Ilie with this, most student loans ma6e by banks are offered mainly' as apublic service and are made on the basis of the parents' expected incOmestreaniand not on the basis of the great expectatkins of the student seeking the loan.
Hence, the individual is genera* faced with inveament budget constraintswhich do not allow hint perfect choice aMong all 'possible investmentalternatives. He may have access to sidficient funds tO contemplate training as icarpenter bill not as an electronics technician or as a medical doctor.
Investment budgets are also constrained :froth the standpoint ofgovernment, such as a schOol district, though disogreement etists as to the exactnature and seriousneis of this conetraint. Legislative knits are set for specified 'periods upon amounts to be .spent by school district and other governmentalunits. Even though nevi fuqds are voted for new bUdget periodi and the budget
.6 .
18 1
4)
periods continue" through time, a" short-nm constraint exists which can be: repeated indefinitely. ---
Only in the broadest sense doe: n constraint exist for the economy as a. whole in thil area .. of education for it is :difficult to xonceive of a givenkwestment which would be so large as to absorb a significant proportion of thegrosinational product.
Constraints Which Invalid* the Beeefit-Coit gado CfilefiOR
The ItenefjOrnsrratio has some of 'the operational shortcomings. of .both_the expecteil net present valisegule'antthe expected internal rati of return. Like..
the expected net preeent value rule, its use will cause problems it more than oneinterest rate is used to discOunt, That is, the '.choice of the most efficientinvestment -alternative may switch. However, if budget constraints or
Of return, is preferred -over the present _value criterion. Given theinterest rateused to discount, choice of those hive. stments with the highest ratios willmaximize net present benefits.. But, it investments are mutually exclusive,. theUse of the benefit-cost ratio, RS with the expected internal rate of return, 11111)give an incorrect result Unless the returns from the investment *are reinvested atan interest rate at least as high as that yielded by the next best alternative and atleast through that time period represented "by the invest:tent .alternative havingthe longest time profile of costs and benefits.. .
The resolution to the above :Witching problem under condition otbudgetconstraint is to discount at only one interest. rate. Notothat this single rate ii notnecessarily the social or private interest rate representing the opportunity cost ofcapital. The proper rate is the highest marginal rate of return on that set ofinvrnment projects which just exhausts the, investment budget. Then thoseprojects in the chosenlet which are discounted at this rate must have a presentyalue Of zero or greater:- Any" project with a present.value of less than zero whendiscounted at this marginal rate should be excluded. The method fOr finding theinvestment set with the highest Marginal rate of return is to discount the array ofinvestment alternatives at differeat interest rates until that set Of investmentalternatives is found Whickjust exhausts. the investment budget. (See Hirshleifer,1960, I, Appendix to Chapter VII; also McKean, 1958, I Chapter:5 and 7.) Onethen chooses the set with the higheit rate.. However; this .tec!.?nique can becumbersome and impraaical if there are a large number of alternatives andLaterdependency exists among them. With interdependentY, an entremelY largenumber Of possible combinations of these. alternatives can exist; all of whichmust be tested. Such a situation is likely to occur in. investments in humanbeings. .
. It is important to note that -the bulget could conceivably be soconstrained that the nuMber of investment 'projects "Would be insufficient to:include those-which would lower the marginal rate -of retum down to the-socialor private opportinity cost rate of capital. If the Social rate n used Ina situation ,
where it is less' than the marginal internal rate of the contemplated set ofinvestments, then the projects wth likely be adopted which will not result inmaximizing net present value. . .
19
r, Hirthleifer points out that even this nali, while e nodal andplausible (Me under conditions of capital rationing or budnet constraint, is notstrictly correct. First of all, thimargind project may not have an unambigutms
. rate of return. Second, even if there is ah unambiguous internal rate of return,one may choose the wrong course ..of artiontifedem Consideration is Msde of theearning value of resources yielded by each Project al well as the market rate of .
interest by which intertemporal shift of benefits of a given benefit stream cin beundertaken. (Hirahleifer,..1960, I, p.,I71,) r
In luminary, given the qualifications above, when there is capital rationing(and this is a coMmon situation for an individual contempleting investmenthimself), the -benefit-cost ratio' ia the proper 'criterion for ineestntent'making; since-by- choosinr the set-of investmanti aritiltheldgliett ratios hi willthereiq maximize net present value. When there is no budget constraint, and forsociety (not a governmental unit, including the, Anal goveinthent as a whole)this is usually the case, adopting those projects with the maximum net preeent
'value is the proper course of action.
Sentrany
Both marginal and average costs and benefits must be estimated. Theaverage benefit-cost ratio indicatei the abtelute level of performance of a socialprogram. The Marginal benefit-cost ratio indicates the relative level ofperforrnmice of a social Program.
Given that the average benefit-cost ratios of tem comPeting programs areboth greater than unity, welfare Will be maximize:I by Stiffing funds to thatprogram with the higher marginal benefitcost ratio, uptil the ratios of the twocompeting programa are equal. .
An arcurate evaluation of a serial program . requkes an accuratespecification of objectives, a specification of desired outputs, appropriate indicesto measure these outputs, and an appropriate Model which verifies the mannerin which program inputs create the desired program outputs.
A program cannot be evaluated in my efficiency sense by comparing costsor benefits . separately. High costs imply neither a "high quelity" nor en"expensive" program. High benefits do not normal:0y Inplya moithwhileProlirant
The appiopriate investment decision rule is to invest in thstsociel programwith the highest net present. capital valise. Three different investment criteria.exist to achieve' this efficiencY rule: the net present value male, the internal rate ofreturn, and the benefit-cost ratio. Under appropriate conditions, all thme rulesyield the same result. However, the real world imposes constraints, which in anygiven case, can invalidate any one of these criteria..
0
METHODOLOGICAL ISSUES IN ME ESTIMATION
OF COSTS AND BENEFITS
Definition of Cost and Benefit
Costs ire defined in- theirmongeneral sense-aropportunitfoitS:-Thiris,the cost of doing anything is the. Value of the next best opportunity oralternative which has to be foregone because of the particular course 'of actionone has taken. Thus, in the most general terms,- tbe cost for sn individual to.invest in vocational or technical education is the cost of (I) not being able towork simultaneously ht the labor market or (2) the cost of foregone leisure or(3) the inability to engage in production at home.
There is often a confusion in the literature since costs are sometiMestreated as being conceptually -different when, in fatt, what differs are theproblems involved in measuring them. Thus, some writers will categorizeeducational. costs into direct outlays, indirect mitlays, opportunity
. costs-meaning wages foregone-and capital costs. Yet, it bas to be rememberedthat.all costs'are opportunity costs and one should not consider cost elements asconceptually different simply because they may occui at different points intime, accrue to different individuals or groups, or take different institutionalfornis such ai wages or tuition.
Benefits are just the reverse of costs. They ire opportunities gained u aresult Of engaging in some activity. Thus, they can represent (1) increases in thevalue of labor market production or activity or (2). increases in the value ofconsumption or leisure or (3) 'increases in the value Of non-Market Or homeproduction. In short,-they represent increases in the productivity of market andnon-market production Sad constimption.
To- *Void errors in underestimating or overestiMating costs and benefits,they shOuld ideally be messuredin terms Of utility lost and gained. Then; therewould be no confusion that the complex multiproduct -nature of- educationalinvestMents:were being crassly subsumed under money returns andcosts alone.Miuurement of utility, however; is a counai of perfection. It cannot be done,given the state of the art. And, in an imperfect wOdd, it is improper to considermoney costs and benefits as meisures of utility oreven as good indices or proxiesfor it. Given the Complex nature of educational investment, both in terms Of itscosts or benefits, it is best to simply indicate the cOMponents oInosts or benefitsbeing measUred and not claim wider validity for them as prOxies of utility. Thisdiscussion brinp us too general-consideration of-the methodological- issues inthe measurement of costs and benefits: In short, the measurement of Costs is justas difficult as thc, :measurement of benefits, mild previous statements by someinvestigaton concerning the greater ease of cost estimation tic based on atimPlistic concept of cost. (See Judy, 1969, I.)
30. 21
General Considerations
:'
A. foray into the methodoligical issues surroUnding the distinction of costsand benefits of invistment in social programs designed to improve humanwelfare brings a variety of basic conceptual problems to the fore. Thr bestsummary discussion of these Problems to date has been perfonned by LesterThurow in his book Investnwnt hi Human Gepital. (See Thurow, 1970, I,especially Chapter 8.) The bask issues he discusses can be outlined as follows:
.1) Eamingmaxinfizafion versus utility maximization;2) Complementsrity in production and consumption;3) Joint costs of production, consumption and investment;4) No-w-wi-iirk-etion and consumption; .
5) Change in perferenees due to the act of educating ortraining;6) Risk dueto lumpinen of kinitinenti; and7). Complementarity, substitutability; and inseparability of human skills
and abilities.trarow lista seviral other points, but these above are of most interest with
respect tO investment in .vocational and technical education or other train541progrein since they impinge direttly on the measurement of costs and benefits.
. tin addifion to these points, one shmild conskler:8) Externality;9) Income redistribution effects as theyinfluence the determination of
costs and blnefits;10) The kifluence of unemployMent on the determination of costs-and
benefits; and11) The problem of the control group.Each point will be considered below . with specific reference to vocational
and technical education. And, where applicable, each point will be consideredWith respect to social; individual or governmental estimation of costs andbenefits. ,
Earnings versus utility niudiniration. Even thOugh vocational and :teChnical education is well as manpower 'training have a more iinmediite labor,market orientation than do other forms of education, such as a .liberal artscollege eduntion or the pursuit of. a pneral cUrriculum. in high school, it isdangerous to evaluate the former types of educaikm.onlyin .teitni 'of 4arninpmaxháizition Earninp are only one of the elemeAts which comprise one'sutility. One of the elements of utility one gains besides earning are directconiumption benefits during the educatiOnal process itielf as vidl as improvedpossibility for the enhancement of consumption after education. If persom arerational in their pursuit of utilitY.or welfare maxanization, they will gravitate.to .
those kinds of educaition and Occupations which give them direct consumptionbenefits along with increased earninp. This is the crux of the matter wheneducaton, economists Ent others,. seek to evaluate the degree of "job .
satisfaction" involved in Career Choke.Of course, if all persons are raticinal, hicludin those : who. pursue the
college preparatory or general: curriculum in high school, there is no necesoryreignn after the fact to assume a priori that vocational or technical students will .
have greater job satisfaction than other types:of student's. Presumably, each
22 : .31
n.3,
. -group gravitatet-to-that-type-ofintiningwhich:wilimaximizeitrexpected futurejob Satisfaction. Thus, lob satisfaction and other charicteristics of a person'spost-training situation which are measures of psychic well-being and the degreeof consumption benefits being received on the job Must be directly measured.HoWever, if different kinds of persons gravitate to differentdprograms;there"remains the difficult task of establishing unambiguous scales to measure thesedirett consumption and plychic benefits. Different eleffients may comprise theconsumption and receipt of psychic benefits by, different groups. Thus, even ifyou ask the same kind of question of these different groups, seemingly uniformand consistent responses ;may -.have entirelydifferent_ meaninp- andbeincommensurable: ,
_Complenieniarity -in-Production-and-Consumption Since one's humancapital. is inseparahle from oneself, in the act of producing one also consumes.This occurs siMultaneously and failure tO account for this phenoMenon can leadto an incorrect measure of behefit. Other thing, equal, if a person dislikes hisjob, one may tend to overeatimite the benefit to the indieidual person. However,if he likes his job a peat 'deal, other thinp equal, one may tend to underestimatethe total benefit receved. There is no reason, however, to assume that one typeof curriculum automatically 'has a greater Tier (or under) estimate of measuredbenefits due to this phenomenon.
Joint Costs of Produe don, Consumption, and Investment. Thus, reductionand .consumption on the job are joint due to the fact that any economic activitybased..on human capital. can't beieparated from the human agent. Likewise, theinvestment itself is joint, producing both production and consumption.capabilities. This fact complicates 'the estimstion of coats considerably. Anexcellent example of this is the Job Corps. Here, participants enpge in trainingat residence centers. They simultaheOudy produce, consume and invest inthemselves. Their maintenance costs support all three, of these activitiesimultaneously since the activities are joint. Even tliough 'society or theparticipants' familiei won't have to maintain these participants, Ihey would in:luny cises. be msintained at lower levels were they not presently in the JobCorps. Thus; the question becomes, why isn't any Measured increase in..consumption treated as a sociallenefit of the program? Or, should it bctreatedas a transfera bevefit received for which 'no reciprocal service ot benefit isrendered-and hence not counted as a sociaflikin?
. Btit even if one agrees from., the consumption standpoint to treat theincreased level of maintenance as a transfer, the higher level of nutrition, medicalserviCes, clothing, ssid the like, should centribute simultaneously to increasedproduction' in the Job Corps Center as Well as improve learning while in thegter. Hovi can one sort out the immediete consumption component from the in-vestment compOnent Of the higher level of maintenance? Assuredly, the hiiherlevel of maintenance is not all transfer -payment 8Utsince the three activitiesare a joint. Outptit ofmaintenande,-theY Cannot ba separated
, ,
Similar kinds of problems exist with cooperative vocational education. Thework component of a coop, program is jointly' production, consunaptinn andinvestment:is the wage, rate. the.. student receives a "measure of the student'sproductivity net othis-on-llie4ob training or investment? Economic theory
23
would arbue that it is not likely _to be completely net of the on-the-job trainingcoststhatis, the student will not pay for all of his on-the-job training costs via areduction in his wage rate. To the extent that a coop student will have a job with'components that are peculiar to the finn'sown operations, we could expect thefirm to pay this cost to cover this firm's specific component of the job.However, to cut down turnover and loss of his investment in the student, theemployer is likely,. to share both the costs and the returns tO the finwspecifictraining component of this job with the coop student. Conceptually, these costand benefit componenti should be separatedoutbitthis is often difficult to do.No one, to date, has attempted an empirical resolution of this issue. Thejointniss of these -activities renders a separation most difficult from in empiricalitandpOint,(Problems-of-prorning-jOint ceets-will-be discuned-further below.) .
Non-Market Production and Consumption. Non-maiket prOducilop andconsumption is a major consideration .in any Complete evaluation *coT theeffectiveness of voCational and technical education or manpoWer training.Obviously, persons trained in vocational and technical skills, such as electricians,auto mechanics, engineers and the like, are in the position to provideconsiderable non-market preduction for themselves since the skills ,themselvesare in the high &teas of demand: craftsMen and semi-technical, and professional.This production should be imputed as a return to the education, but as yet, no
. effort tO do so has been made in benefit-cost or cost-effectiveness studies.Likewise; women who have learned vocational skills' nuy be in a pontion toprovide higher valued services as housewives than those with winch training.With respect to the 'ghettoized, poor, andother disadvantaged groups, courses inhOme economics and consumer education may yield very high nomarketreturns if the assertions concerning the instability and leek of Parental guidanceand know-how to' provide homemaking Md economic skills among poor familiesis true.
Change in Preference& It is difficult enough to evaluate *consumption, benefits When one 'spumes that a penon's tastes and preferences staY the sane,
thus assuring that the relative weights one attaches to a benefit Or cost d,o notchange. However, .the purpose of 'ediication, including iOcational ind technicaleducation, is to change a person's preferences, tastes and attitudes. Severalpoints ire of concern here. (See Wiseman, 1965, .1.)
First, since it can be' assumed that . education changes tastes and.preferences, the value and inightsthat is, relative prices one will put onconsumption, home production and leisure activities before one undergoes aneducation program is likely to be different from the valuation one altos tothese economic activities after one has completed his education..Which set ofvaluations or prices is the correct one? Should we add or deduct any differences
. in valuation betnent the two perkith? ShouldWthe valuation and prices afterthe educational process be comidered even. though the valuation tncl prices wereCreated by the education process itself?
Next, this change in tastes and prefftences may alter one's taste for leisure,work, and investment in education. Persons with higher levels of education_ .
generally work longer hours so the marginal value of leisure-time May be higher
.y4 ,t
47
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for this type, of peison. In, any case, if worideisure-intestment preferenceschange, this will change the measurement ot opportunity costs at -.ell as benetits.
. Risk and Lumpy Investments. Human life is finite. Investments in humancapital often extend overionger periods of time than investments in physicalcapital. And, persons cannot otdinarily train for more than one occupation oroccupational Set at a time. If a mistake is snauethat is, one takes training in askill which proves incompatible with one's. needs or which has its demandeliminated by changing technology or tastes or competition, then, there may bevery little time left to recoup one's lossesor to retrain in a new occupation area.The only meaningful alternative, as with many older displaced Appalachian coalminers, for instance, may be to drop out of the labor fotce altogether..
Two observationi on vOcational and technical education and"manpowertraining are pertinent at this point.
'First, while it is conceptually reasonable to train for the "job oftomorrow," OUI manpower forecasting techniques are not accurate enoua% topermit this type of educational strategy. Hence:Ilse focus on quick jobplaCement and training-relatedness is a proper one in voCational education eventhough to date, indices to measure training relatedness are atill too crude to beof much assistance in guiding investment decisions in the area .of occupationaltraining.
Second, given the flexibility Of manpower training and the general shortduration of such training, the gestation period of this investment strategy istelatively short and hence the opportunity costs, especially due tosthe tisk ofsnaking a mistake in occupational choice, Lie relatively low so that manpower'
'4.: training has the flexibility to overCOme the general lumpiness of human capital
,investment. .
Next, this lumpiness of human capital argues for a shortening of 'thegestation period whenever possible. There is no ironclad.reasim, after all, whyhigh school must last four calendar years or whysummer vacations must occur.Thus, the irelative cost position of vocational, and technical education canimpiove- via-a:Via -its close competing substitutes, such as the general or collegepreparatory program, if efforts are nude to shorten the training periods. In thisregard,_ also, _ cooperative_ vocational education may have a relative costadvantage over other types of education including straisht vocational; sinceopportunity costs of foregone wages &Telesis, the students often work and aschool all year round, and job placement may be more quickly achieved.
In short, while secondary vocational am technical education generally costmore than the general or college preparatory curriculum, this cost differentialcan be narrowed significantly by appropriate educational plannina. Sinceforegine wages are a major cost of education even at the high school level, coopprograms-and- propams designed to shorten the calendar time-in-school may--represent appropriate.educational strategies.
. .
-Complementarily, Substitutability, and Inseparability of Skills. Thisphenomenon arises from the fact mentioned earliet that it is impossibk toseparate one's human capital from his person. As a corollary, it is diffscult to'estimate the separate net effects of different kinds tof human capitalsimultaneously embodied in the human agent and thereby determine the
. 1-
contribution of each to one's earnings or welfare. This problem is especiallyignificant in the area of vocational and technical eetication due to the presence
of on-the-job training. It is important to measure the contribution of one'sgeneral education courses, his vocational courses and, since we are usuallydiscussing a followup period of employment, his on-the-job training in order to .
make appropriate judgments as to the optimum relative mix of each kind oftraining. The problem is further compounded by the fact that much on-the-jobtraining is infonnal rather than formal. It is possible to sort out these separateeffects statistically, but the average effects of the investMent elements aredifficult to estimate with any precision where they interact jointly. Jatob Mincer(1962,01) did estimate the amount of on-the-job training costs by essentiallyworking backwards from estimated rate of return differentials between groupswith different amounts of education. His methodology is useful where directmeasurement of on-the-job training is not possible. However, Audies usinginterview data can collect the necessary information on wage differentials amongskill levels within the same occupation to. arrive at cost estimates and time spentin on-the-job training. Such cost and time estimates can then be entered
. appropriately in a regression model to control for the effects of .on-the-jobtraining.
Finally, cooperative training carries with it the same measurementproblem. Namely, how muchof the measured benefit is due each to the general,vocational and work experience components of the educational program? Theseseparate costs and effects should be identified in order to make decisions as tothe optimal mix among them in the training strategy.
Externality. An externality is an econornic effect caused 'by an economicagent which bestows economic costs or benefits on secondary parties. Thesecondary party has no control over the receipt of these costs or benefits, butthey influence his own economic behavior in positiie or negative ways. On theother hand, the individual creating the externality is indifferent with respect towhom or where the cost or benefit _finally resides. By its very nature, the.
. _
externality cannot be priced and hence, rationed among possible recipients.. As aresult, the creator of the externality is indifferent to its existence, and the factthat he may be creating costs or benefits elsewhere in the economy hiJes notenter ink, his own investment decision.
The standard example of an externality, is air pollution. In the area 'ofvocational or technical iducation, an example wGuld be the existence ofcomplementarity between ; given skilled technician ansi the remaining membersof a research team such that the technician's productivity raised Of reduced theproductivity of the remaining member; of the 'team To the extent that theother members' productivity rose' (fell), their wage rates would rise (fall), but.there would be no way that the technician could request .(of be charged) aportion of the other parties' pin (or loss) in wages due to his role as a teammember. To some extent, the entrepreneur whO brought the research teamtogether would captm-e these external benefits. His role is to internalize themwithin the company.. But he captuies the, benefigind not the worker, whoseactivity results in the external benefit. . 0;1
2635
With respect to a given skill, such externalities should be accounted for inany complete accounting of costs and benefits, but this is difficult to do forseveral reasons. First, because there is no market mechanism (though one couldoften be established) to price and ration these benefits, their quantities andrecipients are indeterminant. As a corollary, the very pervasiveness ofexternalities makes many of them take on the characteristic of a pure publicgood, so that in the case of a benefit, the consumption of this externality by oneindividual does not deny the use of any plot of that benefit by other individuals.Since the externality is not rationed and since different persons weigh the valueof it to them differently, in the absence of prices, one simply cannot estimateihe folnl quOlity Of Benefit bestowed onindividuilliir society.
In addition, it is difficult to identify externalities and areal possibility fordouble counting and, hence, overestimating costs or benefits exists. For instance,Burton Weisbrod (1964, I.) lists socially desirable attitudes and behavior as anexternal nonmonetary benefit of education. Is this really an externality or just adirect noneconomic benefit of socialization? It is, in part, both. My sociallyappropriate behavior will' yield direct economic and psychic returns to me. Tothe extent that my behavior is appropriate and predictable, other individuals,benefit from a more stable, predictable environment. Due to my behavior, theirlevel of security and haPpiness will rise as well as their wage rate or earnings, yetthey, will not compensate me for this improvement in their well-being. Forsociety, part of the externality, then, is directly measured by. the second parties'increased earnings, but how much? Of course, the rise in happiness eludesmeasurement at this state Of the art.
In the recent past, education has had a good press partly due to presumedlarge external benefits. The extent of these benefits of course is unknown, sincethey are, by their nature, unmeasurable in most cases given existing ecOnomicinstitutions and market structures. Recently, however, the presumed largeexternal benefits to education, especially post-secondary education, are beingvigorously challenged in the literature. (See Hansen and Weisbrod, 1969, I.)
Income Redistribution. Income distribution changes present a majorproblem in the estimation of-the benefits and.costs to an educational prograni.The issue is as follows: A given benefit-cost analysis must take as a given orconstant the distribution of income before a given educational program isimplemented since the distribution of income is a major determinant of prices,wages, interest rates and rents. However, the very purpose of educationalprograms, including vocational and manpower training programs, is to alter thedistribution of income in favor of some target population, such as youth, thedisadvantaged, blacks, or Appalachian 'coal miners. Thus, relative prices willchange if the program has any noticeable impact at all, and the problem becomesone of choosing which set of prices to use inevaluating the inVestment value ofthe program. The before and after states are non-comparable, especially if theprogram is a large one, such as a rutionwide expansion of cooperative vocationaleducation, area" vocational-technical schools, or two-year community orpost-secondary technical schools. Thus, the logical basis on which to make theinvestment judgment is lost.
27
. A less serious problem is the direct income redistribution effects which can ,
occur ai a result Of a even educational program. Thus, en. areavocational.technical School may flood a labor market with welders to the extentthat the increase in supply reduces the wage rate of the existing journeymenwelders in the market. This represents a capital loss to the existing journeymen-welders Who undertook the expenses of their training tioder-the_aupliption ofreceiving the . higher Wage rate necessary to yield them a profitable rate-of return .
on their investMent. An awareness of the impact of vocational programs on thesupply of skills results in craft unions not taking kindly to the attempt4of public .
,education officials to expand their apprenticeship programs motherwise traindeservins groups, such as blacks, in their skill areas, .
The Problem of Unemployment. Concerns such as the above existelienwhen there is full employment in 'the econOmy. When cylical or-deficient-demand employment' exists, the problem is Compounded mainly- beciUse theimplications of income redistribution become so much more direct. In situationsof less than full, employment due to deficient aggregate deinind, theie is alwaysthe very strong possibility .that a retrained worker from a manpOwer programwill simply displace an equally deserving worker who is not.tormally trained. .
Here, .the concern is not only one of income redistribution;bist" oneof the ,realizition that there inky be no net Increase in national product While valuableresources have been expended, thus resulting in a het loss for society and a gainfOr one group of individuals that may not even totally offset th . losses in welfare
. of the displaced group. (See Borus, 1966,111, where he terms this phenomenon. 'the "displacement effect.") Of course, even under full employment, if theie isincome redisjgbaition due to a program, one can, strictly speaking, .fluke no .
judgment as to whether social welfare has improved because of the change in thestructure of relative prices and the .theoretical inability to make interpersonalcomparisons among People concerning theif relative losses or gains of utility dueto the change. Where, then, .does this leave us? Possible income redistribution .
effects should be taken account of and measured. To date.no beneflt-cost study'does much more thin proiide lip service to this issue .
The existence of less than full employment compounds die. measurementproblems of beneilt.eost analysis in other ways.. For instance, as the level OfunemploymUnt as well as its distribution among occupational classei changes, .
the value of the embodied human capital represented by these acquired skillsamong .occupationil groups changes.-Thit no unique capital 'value for a giveit
exists. The expected capital value fluctuates for reasons, independent of anyfundamental underlying demand skill.
The question is, should One allow his measures of the value of human ...capital created by 'an educational program' reflect the 'Phenomenon Of cyclicalunemployment? From a private standpoint, earnings benefits as well as foregoneearnings should reflect unemployment experience. However, it is not certain thatthis type of adjUstment should be made for an estimation of' social Benefits orsocial opportunity costs: For 'the social . case, one wishes to. know whatalternatives were foregone in a real sense-what society amid hive produced. A'moment's reflection will indicate the arbitrarinesi Of making an adjustmeni foe...unemployment for society when yOu try to estinute social Opportunity costs of
28
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4
education in, say, 1932, as opposed to 1944. (See Bowman, 1966, p. 431, I; .
Haveran ind Krutilla, 1967,1.) Fiscal and monetary techniques exist for the useof government to control the level of...employment. A given educationalinvestment should not be made to reflect the vapries of a price level, or income
nd emPkiiment policy whose social and political impetus may have nothing todo with the educationA policy. .
An additional issue is linked with the-unemployment problem. With the. .
.existelice of, unemployment, the question arises as to which it a better measureof pMductivity-wage ratel Or earnings? It id contended thin wage rates are less
.to reflect the vagaries of unemployment and, hence, do not penalizeechicational programs due to the effeCts of fikal and monetary poliCies whichare irrelevant to the purpoees of OdUcation. In short, wage rates pre a more stahleMeasure of the productivity of educational investment than are earnings in an
/environment . of cycliCal unernploYment. ,Yet, to the extent Mt. wages are/ it flexible downward (end this is only slightly), they, too, will reflect the 'impact of
/ j. unemployment. To the ektent that they are not fleiible downward, the'validity' f wager as measures of productivity is brought into 'question. Thus, the use of
earnings becomes MOIC meaningful as a measure of relative prothktivity in laboimarkets characterized by sticky wilsaund structural UnemploymentOn such.
. markets a person may bndergo continuing. cycles Of employment and .
unemployment because his productivity is less than the wage rate at vihich-he ishired. Once it becomes apparent to the employer that a man's prodectivity ,is
less than his wage. rate, lie is laid off. Manpowet retraining can serve to increase aperson's productivity up to the point where it equals the going Wage rates,When
. this retrained person is compared, against a comparable person in a controlgroup, no difference in wage rates may be discerned, but the trainee will.experience more stable. employment and higher earnings. It would be incorrectto argue in such a case, is do Earl D. Main (1968, III) and David Sewell (1969,III), that there are, no necessary benefits to the training program since wage rateshave not risen.
In line with this general problem Of -Utiemployment is the problem ofestimating - the coits of foregone Wages in a 'labor market where structuralunemployment exists.
/' If unemployMent is tompletely structural, there are no opportunity costsduring the, training process. The worker cannot perform the existing jobs .z.t allwithout the refraining: Likewise, once ha is retrained, the structural assumptionimpfies that the person's entire earnings be ascribed to the benefits of the trainingprogram. ,flowever. as an empirical matter, it is difficult to accept theseassumpliont Niihich ascribe no opportunity costs during training' and treats thetotal amount of earnings efter training as. a benefit, In' the first case, the
bribmeni 4.1444 the trabieehad no economic alternatives before him. In the/ extreme, this' implies that' his marginal revenue product (productivity of a
/ margreskUnit of labor times the price of the marginal unit of labor's output) iszer0. Neici.,(by counting Ole entire wage bill as a benefit; one is assuming that thetrainee's' marginal revenue product was zero at the time he mitered training andthe probability of untained workers filling that job slot wis zero.
. 38
I.
,
0
However, "the evidence in all these retraining studies is that trainees didforego earnings since members, of a cOntrol group had earnings' daring the
' training period. Members of the control group got jobs in the same areas IItrainees Thus, a zero probability of employment in these jobs Ify both thetrainee and the control group does not exist. Therefore, it is incorrect, to treatthe entire posttraining wage as 'a benefit, or opportunity costs during retrainingas zerd. The reason is that no market is ever completely dominated by structuralunemployment.
In short, person's expected earnings are almost never zero even at highlevels of cyclical unemployment. Also, it is almOst never the case that purestructural unemployment exists. Unemployment will usually be a mixture of thetwo typesa mixture which cannot be theoretically or empirically untangled.
But what if there are high levels of cyclical unemployment? If a workerbegins retraining, he is eliminated for a time from the labor market. Theprobability. that remaining unemployed workers may now become employed isat least the san.. and may how be higher, since'the supply of labor in the marketis reduced. If the probability that rethaining workers in the labor force will beemployed increases such that the zero likelihood of employment by the workerbeing retrained is exactly compensated for, then no social opportunity costsexist in terms of foregone earnings. There has simply been an income.redistribution. However, private opportunity costs do exist for the worker beingretrained since a positive expectation of employment now becomes zero duringthe training process,.This is the "vacuum effect" of Borus (1966, Ili).
Practical Issues and Suggestions in the Measurement of Costs and Benefits
Identification of Costs under Conditions of Matching Grants. TheVocational Education Act of 1963 'and its Amendments as well as suchmanpower acts as the Economic Opportunity Act set up-conditions whereby thereceipt of federal funds is contingent on the establishment of matching shares orpartial cost sharing by the grant recipient.
Two broad problems exist when one attempts to measure the social costsof the Neighborhood Youth Corps' (NYC) program, vocational education orsimilar social legislation involving federal-local cost sharing provisions. The firstdeals with the problem of measuring the social value of the sponsor share whenthe social program may be only partially 'funded by federal monies. The secondproblem deals with federal reimbursement of the sponsor for the use of certainsponsor facilities. These are common issues in any matching grant case.
The Sponsor Share. The federal eipenditure represents an actual outlayfor the federal government and is a cosi to the federal government. HOWevtfrom the standpoint of social economic cost, there is some question as to thevalidity and accuracy of the cost measure of the sponsor share. There are three,problem involved here.
1) First, if the sponsor, often a school district, has excess physicalcapacity, the use of which is restricted to the school district, the cost tothe sponsor for using this excess capacity is zero up to the limit of thedesigned capacity.
30
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9
2) Second, if this restricted sponsor inpUt, such as a school building, isused to simultaneoutily produce both a sponsor output and an NYCoutput, the marginal cost of using that input fot the NYC Oroject is zero
.,,up to the limit of the designed capacity.3) Finally, even when there are no joint inputs or excess capacity,many of the inputs to the NYC program do nothave market pricesso- that the prices of theseinputs must be dstiniated 6r "shadow- priced."
The combined result of these three facttors is likely to be'an overstatementof true total costs to the combined government units (sponsor plus. federal) "aswell as an overstatement of total social cnsts. ShadOw pricing or price estimationand the joint cost problem are disCussed below.
. Federal Reimbursement for Sponsor Inputs. An issue separate from the 10percent sionsor share concerns the federal reimbursement of the iponsor for useof certain sponsor inputs, such as building space. Again, the three issues ofpossible excess capacity, joint putputs,. and shadow pricing arise.
' The problem is made more complex became cost to the federalgovernment is not necessarily the same as cost tuthe sponsorA rental paymentto a sponsor can be an overestimate of the true cost to the sponsor even thoughit might cost the federal government more to rent the same facilities 'on the openmarket. For instance, if a school system has excess classroom 'capacity, themarginal or extra ..cost f using' that excess capacity hi zero up to the limit ofdesigned capacity, as indicated above. If the federal govermnent doenot haveaccess ,to .that exceta capacity, it must pay 0 rent izi the market for comparablespace. Thul, the alternative cost to the federel government justifies the payrnentof a rent to the school system, even though the true marginal cost to the scheolsystem may be less than that rent. As long as the federal government paysschool system less or no more than it would have to pay in the market, then thispayment is ratiOnal from the standpoint of the federal. government. To theextent that the school system has excess capacity, it receives awindfall gain. Infact, since the federal government has not rented in the market but has rentedfrom the school dist rict, then, if excess capacity exisfs in the school district, someor part of the rental payment is a transfer payment and not a social comi Thus,it is reasoneole to assume that total federal costs may also overitate this portionof the social cost of the program. The same result would arise if 'the federalgovernment reimbursed a sponsor for the use of a joint input which was being
-employed to .produce sponsor output not associated with the educationalprograM in question as well ai to produce the program output itself.
Shadow hieing Even though the sponsor may be required by law tocontribute a certain percem uf the total cost of the program, the sponsor's-sharecan often be in the form of goods in. kind, whose market prices are thenestimated or "shadow-priced" in- negotiations between the local 'sponsor andfederal government officials. (See McKun in Chase, .1968, I.) The federalregulations are not very explicit about procedures for this shadow pricing. (SeeFederal Procurement Regulations, 1968, pp. 1501-1520, 1.) Thus,, considerable
1A trinsfeipayment is defined as a payment for which no compensating service hasbeen rendered. Its effect is to redistribute income.
49 31
.arbitrarintis can creep into the estiMate of the sponger's shi:e. And, file not atall inconeeivable tiat different shadOw prices could .be'attached le the same setof real resources being used in diffulmt projects across the nation aven thoughthe opportunity Cost in each location could, conceivably, be the same.
Table. 2 indiCafes the range of price estimates on iiiagarbom space whichcciared in" the establishment of the rusource value Of Ilse Sponsor's share of
Neighborhood Youih Corps (NYC) project operation in the greater LOB Angeles'area. The estimates ramp from $1.60 per day per classroCom tó S40 Per day perclassroom. The General Accounting :Office felt that a figure of $5,25 per day.per . classroom would be Most reuonable; based On a 2fiday month: (See ..COmpiroller General's Report, 1968, pp. 3941, 11E)
TABLE 2
DIFFERENTIAL SHADOW FMCS ESTIMATES OF fit VALUE OF. CLASSROOM SFACE, GREATER LOS ANGELES AREA
° . EdscatioralOrepnizatku
Rote Pee DayPee arum
Los Angeles Unified School District $10, $34, and $40Los Angeles County SchoOl Districts*:
Willowbrook School pistricts $6 and $9° Compton City School Districts $5 .
Compton Union High School District.
$1.60 -.
Arehdiocese of Los Angeles . $3.60 and $6U.S. General Accounting Office. $5.50.
Source: Comptroller General's Report to the Conte's, ReWevi Of the Connomnity ActionFromm In the Los Angeles Ares Under the'Econonk Opportunq Act,. OffiCe of
. Economia OpportUnity, II-162865. March 11; 1968, p. 40.
, Because of these differences in estimates of shadow/ prices, the readtingdifferences. in estimates of total attributed costs can be large. For instance, for'two NYC projects. in the Los Angeles alba, the Government Accounting OffiCe'sestiriaate. of total value of contributed Classroom space was $318,309 While the
. estimate of the Los Angelei Unified School District was $1,048,500, a differenceof $730,191. (See Comptroller General's Report, 1968, p. 41,
: It is not clear what ..the reMlutioi .of this incomistency .misItt be, sincethese school inputs have no comparable market inPuti upon which to get a more
. valid economic.MenUre Of COIL
Three possible treatments for Valuing this capital exist First, one Can-arpse that once the capital stock exists, especially the physical plant andbuildinp, it becoines specific to the educational . process and thus has noalternative use. In this case,' soeial Capital costs would be 'zero in the that mn,since no opportunity cost is iMolved.in their use for a cohort a/students whouse the capital after the decision wai made to create the school. This is k tenuous
32:
e
assumption, though, for it is easy to discOver alternative uses for such capital;"'stock. Thui, the value of the edecational physical plant is not zero in competinguses, but since it is hot a perfect su5stitute for these coMpeting uses,, the markethie of the competing.uses does not exactly reflect the opportunity cost ofusing the non-renovated physical. plant for educational purposes. Hone went tothe market io price the vahie of the non-renovated educational plant in terms ofits potential value as a hospital simply by observing what the value of a hospitalttas, the value would be overstated. Thus, the value .is not zero, bet itie less thanthe apparent value of alternatives since, without renovation, it 'is not a perfectsubstitute. And, even with renovation, such faCtors asolocation, Which cannot bechanged, continue tO exist and affect the degree of substitutability, thus forcingone to further adjust the implied opportunity costs.
ond, historical costs of be4d1ng construction and site acquisitioM canbe. use but these historical costs are essentially irrelevant since they have neinecessa bearing on the present opportunity costs involved in using the cspitalstock in estion. They °do not reveal the'current, economic value of-the capitalresource. urrent economic value could be less than, equal to, or greater thanhistorical ost.
z. Third, the use of replacement costs is a possibility in the attempt tomeasure capital ostr,. However, it is obiious that in many .cases it Would costmore to exactly replace a building than the building is currently .worth ineconomic terms. The use of replacement costs would over-value the capitalresource, given a rising price level and assuMinsg-no compensating technologicalchanyes in construction technique. .
In short, it is not Obvious what 'price* resulting among these three choicesshould be attached to the capital inputs to gee a momure of the Opportunitycosts. None of the above is correct in a pure theoretica1sense.
The &pita! Recovery 'Factor. Even if. the true economic value* of thecapital resources in use has been measured, the problem still remains as to theMeasurement of the rate at which the given capitil stock is used up over thecourse of the investment process 'when more than one 'cohort of studenisemploys the capitalstock. Two courses of action have, been suggested for tese.One is to attempt tO measure an imputed rent ind depreciation to. the capitalstock by making analogies with respeci to what arnount of rent (i.e., return onthe 'capital investment) the capital item would yield if it were being employed inthe private sector Of the economy. SOMe estimate Of depreciation is added tothis. BM such's. technique is subject to a great deal of arbitrariness anduncertainty.(See Corazzini, 1966, 11.) Legal rules for depreciation alloWances donot reflect economic reilities.:-
In order tO get a measure of the rental oppertunity cost, it is necessary togo, to the market place and attempt to identify capital resOurces which representalternatives to the resources employedin the educational process. This will allowone to determine thevalue of foregone Oternatives. But, again, .any impined rentbased. on market observations inn Most Rely. overstate the value of the capitalresOurees which are. already cOmmitted tn education. Thlts,..a great deal ofjudynent is involved in adjtisting the observed markee prices so that theV moreclosely reflect the true opportunity costs.
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it An alternative technique for estimating the rate of capital use lies inemploying the "capital recovery factor" (CRF). The application of thistechnique automatically accounts for both rent (interest) and depreciation.
The capital recovery factor is thai factor which " .. when multiplied bythe present value of capital costs, is the level (average) end-of-year annualamount over the life of the project necessary to pay interest mend recover the.capital costs in full" (Hirshleifer, et aL, 1960, I. Chapter VII).
The formals is as follows:Coi (l + 0 n
c e(1+011-.1
where c is the capital. recovery factor (annual level capital cost); Co is thepresent value of capital in use; i is the social opportunity cost rate Of capitdinvestMent fundt;. and n is the number of years Over which benefits (of thecapital in question) are -returned, that is, the, project life. Insome respects, thistechnique is \no less arbitrary than that which imputes rent, ad depreciation.Apart from the problem of establishing the present value of the capita in use,essentially arbitrary judgments must be mode with respect to the values of n andL In addition, the rite of capital use is projected as a conitant annual amount,whereis the true rate .of capital use is quite likely to vary over time. This,. Ofcourse; can create a bias in one's estimate of present value or rate of return.
. Joint Costs. In atidltion to the thadow pricing problem, it is clear thatmuch of the sponsor input into an educational program is really of the nature of*a joint cost or joint input. The school physical plant is a case in point. In suchsituations, the input is being used to produce simultaneously two or moreseparate outputs. For instance, space lila currently operating school may becontributed to house the staff of a newly :established,- federally . supportedprogram. The total cost Of o pe ra ting . the phydcal. plant of the school it Olenprorated among the varioul outputs, including the new program; yet, it may catno more to operate. the physical plant after the presence of the new.programthan it did before. .,
Two types of overestimation of costs can' enter' the .analysii. First, apositive price may be put on in-kind resources contributed by the sponsor as itsshare Of project costs when, in fact, the marlinsl cost of this resource use maybe zero. This results in an upward bia in the estimate of sponsor share cost.
..Second, when the federal govenThiinburses a sponsor for indirect costs,the reiource input in question may be a joint input, thus resulting in an upwardbias in the measure of economic costs of the program in question as distinctfrom accounting or financial costs of the federal -government. This lattersituation is not unlikely.
-The problem of joint costs affects the Walk-cost analyisis in twO ways.First; as is discussed below, there is no non-edgy-Ay measure of total cost andaway cost. Since we often will not know what judgments may have been madewhen the sponsors prorated joint costs, one has to.accept whatever upward biasis present in the total costs reported for the. Sponsor share a well as in thefederally reimbursed sponsor ,costi. This situation exists for the measure Ofmarginal cost also; however, the conceptual, Problem of proration is handleddifferently.
.34
Issues in Prorating Joint Costs. There are two points of view with respectto the problem of proration when marginal benefitcost cOmparisonsare being'made. The first advises against prorating. The second argues that proration ispossible. The first . point of view is supporied by such persons as Hitch andMcKean (1965, 1) and Enthoven (in Hitch and McKean, 1965, 1). They arguethat the existence of joint costs does not effect the determination of marginalcosts, and, since efficient investment decisions among two or More alternative .
programs are made on the basis of marginal costs, the 'pretence of joint cosispresents no balk problems for benefitcost analysis. Not only is joint costallocation necessarily arbitrary in nature, it is not needed, given the emphasis on.marginal costs. True marginal costs are zero. When joint costs occur and involvetwo or more programs. or 'outputs, the -total 'cost of the set of programs or
r, outputs can be measured. Then the combined total discounted benefits of the setof programs or Outputs should equal or exceed their combined total discountedcosts. BUt total average costs of each of the twO programs simply cannot bemeasured in any non-arbitrary economic sense. This is no real loss; though, sinceto repeat, investment decisions among tio or more coiniseting proyams are cor-reedy made on the baiis of marginal and not average cost and benefit comparisons.
Within very broad limits joint inputs are similar to what is, known ineconomic analysis as public good. Just as the benefits from a public good, suchal national defense, ae pervasive and need not be rationed Of allocated. on anindividual basis amoArg comumers (since one person's consuinption does nodiminish the cosmn4tlon of that' sime good by other consumers), so, tcio, ajoint input need no be allocated among the. outputs stemming from it becauseeach output can u the jointinpot without limiting the use of the input by allother outputs.. major problem here is that, except for such services asnational defense, is very difficult, to identify a pure public good. A seCondaryproblem ip that the production 'process should be operating below capacity kir :
. the statement abtve to hold.
The argument for proration .hal been' advance4 recently by K. L. Weil(1968, pp% 1342.1345, 1; also, Judy in 'Somers and pod,1969,111). Given ajoint input, X, such as die physical plant of a achodistrlct which, along.withgeneral outputs, produces the output of a federI1y supported program, theargument for proration goes 'as Estims the 'total demand and themarginal revenues for each of the outputs in question. The marginal rankles ofeach' of the outputs in question are then used to silicate the joint casts. The sumof the marginal revenues for the outputs in question must equal the price of thejoint input. Thus, the cost of the joint input is allocated to each output according toits relative share of marginal revenue. The allocation of costs in this example willdepend to a large' extent on "the conditions of demand for each of the outputs of
. the school district in -question. Thus, for an identical production techniqueoccurring in two markets withl1fferen1 demands for the outputs in question,different allocations of joint costs could occur.
The major 'problem with implementing 'this technique is that. it isextremely difficult to estimate demand Curves for goods and services especiallyquasi-public goods like educationand it is even more diffiCult to identify
4.1 35
Vo
specific points on these curves. Thus, the operational practicality of thetechnique is questionable, given the current state of the art.
The controversy over allocating joint costs has not yet been resolved, butthe author of the present cost-effectiveness study tends to agree that joint costsshould not be prorated, even though a pure joint input, like a pure public good,is difficult to find in-actual practice.
Finally,- to the extent that previously existing physical facilities are beingused,. these can be treated as "sunk" costs from society's standpoint. As such,their cost in use for the new program is zero if they have no alternative use. Inshort, in terns of clarity of the cost concept, the federal share is less ambiguOusof the two major cost componentsfederal and sponsor. And, the federal sharemay be closer representation of true social economic costsI 1:' e an sponsor re combined.
Cost Issues with Wage Payments in Manpower Programs. The NYCprogram, the Job Corps and cooperative vocational education are Of specialinterest to . this analysis due to the special problens created by theWate that isreceived by the program participant. Total costs Ihould be increaied to theextent that the-time of the program participant is undervalued by the war ratehe receives. That is, if, on the average, a student could earn more at 'some jobother than his job with the NYC or Job Corps,then the difference between the.two earnings would need to be added to total social costi to get a true measurepf total foregone opportunities. Likewise, if this petiole would earn leu on a job
. other than the job on the manpower program, the difference between the two isa transfer payment in favor of the varticipant. and should be subtracted from thetotal social cost measure.
In this reprd, transfer payments, which simply redistribute income amongpoups, ire not considered social costi. It is hi- the nature of a transfer paymentthat what is given up by one individual or social group is, in turn, gained by adifferent individual or social group, b that, ignoring the problem ofinterpersonal comparison* Utility or .the capacity to enjoy .economic goodsand services, there is no net cmi of welfare within society at a whole.
The use of the total war payment to the prograra participant as a costprobably overstatei truesocial .cost..lf-a program is desired, to provide incometo young persons who otherwise would be in:the libov force,butiould remaintotally or :partially- unemployet4 then some of the payment to them is a transferpayment. Indeed, if could be assumed that' the NYC, or the Job Corps program isnot fulfilling its function unless the typical participant would hats been earning.less without the manpower job. This difference oiler and above what theparticipant could have earned is not an opportunity cost to him; .
On the other hand, the snimporr program participant is making somecontribution to social benefits; since it is unlikely that his productivity is zero.Since he is contributing to social outiiit, this benefit should be added to theother benefiti of the program,'in order to balance the benefitaost ledger.
Problens similar' to the above miist in treating the war payment in amanpower program as a private opportunity cost.2 First, ec o n om ic theory
.
2i am indebted to Thoiess Ribich for einificetion of the issues discussed in thas ar4 .the previous section.
36
would argue that the costs of participating in . the program are the cosn offoregone leisure. The earnings of the participant represent his cost ofparticipeting in the program. However, the wage payment, in turn, is a benefitand must also be added to the benefit side of the ledger. Thus, if the participantincurred no other cost or benefit, his private benefit-cost ratio would be equal toone.
Anothe? problem arises if the program is providing earnings which theparticipant otherwise would not bye earned due to involuntary unemploymentor the receipt of a lower wage rate in the market. In this case, if the programearnings are equal to or greater than the earnings one could receive in themarket, then the foregone earnings resulting from participation in the programare zero or negative. Negative foregone earnings are a benefit which must beadded to the benefit side of the benefit.cost ledger.
Finally, there is the possibiliiy that some of the participants may earn lessin the program than they coUld have in !. the market. In- such a caie, privateopportunity costs are understated. However, the overall presumptiOn is thatprivate costs are overstated or, what amounts to the same thing, private benefitsare understated.
To determine -if the manpower program wage is an over- or under- estimateof the foregone earnings of the participant,, one could Aiwal to earningsmeasures for this age group reported in the census. However, at least two pointsought to be Made. First, these participants are different from those reported inthe census, since, apparently, some proportion of the program participantswouid either have been chronically unemployed Or not in the labor force in theabsence of the program. Second, coneeptually, a relatively large influx of youngpersons into the labor mrket should lower the earnings of this group relatiie tothe average eimings reported in the census. Thug 'use of Census data wouldresult in an upward. bias. Of Course, this problem is even more serious when oneintends to measure foregone earninp to- the primary and secondary :schoolpopulation in general. Nor does it help to indicate that child labor laws prohibitthe employment of much of this group, for such laws, having been passed, canbe repealed. Experiments hi cooperative vocational education of 14 and .15 yearolds are in progress even at this moment under an experimental programoperated by the Bureau of Labor Standatdi, entitled the Work Experience andCareer ExploratiOn .Progrim. Should it prove to .be a success, one couldanticipate increasing numbers of 14 and 15 year olds in the labor market.
. The Extrepolation Of Benefits. A major problem in benefit-cost analysis isthe determination of the length of thne which benefits extend into the fature aswell as the shape of this benefit stream. Average benefit -streams for varioustypes of educational benefits simply. are not known with- any .precision. Mostbenefit-cost Studies of nunpower prcigrams have .only i few, months to one ortwo years as a followup period after training.'The benefits to, vcicational andtechnical education t have been variously estimated as continuing for six to 10years before vanishing (Hu, et aL, 1969,11; and Eninger, 1965;11). The masersfor this are unclear. One possibility is that general and college preparatorygraduates acquire more .on-the-job training after leaving high school than dovocational graduates, though this has 'not yet been verified. Another possibflitV is
4E--
37
that the more general flexible nature of the general and college preparatoryeducation allows the Sampling of a group of jobs which, on the average, have agieiter earnings growth progression. Vocational graduates may enter their jobs at .wage rates closer to their peak lifetime earnings than do students-in competing.curriculuins. Finally, the option valuethe- degree to. which a given level ofeducation allows access to additional formal or on-the-job trainingmay behigher for the general and iollege preparatoricurriculum. All these are possibleanswers, but the reasons, for the converging earnings time profiles .5611 have notbeen fully investigated.
In the absence of any precision concerning earnings profdes, the bestcourse is to employ sensitivity analysis to estimate the range of effects underdifferent assumptions concerning_mningi profdes. Borus. and Tash (1970. 1)propose a usettur sensitivity matrix which allows for variations in the growth.ofthe. earnings profile at negative, zero and positive rates as well as benefit streamswhich last for a short,, medium and lifetime earning period. This ii ate best'solution to the problem at this point., But, 'it leaves one with a variety of,estimates, no one of which is clearly a measure of the true value.
.
The Probleni of the Control Group. A final iasue in the measurement ofcosts and benefiti deals with, the use of control groups. Ideally, the' controlgroup should code from the samepopulation as the experimental group. Datashould be collected for both groups .on such things as' sociodemographiccharacteristics, program inputi, and program outputs, both before, during, andafter the program 'treatment. As a practical matter, though, %hi is almost neverdone. The study of the in-school Neighborhood Youth Corps in Cincinnati byGerald Robin (1969,111) is an exception to this statement.
Moat studies of 'educational ,and manpoler programe are retrospective innature and hence -must generate a control group after the fact. 'Two generalapproaches hare been used. The first is simply to compare the experiencesprogram participants had before the program with experiences they. hid aftertheprogram. The second method-Is to attempt to develoP a comparable group of,persons who have never had the treatment to serve ai a basis for comparison.
With the before/after comparison, one is troubled by .the fact that changesother -than the treatment occur over time which' can affect the:measure ofprogram outcomes. By their very nature, it is difficult to control for -thesefactors. For instance, given that earnings aid employment ire a measure ofoutcome, one will get biased results If the pre-, during, and post-programmeasurement periods extend over a business cycle..On what bads .do you adjustwages and 'employment, up or down to reflect a full employnieht level ofemploymentand earnings for theixperimental group over the study period?
Before/afteiCOmpirisons can distort one's measures of costs and benefitsin other ways. Figure 5 shows thelefore/after earnings prOfile Of a person whowas structurally unemployed but who then took retraining. Ideally, what onewishes to measure as a benefit is the area Under:the curves bounded by P1, P3,P2, Ps.. This cannot be done, since, ante the penion takes training; the linesegnent PIP2 is no longer observable. Thus, a possible stiategy to rt a measure'.of earnings change is to compare earningt et the time of entrance to .theprogram, . t1, with* the 'profile' of earnings after the program'. As can be seen, .
.38
* FIGURE 5HYPOTHETICAL BEFORE/AFTER EARNINGS PROFILE OF STRUCIVRALLY
\ UNEMPLOYED MANPOWER TRAINEE
Earnings Profile,with Training
1_t2
t3
P4
Earningi'Profilewithout Training
-
Time
however, the result will be to measure negative benefits to the trainees. This isnot an unlikely result when you are dealing with workers in high wage industries,such ai West Virginia ccial miners who become technologically displaced andstructurally unemployed rather abruptly. Another, stratea would be to estimatethe slope of the line bap1, extrapolate it, to P3 and subtract this earningsprojection froM the line segment P1P3. This will result in positive benefits, but aconsiderable understatement. A third alternative would be to estimate the slopeof the curve b2P1t2 and subtraCt this difference from the curve P1P3P4. This willresult in an overstatement of benefits, since the earnings profile has an inflectionpoint (it changes direction of slope) at Point Ps. Thus, none of these alternativesis very satisfactory.,
Hardin and Bonn (1969, III) exp.imented with their Michigan retrainingdata and found the pins from retraining were $1,524 using a before/after
'method; when using a control group, the pins Were only $216 in the 365-dayperiod after traininga difference . by i factor of 'more than seven. Thus,depending where one begins his before/after estimation on the time .profile ofincome, serious under- Of over-estimates of benefiti can occur..
However, serious problems also exist in the absence of a true exPerimentalstudy model where the experimental and Control groups are selected beforetreatment from a similar population of subjects. Manpower training benefit-cost
. 4839
studies have variously used program dropouts, unemployed or underemployedregistrants at employment security offices, and eligible, persons who wereaccepted Into the program but who did not partkipate. Although mostsociodemographic characteristics can be controlled for, the persistent problem ofself-ielection into the program remains to bias results. No technique thul far hasbeen too successful in controlling for Such bias,. thou* the estimation of a
'..discriminani *function is a help. A discriminant function permits an estimate ofthe' probibbity*f a person who is included in the, control group being a member
--ef the experimental 'group. One general statistical estiMatieon technique for thediscriminant . function. is :known as probit analysis. (Sa Laumann, 1965,Some rs,*.$tronwdorfer, 1970,111.)
V&. tional and technical education presents a particularly difficultproblem when one seek.; to develop a meaningful control group. Generally,participants-kr-vocational or technical programs' are compared against those inthe general oi callege preparatory cunicUlum. However, there exists afundamental problem in that all these groups do not come from the samepopulation of students. It can be expected that each of these persons will place adifferent weight on earnings, job status, the value of additional collegeeducation, and other factors associated% with 'the multiple outcomes ofeducation. Generally,, these relative weight!. are nOt known. Thu's, foi,instance, if
' wage' rates or earnings: are used is i simpls index of program benefits, a bias canresult. If vocational 'graduates place lesi emphasis on job status and moreemphasis on earnings than from the standpoint of,' say, college preparatorystudents whose emphasis may be the reverse, benefits to vocational educationmay be overestimated, Due to the fact that the different types of students areattempting to maximize different sets of satisfactions (or utility functions),there is, as yet, an unresolvable problem with the Use of these types ofcurriculums as control or comparisoh groups with vocational or technicalgraduates.
. Sammy; All costs, regardless of their institutional, form or *oblong; ofmeasurement, are opportwaitY att.:. As such, they repreient the value of thenut best alternative to which funds could be put were they not expended onvocational or manpower training.
Benefits. are the opposite of costs, and rePreaent opportunities gained as aresult of undertaking a partkular activity. .
A variety of conceptual end measurement problems faces the -analysis ofeducational investment in human beings. These are the following:
1) Earnings maximization versus utgity meximization;Complementarity in production and consumption;
3) Joint costs of production, consumption and investment;4) Non-market production and consumption; .
5) .Impact of education on values and preferences;:Risk; . . .
7) Complementarity, .subs6tutability, and inseparability of huminskills;
40 .
7"--
49
1
,
8) External effects;9) Income redisizibution effects;10) The influence of unemployment on the determination of costs and
benefits; and11) The problem of the control group.
Briefly, these. problemeaffect the analysis as follOws:Benefit-cost analylis slould measure the increase in welfare or utility due
to an educational program. No direct Measures of utility are poesible. Earnings. .
and other measures Of program effect therefore become indices of utility.bitalways IlleallUre it imperfectly. . .
. Education and training create simultaneous production-and consumptionbenefits. The latter are extiemely 'difficult to measure and have not been as yet.The result is to underestimate the benefits to education.
Many educational inpUts, such as a school building, simultaneously Createmore than one output. Such inputs are known es joint inputs": An unresolveddebate, haMpered by severe measurement problems, exists over the advisabilityof proration of these input costs. Hitch, McKean and Enthoven argue that thetrue igrginal cost in a joint input situation is zero for each of the outputsproduced. Each output uses the input without detracting from the ability ofother outputs to employ it, at least up to the &signed capacity of the input..Thus, the Marginal coet is Zero. Weil argues that joint costs should be prorated inaccordance with the relative degree to which the outputs produced by them addto total. benefits. But this requires the estimation of demand cUrves for thevarious outputs in question. Statistical estimation of, demand is very difficult todo, especially for quasi-public goods like education. ,
The failure to measure non-market production and consumption, whichmay be a very large component of benefit to education and training, mayseriously understate total benefits.
Changes in values, tastes' or preferences ducto the act of education ortraining alter the structure of relative pricei and hence the measure of costs andbenefits to any educational investment. Costs may no longer be measured on thesame basis at benefits, since the structure of relative prices before and during theiniestim.t will be different after the investment..This is a crucial point, since.. one, of the purposes of investment in education is to change noneconomicbehavior.
Risk and the finiteness Of human life; linked with the fact that usuallyonly one particular type of investment can be undertaken by a human at.a time(that is, training as a doctor precludes simultaneous training as a butcher), causedifficult policy' problems concerning.: the, type. of .educatioa to beprovided-specific or reneraland the realtive lengths of' time this educationshould continue. Partial solutionto the high ochool dropout problem hinges ofiappropriate analysis of these factors.
!
Investments in human beIngs Ire complementary and cannothe separatedfrom the human agent hi- whirl:they are 'embodied. Since a person undertaket aseries of investments over, time, it is difficult to empirically 'sort out the net.effect of any given educational immstment on human performance and welfare.Apparently, for instance, the more -education one gets, the greater is his
41
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opportunity to pin on-the-job training. Any measUrement of benefits to theoriginal education over time must adjust for the existence of this on-the-jobtraining. Also, to what extent should the original training and the on-the-jobtraining which it enables be considered the same or separate investments?
External effects are either costs or benefits created by an economic actwhich affect the EC0110111iC behavior of second or, third parties but which are nottaken into economic consideration by the person or persons originally causingthem. Such effects are difficult to account for since they often do not occur inan institutional setting *here prices can be sniped directly to them.
Education is also asserted to provide considerable external benefits, but, atleast at the post-secondary level, this has recently been strongly challenged byWeisbrod and Hansen, among others. To the extent that such external effects dooccur, hoWever, they should be measured. Few studies have attempted even apartial measure to date. What is the exact value to a given perion dueto the factthat all 'other persons in the 'society are literate? Ifow can this effect bemeasured? .
Changes in the distribution of income cause problems similar to *thosedisciiiiiiiiinder changes in values,- tastes and prefezences. In addition; it is notnecessarily the case that a dollar of income taken from one person and given toanother luts no net effect on total social welfare. It is .quite possible that eachvalues the utility of the dollar gained or lost differently. This is especially aserious problem in evaluating the benefits of manpower training Whezt, given the .
-existence of cyclical unemployment, the placement Of a trainee in a job may,mean a non-trainee has been displaced from it. The pin of the one man iscancelled in whole or part by the !Ms of the other. Also, educational programs .
financed by taies imply the existence of transfer payments from the non-schoolto the school population. How does one evaluate the impact of these transfers onsocial welfare and, hence, on social costs? No benefit-cost study in secondary'orpost-secondary vocatiOnal *cation or manpower training has attempted to 'quantify these effects.
Unemployment is defined as either cyclical or fractional. Cyclicalunemployment is due to a lack of demand hi the economy. Structuralunemployment is simply long-duration fractional unemployment, where, for anynumber of . reasons, the available jobs in a labor market do not . match theavailable skills.
The existence of cyclical unemployMent creates problems of measurementin both Costs and benefrts. These are described as "vacuum" and "displacement"effects by Borus and represent cost of benefit biases due to changes in theincome' distribution brought about thiough the dinamics of Manpower trainingor similar' programs.lhe existence of structural unemployment does not causethese income transfers to occur.
The calculation of social and governmental benefits under conditionswhere federal monies are matched by local goveniment contributidna causessevere problems of measurenent of the value of social costs. Often the sponsorinputs are donated in-kind :ind their prices must be estimated or shidow-prieed.
. The local inputs may repres-lit the use. of existing excess capacity. Which, for avariety of institutional reasons, may have no noneducational purpose. Thus, thetrue social cost of the use of these inputs may be very low or even zero. Finally,
42 _ 51
.
. 0
the lotai sponsor, school or district,may be employing its resources to producejointly two programs, one oPiahich is partially lupported by federal monies' andone which is not. With 'such &joint input, there is no unambiguous theoreticalguidance on how thii joint input should be prorated. While the argument isunresolved, it is almost certain that:prorating the costs of a school's commonlyused physical plant on the basis of square feet ri student or some otherarbitrary rule lends bias to the estimate of average and total cost.
Before/after comparisons If program effects are inferior te those based onthe use of a properly selected, control voup. The choice of a control group touse depends On the, purpose of the analysis. Different control group comparisonstell different thinv about a program. For some purposeilt is desirable to useonly academic -or general students as a control for yOcational students. For othercomparison, one May wish to *use the student body of' a comprehensive high.school. One will get different results for a manpower trainfng program if hedesignates dropouts as the control group as diitinct from a random sample of theunemployed or those eligible who did not enter a program.
It is not commonly understood that observations on variables for thecontrol and experimental groups should be taken both before, .during and after.the training process. It would be too harsh to suagest that the use of a controlgroup is not fully appreciated, but, certainly .once the: control group is.designated, the sample units froin.,it should be selected randomly. This fact isOften not appreciated, thOugh departures from random selection are, of course,necessary if one wishes to pick a judgment sample for a very specific purpose.Under such conditiOns, however, the narrow purpose's of such a methodologshould clearly be recognized.
e
.
A REVIEW AND SYNTHESIS OF BENEFIT-COSTAND COSTEFFEC11VENESS STUDIES
7..
There are hundreds of studies, papers, reports and monographs 'whichattempt to evaluate ,;vocitional, technical., and manpower 'training- prograni.Some insights, can be pined from most of these: However,telatively few studiesexist which deal...ace:shrilly with the investMent aspects of such educationalactivity...This chapter provides a'. summary of- nost-effectiveness analysis ofseCOndary . and postiecondary. vocational-techriicil, education as . well as an'analysis 'Of two-year junior college education. Where similarities among the'populations served wasraht it, the aboye three .. types of erfircation- will be -compared :in economic inveitment . tem-. with selected Federal government .
manpower props= such as the MDTA; JOBS, Job Corpi or the NYC. Theobjectives of the various maripoWer programs,. at well as the poilulation each iii4Pintended to serve, ire displayed in. Table 3. Characteristias .of the 'actual -.
. populations served are displayedin Table.4. . .
. When. treating 'these various programs as 'substitutes for each other, one,. should note that4l4uperficial sinilarltles amOna the ponplaiions they serve
obscure some' vei§ significant dissimilarities. For instance; those served by theMDTA and those served. by vocptional education 'will differ in tern' of age,family life cycle, the opportunity costs (4regone war) they bear While being
. trained, quality and quantity of prior edUation, and o significantcharacteristics. These two propams 'carort be thought of bstitutes,for each ether. For another contrast NYC is beim ref en..16 and 17'year-old high school dropouts: The groupie clearly diff t fromihe.personsgenerally served .by the. institUtionikMDTA. The,MDTA mirror maynot be high school droPouts, and Over 85 percentof them 19 years d or.older. Finally; the in-school NYC is a rather imperfect mbetitute rative,vocational education-some would argue it is no substitute at all. .
Table 4 shows how the clientele of the varioir programs diffei in broadterm. Vocational education is a program which largely ..serves-white youths,both Males and females. The MDTA programa serve mainly whites and are adult
. .
programs.-The JOB Corps,. and JOBS program servemainly black Males with theJOB Corps concentrating on youths while JOBS concentrates on adults. TheConCentrated Employment .Program (cEr) mainly concentrates on black adults,while Operation Mainstream serves mainly white adults': The NYC Programa areevenly divided between whites and blacks and concMtrite on youths.
Thus, one should take care in awning that all 'them-programa are closesubstitutes for each other: Data on other socioeconomic of sociedemographic
odds/ 1111-
TABLE 3OBJECTIVES AND POPULATION TO BE SERVED FOR
, SELECTED FEDERAL MANPOWER PROGRAMS
rProgram andDate Started
Objectives! and. Services
. PopulationServed2
Concentrated Employ- Coordinated program ofment Program (CEP) manpower and suppor7May, 1967 tive services
Hardcore, unemployedyouths and adults in se- .
lected areas where they areconcentrated
Job Corps Resideatial program of- Low income, disadvan-January, 1965 intensive education, skill taged youth 16 to 21 years
training and related of ageservices
Job opportunities in the Uses private industry to Hardcore unemployed 18Business Sector (JOBS) hire, train, retain and up- years of age and overMarch, 1968 grade the program popu-, -
*. lation .
MDTA Institutional and Provides occupational Unemployed and underem-On-the-Job Training, training or retraining employed persona 16 yearsAugust, 1962 a claaroom setting or of age and over, two-thirds .
instruction combined of which must be disad-With supervised work at vantagedthe lob site under con-tracts with private andpublic employers
Neighborhood Youth Job preparation through DiSadvantaged youth ofCorps (NYC) Out-of- paid work experierre high school age (14-21).School, January, 1965 with remedial services Nevidesign of out-of-school
NYC limits population to16-17-Year-old dropout&
Vocational Education Full-or part-time voca- Youth or adults, in or1917 tiaital training, primatily out of public schools.
m a classroom setting to New emphasis on poorreduce the flow of un- .and disadvantaged*skilled or ill-preparedyouth into the labormarket
Notes:1 Fot 1 of these programs, the major objective is to upgrade or provide occupational skills
tha ill be of value in the labor market. Each program cites additional objectives, someof ch are economic in nature and some of which are psychological or social in nature;
0 but the major goal of each of these programs is to enhance the earnings and employmentof the group served. .
2 "Disadvantaged" means poor, not having suitible employnient and either (a) a scholdropout (b) a member of a minority,'(c) under 22 years of age, (d) 45 years of ase 0Eover, or (e) handicapped.
54
Source: . . Department of Labor, Menpower Repat of the President, karch,1970,Appendix A: "Guide to Federally Assisted Manpwer Training f:it.d SupportPrograms."
characteristics would likely show even greater dissimilarities. Thus, thepopulations served do differ. a great deal. For this reason it is not likely that thevograms are close substitutes since, although teaching technology may besini1ar that is, the same concepts, etc. are needed to teach machine shop inMDTA institutional as in secondary voc;tional jeducation, other institutionalfaCtors surrounding the teaChing process and .Aich affect the process, maydiffer and may also be needed to serve tW: particular groups.
Likewise, one should not strongly generalize that manpower training servesas a '"remedial" program for the "mistakes" of secondary vocationalcomprehensive education. The great disparity in the age/ distributions as well asrace indicates that significant cultural, social and econoriric factors can intervenebetween the time one leaves high sChool and the five, 10 or 15 years or so laterwhen he may take manpower training. Such changes may occur and do occurthat no educational planner in high school it even likely to be able to anticipate.
Next, one should be aware that the benefit-cost studies summarized herere por t only monetary economic costs and benefits or reductions inunemPloyment. They do not account for nonmonetary economic costs Ofbenefits, or benefits such as job satisfaction. However, for a fairly narrowinvestment analysis the monetary measures are considered to subsume the majorportion of all costs and benefits.
It is also important to note that each of theSe studies, 'uses .differentmethOdologies; for instance, 'each contiolsfor ,different sociodemographic
°variables and some studies use different control groups. Several studies use nocontrol group at all but rely on before/after comparisons. The tables reveal someof these d Terences in methodologies. While different concepts of cost or benefitcan be and were adjusted for, the basic methodologies underlying the studiescannot be changed. Hence, this analysis is a summary statement of what hasbeen done but, to some extent, the studies are not comparable, even whenpopulations served are the same.
The remainder of the chapter is organized as follows. Fint, the majorbenefit-cost studies will be analyzed in broad terms.. Secondaryvocational-technical education will be compared in investment terns withselec4sd secondary education alternatives, such as graduation from acomprehensive high school. Then, post-secondary vocational technicat educationand-two-year junior collee:c will be analyzed. Finally, the manpower programswill be analyzed in the same terms, starting with MDTA, then Job Corps, NYC,JOBS, and CEP.
Second, the impact of the programs on various sock lemographic groupsare considered. Only limited benefit-cost analysis is pre4nted he;e , though someof the data are previously unpublished.
Third, the earnings and employment benefits of program areas and skillsare presented. Most of the analysis in these three sections relys heavily onmultiple regression analysis to estimate net program effects.
47
.tn:r
wro
rsrq
tycv
l.cr-
A.,.
..
TA
BL
E 4
STU
DE
NT
CH
AR
AC
TE
RIS
I1C
S B
Y R
AC
E, S
EX
, AG
E A
ND
PR
OG
RA
MIN
PE
RC
EN
T, 1
969*
**
,
-
_
Voc
atio
naE
duca
tion
MD
TA
Inst
itutio
nal
MD
TA
On-
the-
Jolt
Job
Cor
psJO
BS
CE
PW
IN
..
Ope
ratio
nM
ains
trea
m:
: NY
C-
IA 0
/S
,
Whi
te79
.5**
.59
.266
.8:
26.2
12.7
.28
.056
.061
.646
.3 4
8.2
Bla
ck.
13.6
36.0
30.3
60.8
77_5
65.0
,40
.024
.047
.4 4
7.5
Mal
e45
.055
.6-
65.1
74.0
70.8
58.0
40.0
'
70.8
53.4
46.
0
Fem
ale
55.0
444
34.9
26.0
29.2
., 4
2.0
60.0
29.2
46.6
54.
0
Und
er 1
9-
Yea
rs o
f A
ge94
.31
12.5
-11
.191
.117
.338
.4°
16.0
-2.
096
.1 8
0.6
Not
es:
Und
er 2
2 ye
ars-
*" C
onta
in; b
oth
whi
tes
and
Ori
enta
ls.'
"* S
ome
of th
ese
data
ref
er to
fin
al y
ear
whi
le o
ther
' ref
ei to
par
ticul
ar ti
me
peri
ods
in 1
969.
Sour
ce:
Voc
atio
nal E
doC
atio
n: C
hene
cten
stks
of
Tet
er&
r a
nd S
tude
nt:,
1969
0E-1
0073
, Nat
iona
l Cen
ter
for
Edu
catio
nal S
tatis
tics,
U.S
.O
ffic
e of
Edu
catio
n, W
ashi
ngto
n, D
.C.:
U.S
. Gov
erni
nest
Pri
ntia
g O
ffic
e, D
ecem
ber,
197
0; a
nd-
Man
pom
er R
epor
t of
the
heri
dent
, U.S
. Dep
artm
ent o
f L
abor
, Was
hing
ton,
D.C
.: U
.S.G
Ove
rnm
ent P
rint
ing
Off
ice,
197
1.
7
Summery of Hewitt Broad.program Effects
Secondary VocationalTechnical Education. Among the secondarycurricula, it is most reasonable to evaluate the secondary vocational-technical'curriculum in economic terms. However, there is a problem in choosing theapproprieo control or coMparison group nainst which 'to judge the neteconomic performance of 'this curriculum. Table 5 displays the benefit-costanalysis of vocational-technical education with respect to two different controlgroups. The first control group is the combined curricula of the comprehensivehigh school. This control group would include the- academic or collegepreparatoy curriculum 'as well as the general And vocational-comprehensivecurriculum. The latter is 'essentially a general curriculum wedded with a group of .'vocational courses, none of which is intensive enough to give the student anyspecific highly marketable skills. The other comparison is against the academicItor college preparatory curriculum alone. Usine either of these brpail controlgroups creates problem of comparison, since the objectives of the variouscurricula are somewhat different, 'Additionally; the sociodemopaphiccharacteristics and personal objectives and goals of the groups partaking of thevarious curricula are different.; For instance as noted earlier, thevocational-technical graduate, as compared to the academic graduate, May pUt aheavier weight on earnings than on the nonmonetary gratification to be hadfrom a job. Thus, when the two types :4 graduates are compared; the benefits tothe vocational-technical graduate vis4-vis the academic graduate may beoverstated since having immediate money inCome insy be less important to the Tacademic graduate than to the vocational-technical graduate. The fact that thereis a higher dropout rate from vocational than from academic proems may bean expression of the fact thatiWenta who choose vocational courses may makejudgments over 'a shorter time horizon and weighi immediate financial rewardmore heavily than do academic curriculum students. This issue will beinvestigated at greater length in subsequent discussion.
The data in Table 5 display both internal rates Of return-the profit, rateof 'the program-and net present capital'values-the present value of 'benefitsminus the present value of costs. Three of the seven studies listed are nationwidein scope, while three relate to spciifid locales. Major reliance for policy decisionsshould be placed on the three studies which are nationwide in the scope of theirsample.
Average Costs and Benefits. The Fernbach and Somers study (1970, II)indicates that _vocational-technical graduates earn an average of S667 more peryear than do secondary academic graduates-Total social costs, including directoperating costs, capital costs, and foregone earnhip, amount to an average ofp.bout $720 per year. Thus, the average rate of return to vocational-technicaleducation for the Fembach-Somers sample of vocational-technical graduates isapproximately 21.4 percent fer the investment over a projected 10-year period.tsi 49.
TA
BL
E S
ctt
=.0
CO
MP
AR
AT
IVE
AN
ALY
SIS
OF
Ctii
T A
ND
BE
NE
FIT
ES
TIM
AT
ION
SO
F S
ELE
CT
ED
ST
UD
IES
OF
SE
CO
ND
AR
Y V
OC
AT
ION
AL:
TE
CH
NIC
AL
ED
UC
AT
ION
Nam
e of
Stu
dylim
eP
erio
dof
Sto
r I
LOC
Oof
Seed
y.E
xpes
inie
ntti
Gro
upC
ante
dG
rum
p
cidi
yar
Sse
meg
kpho
f 6
Dor
ados
of
Tra
iling
imY
ears
Dur
atio
n of
*unf
its it
sW
art.
Rat
e of
Ret
orts
*sce
nt)
Pres
ent V
alue
In D
olla
rs.
Mer
ging
Ave
rage
8M
orgi
nel
Ave
nge.
5%10
%
1. H
u, L
ei, a
ndSt
rom
sdor
fer
.
a1
n -1
b:21
. 2.
1959
-66
Bal
timor
e,Ph
ilade
lphi
aD
etro
itP
hila
delp
hia
Det
roit
Phila
delp
hia
Det
roit
Voc
atio
nal-
Tec
hnic
al?
Com
pre-
hens
ive7
464
386
485
403
343
643
343
643
3 3 3 3
6 6 6 6
93 33.6 8.2
31.8
240
1776 183
1772
Neg
1152
Neg
1102
2. f
ernb
ach
and
Som
ers
b.
1964
-69
Nat
ionw
ide
Voc
atio
nal-
Tec
hnic
alSe
cond
ary
Aca
dem
ic.
5925
96;
6153
711;
715;
738
.
667
667 .
3 3
10 10
. 25-
9
21.4
2811
2484
.
1583
.
1283
7). P
roje
ct T
AL
EN
T(M
ales
onl
y)
a. b.
1958
-65
Nat
ionw
ide
Voc
atio
nal-
Tec
hnic
alC
olle
gePr
epar
e-to
ry..
465;
483
;48
5356
0; 5
74;
585
c
.37
5
.375
3 3
10 19
17.7
13.8
1200
943
542
307
4. C
oraz
zini
(Mal
es o
nly)
3- I
- 2.
b. 1
.. 2.
'196
3-64
,
Wor
ches
ter,
Mas
sach
u-se
tts _
Voc
atio
nal-
Tec
hnic
al .
Com
m-
hens
ive
512
618
964
1129
312
3 12
312
312
2 ,
2 2 2
_ 10.
10 10 10
23.1 7.4
17.9
4.1
1059
219
862
Neg
596
Neg 41
2N
eg
5. &
tinge
s (M
ales
0111
019
56-6
5;
1950
-64
Nat
ionw
ide
Voc
atio
nal-
Tec
hnic
alA
cade
mic
.
.
a.'
.43
5;44
7;41
241
23
1021
.216
2478
3
4653
'
b..
.52
2;54
7;41
241
23
1018
.313
5863
1-
569
,19
60.6
4.
.
a.48
5;49
157
73
1027
.425
12'1
443
4963
b.58
2; 5
89;
.57
73
1022
.8 -
2245
1199
595
.
6.K
aufm
an a
ndL
ewis
1958
-65
Thr
ee c
ities
in P
enns
yl-
vani
a
Voc
atio
nal.-
Tec
hnic
alC
ombi
ned
Aca
dem
ican
dG
ener
al
1960
548;
553;
837
310
34.5
4278
2735
5623
.919
62`
-56
2567
;61
13
1025
.226
5515
4957
63. 9
'7.T
auss
ig19
62-6
5N
ew Y
ork
Voc
atio
nal-
Com
bine
d.
-
'C
ityT
echn
ical
Aca
dem
ican
d.
Gen
eral
a.38
9;41
2;24
0id
310
6.8
255
Neg
4171
201
13
10N
esN
es
b.48
4509
;24
010
310
.
4.6
Neg
Neg
5191
201
,3
10N
esN
es
Not
es:
1 T
ime
peri
od o
f st
udy
inch
sdes
the
trai
ning
per
iod
as w
ell a
s th
e av
aila
bk ti
me
for
follo
w-u
p at
the
time
the
data
wer
e ga
ther
ed.
2(a
) Si
gnif
ies
curr
ent o
pera
ting
cost
s: (
b) s
igni
fies
tota
l res
ourc
e co
sts
to s
ocie
ty in
clud
ing
curr
ent o
pera
ting
cost
s, c
apita
lcos
ts a
ndop
port
unity
cos
ts w
here
app
licab
le. T
his
is th
e ca
se f
or a
ll th
e fo
llow
ing
sim
ilar
tabl
es.
3 E
ach
cost
fig
ure
appl
ies
M a
dif
fere
nt y
ear
in th
e re
leva
nt th
ree-
year
trai
ning
Per
iod.
I
'
"-
The
six
-yea
r be
nefi
t for
Hu,
et a
l., is
bas
edon
the
estim
ated
leng
thlo
f tim
e be
nefi
tspe
rsis
ted
in th
e th
ree-
city
stu
dy. T
he 1
0-ye
ar
.
4'
bene
fit P
erio
d it
bate
d nn
Eni
nger
, Pro
cess
and
Pro
duct
.. .
: T
he P
rodu
ct, o
p. c
it.
.5C
osts
per
yea
r ar
e re
lativ
ely
law
sinc
e op
port
unity
cos
ts (
fore
gone
,w
ages
) ar
e as
sum
ed to
be.
the
sam
e be
twee
nse
cond
ary
voca
tiona
l stu
dent
s an
d co
mpr
ehen
sive
stud
ents
. Als
o, to
the
exte
nt th
at th
ey e
xist
, the
seop
port
unity
Cos
ts to
soc
iety
are
assu
med
to b
e qu
ite lo
w s
ince
the
infl
uxof
all
high
sch
ool s
tude
nts
into
the
labo
r m
arke
tat
onc
e w
ould
dep
ress
con
side
rabl
yan
alre
ady
low
leve
l of
earn
ings
for
this
age
grou
p..
6A
ll be
nefi
ts a
re b
efor
e-ta
X e
arni
ngs
and
repr
esen
t a s
ocia
l ben
efit,
that
is, a
n in
crea
se in
adde
d to
the
gros
s na
tiona
l pro
duct
.7
- N
eith
er o
fth
e3e
two
grou
ps h
ad a
nypo
st-s
econ
dary
or
*dor
col
lege
or
colle
ge e
duca
tion
in th
esi
x-ye
ar f
ollo
wup
per
iod_
8 T
he c
osts
are
true
ave
rage
cos
ts. T
he b
enef
its a
redi
ffer
ence
s be
twee
n av
erag
es o
f th
e tw
o co
mpa
riso
ngr
oups
. Thu
s, th
e es
timat
edra
tes
show
n he
re u
nder
stat
e th
e ac
tual
aver
age
rate
of
retu
rn.
I-
.
.9
Exa
ctco
mpo
nent
s of
thes
e co
st f
ugur
es a
re n
ot k
now
n. T
hey
incl
ude
at le
ast c
urre
nt o
pera
ting
cost
s. N
ote
that
they
are
gen
eral
lyco
nsis
tent
with
the
othe
r fi
gure
s on
the
tabl
e. T
hese
fig
ures
are
def
late
d, a
ssim
ing
cost
s w
ere
8553
/ann
um in
195
9, th
eba
seye
ar.
10 F
or m
ales
only
, in
trai
ning
rel
ated
jobs
, ass
umin
ga
12 c
ent p
ert h
our
gain
and
a 2
,000
hou
rw
orki
ng y
ear.
Una
djus
ted
for
any
soci
odem
ogra
phic
dif
fere
nces
exc
ept s
ex.
-11
Fem
ales
only
, in
trai
ning
rel
ated
jobs
, una
djus
ted
for an
y so
ciod
nogr
aphi
c di
ffer
ence
s ex
cept
sex
..
12 E
ach
cost
fig
ure
is f
or a
sep
irat
eye
ar, d
efla
ted
from
the
1964
-65
IXiie
yea
r. C
osts
are
for
mal
esan
d fe
mal
es c
ombi
ned.
'Coi
ts a
redi
ffer
ence
s be
twee
n tw
oav
erag
es.
'
I'
Sour
ces:
L T
eh-w
ei H
u, e
t at,
A C
ost
Eff
ectiv
enes
s St
udy
of V
ocat
iona
l Edu
catio
n: A
Com
pari
son
of V
ocat
iona
l and
Non
roca
tiona
lE
duca
tion
in S
eam
day
Scho
ols,
Uni
vers
ity P
ark,
Pen
nsyl
vani
a, M
arch
, 196
9.°.
2. B
enef
it D
ata
are
from
: Sus
an F
ernb
ach
and
Ger
ald
Gm
ers,
An
Ana
lysi
s of
the
Eco
nom
ic B
enef
its o
f V
ocat
iona
l Edu
catio
n at
.th
e Se
cond
ary,
Pos
t Sec
onda
ry, e
nd J
wO
or11
,hr-
limita
ry R
epor
t, M
adis
on, W
isC
onsi
n. M
ay, 1
9711
Cos
t dat
a ar
e fr
om: -
Am
eric
an I
nstit
utes
for
Res
earc
h, A
n A
nal
. of
Cos
t and
Per
form
atcw
Fac
tors
for
the
Ope
ratio
i and
Adm
inis
trat
ion
of
prt._
,
Vor
atio
nal S
choo
ls f
or S
econ
dary
Prog
ram
,tts
burg
h, P
enn
ania
, may
, 196
7.-
3. B
enzi
n da
ta a
re f
rom
: U.S
. Off
ice
of E
duka
n, O
ffic
e of
.... P
lann
ing
and
Eva
luat
ion,
unp
ublis
hed
Proj
ect T
AL
EN
Tda
ta,
5-ye
ar f
ollo
wup
info
rmat
ion
on h
igh
scho
olsr
tes
of 1
960
led
in H
owar
d V
ince
nt, "
An
Ana
lysi
s of
Voc
atio
nal E
duca
tion
inO
ur S
econ
dary
Sch
ools
," J
uly,
IS
9(r
evis
ed),
. Cos
t dlia
are
fro
m: A
mer
ican
Ins
titut
es f
or R
esea
rch,
An
Ana
lysi
s of
Cos
t. .
op. c
it.. M
ay, 1
967
t.
4. A
rthu
r I.
Cor
azzi
ni, "
l'he
Dec
isio
nto
Inv
est i
ntio
nal E
duca
tion:
An
Ana
lysi
sB
enef
its,"
in T
he J
ourn
al o
f H
uman
Res
ourc
es,S
uppl
emen
t: V
ocat
iona
l Edu
catio
n,V
olJl
l19
68.1
5. B
enef
it da
ta a
re f
rom
: Max
U.
Etti
nger
, The
Prt
4ess
and
Prf
teac
to
f T
and
1 H
igh
Scho
ol L
evel
Voc
atio
nal E
dict
:Wm
i n
the
Uni
ted
Stat
es T
he P
rodu
ct, A
mer
ican
Inst
ituR
esea
rch,
Pitt
sbur
gh, P
enns
ylva
nia,
Sep
tem
ber,
196
5. C
osts
data
are
fro
m:
Am
eric
an I
nstit
ute
for
Res
earc
h, A
nA
naly
sis
of C
osts
. .
-, o
p. F
iLi M
ay, 1
967.
6. C
oat a
nd b
enef
it da
ta a
re f
rom
Jac
obJ.
Kau
fman
and
Mor
gan
V. L
ewis
, The
Pote
ntia
l of
Voc
atio
nal E
deun
rion
: Obs
erva
tions
and
Con
clus
ions
, Uni
vers
ity P
ark,
Pen
nsyl
vani
a,M
ay, 1
968-
i ii
7. C
ost a
nd b
enef
it da
taar
e fr
om: M
icha
el I
C. T
ausr
ig, "
An
Eco
n m
icA
naly
sis
of V
ocat
iona
l Edu
catio
n in
New
Yor
kC
ity,"
Jou
rnal
of H
uman
Rea
moc
es, S
uppk
mem
t,V
ocat
iona
l Edu
catio
n, V
ol I
II, 1
968.
-
,
If the average social cost rate of capital is 10 percent, then vocational technicaleducation yields a relatively high rate of return .3
Mnginal Costs and Benefits. Given their obvious qualifications the abovestudies indicate that the average costs of vocational-technical education are morethan covered by the average benefits of the program. Thus, in absolute terns,the,program is operating in the black. However, a second question involves theeconomic returns to vocational-technical education relative to alternative Uses ofsocial capital. For example, should aJditional funds be spent onvocational-technical education relative t9 competing secondary curricular Theanswer to this question requires an estimation of the additional or extra benefitsyielded by vocational-technical e.clucation for each additional dollar spent. Ineconomic parlance, marginal (or extra) benefits must be compared to marginal(or extra) costs
. To repeat, the distinction between average and marginal is as follows.Average costs (or benefits) equal total costs (or benefits) divided by totalpersons in the program. Marginal costs (or benefits) are the additional costs (orbenefits) due to adding an extra person to the program. Marginal costs in thisanalysis are usually estimated with a Itatistical cost, function by relating totalcosts to total enrollments in a program to see how total costs change as totalenrollment changes by one unit. However, in some cases marginal cost in thesestudies is shown as the difference between two average costs-that of theexperimental group and that of the control. Marginal benefits in this analysis areestimated by comparing the difference in average performance of theexperimentaLgroup and the control group. Strictly speaking, all the marginalbenefits in this survey analysis arediffilinat-between-two averages-But, Toneaccepts the assumption that shifting a person from one group to the otherincreases the average benefit by the amount of the differences in the twoaverages, then this difference can be assumed to approximate a marginaldifference. A similar assumption must be made when differences in average costsare treated as marginal costs.
The studies of specific cities by Hu, et al., (1969, II) Kaufman and Lewis,(1968, 11) and that by Corazzini (1968, 11) and Taussig (1968, H), indicatelhatthe marginal rate of return to vocational-technical education only falls below thelower bound of five percent for the social rate of return to capital for New YorkCity: The marginal rate of return to vocational-technical (comPared to thecurricula of the comprehensive high school) is 31.8 percent in Detroit, 8.2percent in Philadelphia, and 17.9 percent in Worchester, Massachusetts. It is 4.6percent for males in training related jobs in Ne* York City but zero for females.
One qualification should be noted at this point. The analysis sugests thatsecondary vocational-technical graduates as a vp do better (earn more) than
3 Ten percent is the laktel upper limit placed on the social opportunity cost rate of capital.Under current conditims of high interest rates, one might argue for a higher upper limit.However, to the extent that this higher rate dimmest is due to inflation, it should be de-flated. The social rate of interest or the social opportunity cost rate is usually defined asthe Hales, deflated interest cost rate. The term "riskkss" implies no risk of defarlt onpaynient of interest or principal. It does not imply ilea or risk that the investment mayyield no reel benefit.
TA
BL
E 6
CO
MPA
RA
TIV
E A
NA
LY
SIS
OF
CO
S A
ND
BE
NE
FIT
EST
IMA
TE
S O
F SE
LE
CT
ED
ST
UD
IES
OF
POST
-SE
CO
ND
AR
Y V
OC
AT
ION
AL
-TE
CIC
AL
ED
UeA
TIO
N A
ND
JU
NIO
R C
OL
LE
GE
ED
UC
AT
ION
.
Nom
e of
Stu
dy
Tim
ePe
riod
of S
rody
lL
OC
IIII
of
Stud
yE
xpei
imen
tal
Gro
upC
astr
oG
roup
Cos
triti
ega
freg
iaiy
eai6
%M
ilos
ofT
rain
ing
in.
Yea
rs .
Dom
io o
f&
wri
ts in
Yea
rs4
Rat
e of
Rea
mfp
erce
nt)
Pres
ent V
alve
in D
olla
rsM
.i.jI
Ave
rage
Mar
ion;
Ave
nge
5%10
%
I. F
ernb
ach
and
Som
ers
a. 2
b.
1964
-69
.
Nat
ionw
ide
Post
-sec
ond-
ary
voca
tion-
al e
duca
tion
.
Seco
nd,
aty5
AM
-de
mic
2494
,25
197
. 308
4,31
32
996
996
2 2
10.
10
8.7
6.8
1198 64
2
Neg
Nes
2. S
omer
s, e
t al.
a. ..
1964
-69
".-
Nat
ionw
ide
Post
-sec
ond-
ary
voca
tion-
al e
duca
tion
Seco
ndar
yvo
catio
n-al
edu
ca-
tion
i
n
I
2814
2839
7
3504
,35
52 '
329
329
2 2
10
,10
Neg
Neg
Neg
Nes
Neg
Nes
3. S
omer
s, e
t aL
a. b.
1964
-69
"
Nat
ionw
ide
Juni
or c
olle
gePo
st-
Sela
ryvo
caed
ucat
ion
..
nal
2598
,26
167
3110
,31
44
1642
1642
.
210 10
24.9
20.0
-
,.
.
6986
5971
4196
3204
4. C
arro
ll an
dlh
nen .
1959
-64
.
,
Nor
thC
arol
ina
"n
Post
-sec
ond-
ary
voca
tion-
al e
duca
tion
Seco
ndar
iA
cad
"c
3551
3874
855
53.
243
16.5
1552
351
57
o
a
I
5: S
omer
s, e
t al.
b..
1964
-69
Nat
ionw
ide -
Juni
or c
olle
pSe
cond
ary
Voc
atio
nal
educ
atio
ni
3474
,-34
74i
1656
210
'N\
\'6N
.,.7.
5400
2617
Not
es:
1T
ime
peri
od o
f st
udy
incl
udes
the
trai
ning
peri
od a
s w
ell a
s th
eav
aila
ble
time
for
follo
wup
at t
he ti
me
the
data
wer
e ga
ther
ed.
2 (a
) in
clud
es c
urre
ntop
erat
ing
cost
san
d op
peA
tuni
ty c
osts
; (b)
incl
udes
cur
rent
ope
ratin
gco
sts,
cap
ital c
osts
and
oppo
rtun
ity
cost
s.'3
Ben
efits
are
est
imat
ed to
incr
ease
at a
rat
e of
:161
per
yea
r an
dre
ach
$1,0
38 in
the
four
th y
ear
afte
rgra
duat
ion.
In
gene
ral,
a
two
perc
ent g
row
thra
te w
as a
pplie
dto
lthe
earn
ings
dif
fer-
Atti
ebe
twee
n th
e po
st-s
econ
dary
tech
nica
l gra
duat
es a
ndth
eir
cont
rol
grou
p, c
ompr
ehen
sive
high
sch
oolg
radu
ates
.t
4. E
xcep
t in
the
case
of
the
Car
roll
and
stud
y, b
enef
it du
ratio
nis
bas
ed o
n th
ees
timat
e of
Max
U.E
ning
er, T
he P
roce
ss a
nd
Prod
uct o
f T
and
I H
igh
Scho
ol L
evel
catio
nal E
duca
tion
in th
eU
nite
d St
ates
: Tne
Prod
uct,
Pitts
burg
lf,Pe
nnsy
lvan
ia, 1
965.
5 O
ppor
tuni
ty c
osts
are
base
d on
the
earn
ings
expe
rien
ce o
f se
cond
ary
voca
tiona
l rat
her
than
seco
ndar
y ac
adem
ic. T
his
resu
lts in
an
upw
ard
bias
in th
e co
stes
timat
e am
l a c
orre
spon
ding
redu
ctio
n in
net
ben
efits
.
6 A
ll be
nefi
ts a
rebe
fore
-tax
ear
ning
s an
die
pres
ent a
soc
ial b
enef
it,th
at is
, an
incr
ease
in v
alue
-add
ed in
the
gros
s na
tiona
lpro
duct
.
7 C
osts
are
exp
ress
edfo
r ea
ch o
f th
e tw
osu
cces
sive
yea
rs o
f tr
aini
ng.
W8
Cos
ts a
re J
otal
soci
al c
osts
, whi
chin
clua
ie c
urre
nt o
pera
ting
cost
s, c
apita
lcost
s an
d op
port
unity
cost
s.
!
Sour
ces:
1, B
enef
itda
ta f
rom
: Sus
anFe
rnba
char
Li G
eral
d G
._ S
omer
s, A
n A
naly
sis'
ofth
e E
cono
mic
Ben
efits
of V
ocat
iona
l Edu
catio
nat
the
}
.
L--
---
Seco
ndar
y, P
bst-
Seco
ndar
yan
d Ju
nior
rol
lege
Lev
els,
Pre
limin
ary
Rep
ort,
Mad
ison
,Wis
cons
in, M
ay, 1
970.
Cos
t dat
a ar
e fr
om:
Fern
bach
and
Sbm
ers,
Ana
lysi
s .,.
. op
. cit.
,M
ay, 1
970,
and
Will
iam
C. M
orsc
h, S
tudy
of C
omm
unity
Col
lege
s an
d V
ocat
iona
lT
tain
ing
Cen
ters
: Cos
tAna
frsi
s, W
ashi
ngto
n,D
.C.,
1970
.,
2. B
enef
it da
ta a
refr
om G
eral
d G
. Som
ers,
et a
l. T
heE
ffec
tiven
ess
of V
ocat
iona
land
Tec
hnic
alPr
ogra
ms:
A N
atio
nalF
ollo
wup
Surv
ey. M
adis
on, W
isco
nsin
,19
70.
1
.
-Cos
t dat
a ar
e fr
omFe
rnba
ch a
nd C
omar
aA
naly
sis
.. .
op.
cit.,
May
, 070
and
Moo
ch, S
tudy
, 197
0;
3. B
enef
it da
taam
_fr
om S
omer
s, e
t,al.
Sirv
ey, .
. .
op. c
it., 1
971.
..
Cos
t dat
a ar
efr
ont-
Feni
bach
and
Som
i s, A
naly
sis
. . .
op. c
it.,M
ay, 1
970
and
Man
ch,S
tudy
, 197
0.
4. A
dger
B. C
arro
ll;-
nd L
o. l
hnen
"Cos
ts a
nd R
etur
nsfo
r T
wo
Yea
rs o
fPos
t Sec
onda
ry T
echn
ical
Scho
olin
g:A
Pilo
t Stu
dy,"
Ictu
rnal
of
POlit
ical
Eco
nom
y, V
oL-7
5 N
o. 6
,Dec
embe
r, 1
967.
5. B
enef
it an
d co
stda
ta a
re f
rom
Som
er, e
tal.,
Sur
vey
....
op.
cit.,
197
1.
academic or comprehensive high school graduates. But not all ocCupationalspec ialties . in vocational-technical education pay. off equally well. Thebenefit-cost analysis, thus far, onlY answers the question of which broadcurriculunfirea society should inveit its additional social capital in;, it.does dotindicate which occupational skill or specialty one should chaise within thatbroad curdenlum, given the qualificatios to the analyses. It does indicate thatthe average rnix 'of *ills in vocational education gains A higher rate of returnthan the averap nix of skill:in the comparisons area. -- .
. Tic) additional conunents &add be made. First, the muffinsl rate ofreturn is higher in the Hu, et aL and Kaufman-LeWis studies, where there hasbeen multivariate control for various sociodemographic variables (see Table II)than in the Corazzini and Taussig studies which control only for sex. Next, theHu, et aL and Kaufman-Lewis studies depend for their data on more .elabOratelabor market questionnaires than do the. Corazzini and Taussig studies. Forexample, a dx year employment and earnings-history exists for the Hu, et aLstudy while torazzini uses starting _wage differentials. Thus, based on thesedifferences in methodology more confidence should be placed in the relativemagnitUdes of the results in 11u, et al. and Kaufman-Lewis than in the other twosingle city studies. By this, we mean that the Corazzini and Taussig results mayunderstate somewhat. the money ,:.Aue of voCational-technical education.
'Nevertheless, these are all case studies and, in the final analysis, do not present abase of results broad enough on which to base national expenditure decisions.
The studies of Fernbach 'and Somers, Project TALENT and Eninger are allbised on national samples. The rates of return here more closely approximateaverage rates of return. As can be seen, 'the 'rates are relatively high 'andconsistent even given the differing methodologies, nonresponse rates, etc. Therates appear to he welt aixiVe this study's presumed upper bound of 10 percentfor the social opportunity cost rate of capital. The study in process by theNatiOnal Planning Association should dispel any remaining ambiguities as to theactual money value of vocational technical education (See Chapter V).
Post-Secondary Voattional,Technical Education and Junior College Thesecond major context for decisions regarding the training of the U.S. labor force
lies in- the area offost4econdary vocational-technical-education. The study uponwhich the bulk of this analysitis based-aircrourat the-Univenity_of Wisconsin.__and. the Bureau of Social Science Research (See Table 6). The analysis pertainstO a nationwide, sample of secondary academic and vocational-technicalgraduates and post-secondaiy vocazional.technical and junior, college graduates.As 'can be seen in Table 6, the marginal rate of return for post-secondaryvocational-technical education is 6.8 percent with respect to secondary academiceducation (see Fernbach and Somers (1970, 11) study 1 in Table 6). While the 6.8percent rate is less than' the assumed 10 percent social cost of capital, it is stillhigher than the usual lower bound of the social capital cast estimate, which Isfive percent. Based .on these results', it is econamically efficient for society toinvest in post-secondary voeational-technical -education for i person who is anacademic curriculum high school graduate. This judgment is borne out by theCarrollind lhnen study (1967;11) which shows a marginal rate of return of 16.5Percent for post-secondary vocational education relative to aeademic high school
56
graduation in North Carolina. Howl,/er, Somers, et d. (1971, IV), also shows thata person who is a graduate of a secondary vOcational-technkid curriculum suffersa net economic loss if he undertakes two additional years of pbstsecondary
"...Ns' vocational-technical education.' It nay be that on economic efficiency groundstherefore, aocielY shossld disCourage this educational sequence, units or untiladditional 'empirkal evidence shows a more favorable rate of return. Of course,this judgment can be tempered by nonefficiency considerations. Namely; it may..not be politically possible or socially desiraVe to prohibit this educationalsequence in a free society. Also,some economic and all noneconomic benefitsare unaccOunted for. . .
Somers, etal, (1971, IV) also provide evidence on the economic returns to. junior cojege training. The marginal rate of return to junior college relative topost irconEjary vcicational.technical ethication is 20 percent. Thus, it may beeconomical y more rational for society to invest in two years of junior cone,than for i . to invest in two years of postsecondary vocationaechnicaleduCation. finally, unlike post-secondary vocational-technical education', twoyears of junior college relative to secondary vocational trait:11g yield a marginalrate of return of 17.6 percent.
. There remains the problem, noted at the outset, that the populations .
served by the two types of school may differ. To the extent that this is so,benefit-cost comparisons between the two- types of postiecondary education arenot strictly vslid. One may object th2t the pagpeption of each tYpe ofpostseCondary education into its skiil or Course components will reveal thateach has some skills that pay off well -in -economic tenm and others that are oflow economic value. The point to be made here, however, is that the average mixof skills and courses taught in the junior college yields a higher rate of return .
t han .the average mix of skills and courses* taueltt in postaecondaryvocational-technicil institutions.
Institutional and On-the-Job Manpower Trainint It is often asserted thatvocational education should be training the labor, force for jobs in the future.the"jobs of tomorrow." However, reflection on do hands of econotnic planningand economic projection in general, given a. technologically dynamic economy,should bring one to the realization that this is a counsel 'of perfection. Manypeople change occupations several times during theii lives, and three who do notnormally do so, such as profenional persons, find the requirements of their jobsto_be a.tonstantly evolving process which only aosiduous on-the-job training ctnkeep one abreast Of.Even if vocational education were training appropriateiy for.the "jobs of today," the 'short run in ihich most of us live, it 'would not beunreisonable to expect- the national manpower retraining effort to fipgrade the .
labor force at the tichnological .requirements ifoi human cspital dunge. Also,training for the jobs of tomorrow implies benefits which will not arrive until ;
. tomorrow; 'either, with the attendant fact 'that these benefits are discounted athigher geometrically compounded discount factors. Thus, manpower training is .
.certainly complementary to and not necesearilycoMpetitive with or a substitute .
for vocational training. However, as will be indicated below, vocationaleducation might learn _some lesecins from'manpower training, which 'Concentratesthe educational effort in a relatively short calendar elite period.
c
TA
BL
E 7
-
CO
MPA
RA
TIV
E A
NA
LY
SIS
OF
CO
ST A
ND
BE
NE
FIT
EST
IMA
TE
S O
F SE
LE
CT
ED
ST
UD
IES
OF
MD
TA
IN
STIT
UT
ION
AL
-AN
D O
N-T
HE
NI0
11 R
ET
RA
ININ
G A
ND
AR
A R
ET
RA
ININ
G
- N
ame
of S
tudy
8T
ime
Peri
odof
San
dy 1
Loc
os o
fE
h*E
rlam
eSal
lC
amp
Con
trol
Gro
up
cosi
fyie
r2is
meg
kiyi
er3
Dun
a= o
fIn
ansg
in Y
ems4
Dai
ntie
s et
Iles
efits
isl'a
usS
Rat
e et
Rea
mfg
esee
nt)
' Pre
sent
%M
e ita
Odi
nM
OW
Ase
lnp
MO
Wkr
este
r.3%
---1
1-6.
1. M
ath -
.
/19
65-6
6
'
Nat
ionw
ide
I MD
TA
gra
d-ua
tes
and
drop
outs
-
1une
mpl
oy.
ad r
ela-
tives
or
neig
hbor
s
1983
1983
.
409
409
1 1
Id 35°
15.9
20.2
1110
4490
482
1783
2. H
ardi
n an
d B
orns
,19
62-6
5...
,M
ichi
gan
MD
TA
en-
roU
ees
MD
TA
aPP8
-ca
nts
1272
.127
225
125
11
10 3514
.719
.763
427
0324
610
44
3. M
uir,
et a
l.
a. I
nstit
utio
nal
..
b. O
n-th
e-Jo
b.
4
1963
-65
1963
-65
Nat
ionw
ide
Judg
men
tSa
nti,1
4
Nat
ionw
ide
Judg
men
tSa
mpl
e
MD
TA
gra
-
duat
zr
MD
TA
grid
tiate
s
IBef
ore.
afte
rC
ompr
i-sO
fl
IBef
o-Ia
ftr ompa
ri-
son
2444
2444
2132
2132
1338
1338 .
1208
1208
.
I 1
10 33 10 32
'
54.0
547
.
56.0
56.7
7512
1806
4
.64
5316
150
5252
9418
4800
8524
,4. S
trom
sdor
fer
1959
-63
Wes
t
V;u
gini
a IA
RA
and
stat
egr
adua
tes
632
632
874
874
1 1
. 10 33
138.
0 .
138.
358
2613
172
4308
7114
.
5. B
onn
'19
62-6
3
, Con
nect
icut
.
AR
A a
nd-.
...t..
..- te
pro
gram
grad
uate
s
1314
t345
911
591 1
,10 39
3012
--32
.520
29§0
93 .
1279
2766
6. P
age.
.19
58-6
1.
Mas
sach
u. .
'ens
.
MD
TA
grad
uate
s1-
693
.169
3'
pa 874
1 1
' -
10.
3550
.851
.648
1512
017
3343
6124
ass.
so'
.
p
.-
7. S
ewel
l-a.
Ins
titut
iona
l
..
.b.
On-
The
-Job
1965
-67
.
.
Nor
th.
Car
olin
a'
-
MD
TA
gra
-du
ates
:dis
-ad
lrat
ased
rura
lw
orke
rs
Non
-tr
aine
eap
plic
ant
2138
2138 '
1206
1206
' '..
296
296
603
603
..
1 1
.
1 1
10 31-
... 10 33
6.3)
13.5
49_0
493
148
2477
.
- 3450
8444
Nes
668
2499
4564
:Not
es: L
Tim
e pe
riod
of,
stgc
ly in
clud
es b
oth
the
trai
ning
per
iod
and
the
peri
od a
vaila
ble
for
mig
asur
ing
bene
fits
at t
he ti
me
of d
ata
colle
ctio
n_2.
All
cost
s ar
e to
tal s
ocia
l cos
ta a
nd th
us in
clud
e cu
rren
t ope
ratin
g co
sts,
cap
ital c
osts
and
opp
ortu
nity
cos
ts.
'.
1. A
B b
enef
its a
re b
efor
e-ta
x ea
rnin
gs a
nd r
epre
sent
a s
ocia
l ben
efit,
lhat
is, a
n in
crea
se in
val
ue-a
dded
in th
e gr
oss
najo
nal p
rodu
ct.
4. '
Mos
t MD
TA
and
AR
A tr
aini
ng la
sted
less
than
one
yea
r. T
he o
ne,y
ear
-dur
atio
n as
sum
ptio
n, th
eref
ore,
Und
ersK
tes
the
pres
ent
valu
e of
cos
ts a
nd th
e ra
te o
f re
turn
a s
mal
l am
ount
in th
e di
scou
nt p
roce
ss; h
owev
er, i
t was
use
d fo
r pu
rpos
es o
f si
mpl
ific
atio
n.S.
The
.10-
year
per
iod
of b
enef
its is
in a
rbitr
ary
peri
od c
hose
n fo
r co
mpa
riio
n w
ith th
e-es
timat
ed d
urat
ion
of b
enef
its a
ccru
ing
tose
cond
ary
voca
tiona
l-te
chni
cal e
duca
tion.
The
long
er p
erio
ds a
re th
e ne
t est
imat
ed w
orki
ng li
fe o
f th
e tr
aine
et a
fter
the
end
of \
-tr
aini
ng.
.-
..
..
-
6. T
he s
tudy
of
Am
es L
Ste
rn, "
Con
sequ
ence
s of
Pla
nt C
losu
re,"
Jou
rnal
' of
Hum
an R
esou
rces
, Win
gr, 1
972,
for
thco
min
g, is
not
repo
rted
her
e. I
n a
stud
y us
ing
Soci
al S
ecur
ity-A
dmin
istr
atio
n ea
rnin
gs d
ata
-for
MD
TA
trai
nees
inith
e K
ansa
s C
ity la
bor
mar
ket
for
the
year
s 19
6447
, Ste
rn f
ound
that
wor
kers
ret
rain
ed a
fter
a p
lant
shu
tdow
n ea
rned
$57
2 le
ss in
196
7 th
an d
id d
ispl
aced
,- -
.w
orke
rs f
rom
the
sam
e pl
ant s
hutd
own
who
sou
ght w
ork
on th
eir
own
in th
e m
arke
t. T
hus,
the
pres
ent v
alue
of
the
trai
nees
'ea
rnin
gs it
neg
ativ
e as
wel
l as
the
rate
of
retu
rn.
..
,7.
Wor
kers
une
mpl
oyed
dur
ing
Prog
ram
.g.
Une
Voy
ed w
orke
rs w
ho r
efus
ed r
etra
inin
g-
.,
-'
.,
-Sou
rces
: 1: '
Ben
efits
are
take
n fr
cfm
: Ear
l D. M
ain,
"A
Nat
ionw
ide
Eva
luat
ion
of M
DT
AIn
stitu
tiona
l Job
Tra
inin
g,"
Jour
nal o
f ku
man
-. .
---
..-:',
'R
esou
rces
, VoL
[W
M?.
2, S
prin
g.19
68. C
osts
ate
take
n fr
om: R
alpl
t E. S
mith
," o
fego
ne E
arni
ngs
Dur
ing
Man
pow
er T
rain
ing,
"W
orki
ng P
aper
350
-11,
The
Urb
an I
nstit
ute,
28
Janu
ary
1970
_ pu
blis
hed
in'
-Joi
ntE
cono
mic
Com
mitt
ee, S
ubco
mm
ittee
on E
cono
my,
in G
over
nmen
t, N
atio
nal P
rior
ities
, 148
Jun
e 19
70, a
nd G
arth
DT
A: F
ound
atio
n of
Fed
eral
Mak
pow
er -
Polic
y, th
e Jo
hnt H
opki
ns P
ress
, 196
8..
,.
%0
..'
-
2. E
inar
Har
din
and
MiC
hael
E. B
onn,
Eco
nom
ic B
eret
s an
d C
osts
of
Rep
airi
ng C
owes
inM
ichi
gan,
Eas
t Lan
sing
, Mic
hn,.
Dec
embe
r, 1
969-
e.n
3. B
enef
its a
re ta
ken
from
: Alla
n H
. Mui
r, e
t at,
Cos
i/Eff
ectiv
eues
s A
nabi
sis
of C
M-t
he-J
ob a
ndIn
stitu
tiona
l. C
ours
es, W
aihi
ngto
n,.
.i
.
-42
D. C
.,4un
e, 1
967.
Cos
ts a
n ta
ken
from
: Ral
ph E
. Sm
ith, "
Ear
ning
s. ..
," o
p. c
it., 1
970.
. Ask
A
'
a
4. E
rnst
W. S
trom
ador
fer.
"D
eter
min
ant's
of
Eco
nom
ic S
ucce
ss in
Ret
rain
ing
the
Une
mpl
oyed
," J
ourn
al o
f H
uman
Res
ourc
es, V
oLH
I, N
o. 2
, Spr
ing,
196
8.I
°.
,.
5. B
enef
its a
re ta
ken
fron
t Mic
hael
E. B
orus
, "A
Ben
efit-
Cos
t.; A
naly
sis
of th
e E
cono
mic
Eff
ectiv
enes
s of
Ret
rain
ing
the
Une
mpl
oyed
"Y
ale
Eco
nom
ic E
ssay
s. V
ol. 4
, No.
;, F
all,
1964
. Cos
ts a
re ta
ken
fiom
: Ral
ph F
.. Sm
ith, "
Ear
ning
s ...
"op
. cit.
,19
70.
^
6. B
enef
its a
re ta
ken
from
: Dav
id A
. Pag
e, "
Ret
rain
ing
Und
er th
e^14
Anp
ower
Dev
elop
men
t Act
: A c
ost-
Ben
efit
Ana
lysi
s,"
in J
ohn
D. M
ontg
omer
y an
d A
rthu
r Sm
ithie
s, P
ublic
Pol
icy
tII
'Vol
. 13
Har
vard
Uni
vers
ity P
ress
, 196
4. C
Ost
s ar
e' ta
ken
from
: Ral
ph E
.Sm
ith, "
Ear
ning
s . .
:,"
op. c
it., 1
970.
.e.
7. B
enef
its a
nd c
osts
are
take
n fr
om: D
avid
0. S
ewel
l, na
min
g th
e Po
or, K
ings
ton,
Ont
ario
, 197
1.., ..
b
^
`lre
.
TA
BL
E S
CO
MPA
RA
TIV
E A
NA
LY
SIS
OF
CO
ST A
ND
BE
NE
FIT
EST
IMA
TE
S O
F SE
LE
CT
ED
ST
UD
IES
OF
ME
JO
BS
AN
D C
EP
PRO
GR
AM
S.
I
Nam
e of
Bod
y
Tim
peri
odof
Sha
dyla
m a
Stud
yE
apd1
IG
i.up
Cea
trel
Gra
sp
Mar
sem
egity
ar__
_sof
Avo
w
Dum
dum
Tra
sia
Yen
s
Dan
dies
of B
emer
ksia
Yea
n
I R
ote
ofR
eno
.(ps
reed
)
/WN
Wla
Dam
"Ilr
-711
1V
ain
Ann
ie.
fari
pill
JOB
S:1:
Gre
enle
igh
Aza
ocia
tesi
Inc
..
1969
-70
10 S
MSA
s. Pr
ogra
men
rolle
esB
efor
e-af
ter
com
port
.ao
n
3488
134
88
,
,227
4212
7413 1
.
104
40
7
64.8
65.2
0
1423
733
836
2966
1340
1
2. D
epar
tmen
t of
Lab
or19
66-6
8N
atio
nwid
ePr
ovam
enro
llees
Bef
ore-
afte
rco
mpo
rt-
son
3239
132
3910
152
1015
-13 1
. .,
,
.104
4028
.931
.3.
,
4380
1350
327
2560
79
CE
P:3.
Ope
ratio
nsR
esea
tch,
Inc
.,
1967
-68
7 ce
ntra
lci
ties
Enr
olle
espl
aced
injo
bs
Bef
ore-
afte
rco
mpa
ri-
ion
3470
3470
2228
522
28c
1 1
10 37 .,,
63.7
64.2
1308
031
255
9291
1650
4
Not
es:
1. C
osts
are
tota
l soc
ial ,
cosi
s an
d in
clud
e al
l pay
men
ts to
the
firn
i plu
s oP
port
umty
cos
ts r
epre
sent
ed b
y th
e pa
rtic
ipan
ts' s
tart
ing
wag
e an
d fi
nal w
age
drie
rent
is:..
The
se c
osts
may
ove
rsta
te tr
ue s
ocia
l ;co
sts.
san
ce *
som
e of
the
cost
s in
pute
d by
fir
ms
may
be
paym
ents
for
idle
cap
acity
, the
use
of
whi
ch d
oes
not r
epre
sent
a s
ocia
l cos
t; th
at is
, in
the
abse
nce
of th
e JO
BS
prog
ram
, the
capa
city
wou
ld n
et h
ave
had
any
alte
rnat
ive
uw.
2. B
enef
it di
ffer
entia
ls e
re d
efla
ted
hy th
e C
onsu
mer
Pri
ce I
ndex
as
a pa
rtia
l adj
ustm
ent f
or e
h/m
acs
in la
bor
mar
ket c
ondi
tions
betw
een
the
"bef
ore"
and
"af
ter"
mea
lure
men
t per
iods
.3.
The
one
-yea
r on
-the
-job
trai
ning
per
iod
is a
n ob
viou
s si
mpl
ific
atio
n \ f
or c
ompu
tatio
nal p
urpo
ses.
The
Sub
wm
mitt
ee o
nE
mpl
oym
ent,
Man
pow
er, a
nd P
over
ty, 1
970,
sug
gest
s th
at th
e ow
the-
jok
trai
ning
per
iod
is a
bout
nin
e m
onth
s. S
ee p
. 169
.4.
The
10-
year
dis
coun
t per
iod
is a
n ar
bitr
ary
peri
od c
hose
n fo
r pu
rpor
s of
sta
ndar
d co
mpa
riso
n. T
he 4
11ye
ar p
erio
d re
pres
ents
the
aver
age
wor
king
life
rem
aini
ng to
the
JOB
S en
role
e af
ter
his
on-t
he-j
ob tr
aini
ng is
com
plet
ed.
5. T
hese
are
gro
ss w
eigh
ted
wag
e ra
te d
iffe
rent
ials
bas
ed u
pon
the
wag
e ra
te e
xper
ienc
e of
min
Ori
ty d
isad
vant
aged
mal
es, a
ge 1
8-21
and
age
22-4
4, a
nd m
inor
ity d
isad
vant
aged
fem
ales
, age
18-
21 a
nd 2
2-44
.
.
urce
s:1.
Ben
efit
data
are
fro
m: G
reen
leig
h A
ssoc
iate
s, I
nc.,
The
Job
Opp
mun
ities
in th
e, B
usin
ess
iect
or P
rogr
am: A
n E
mlu
atio
n of
Impa
ct in
Ten
.Sta
ndar
d M
etro
polit
an S
tark
:Mel
Are
as, W
ashi
ngto
n, D
. C.;
1970
. Cos
t dat
a ar
e fr
om: S
yste
m D
evel
opm
ent
Cor
pora
tion,
Eva
luat
ion
of th
e JO
BS
Prog
ram
in N
ine
Citk
s, F
alls
Chu
rch,
Vir
gini
a, 1
969.
2. B
enef
it da
ta a
re f
rom
: U.S
: Sen
ate,
Com
mitt
ee o
n L
abor
and
Pub
lic W
elfa
re, S
ubco
mm
ittee
on
Em
ploy
men
t, M
anpo
wer
and
Pove
rty,
The
JO
BS
Prog
ram
(Jo
b O
ppor
tuni
ties
in th
e B
usin
ess
Sect
or),
Bac
kgro
und
Info
rmat
ion,
91s
t Con
gres
s, 2
nd S
essi
on,.
Apr
a, 1
970.
Cos
t dat
a ar
e fr
om: S
yste
m D
evel
opm
ent C
orpo
ratio
n, E
wth
istio
n. o
p. c
it., 1
969.
3. B
enef
it da
ta a
re f
rom
; Ope
ratio
ns R
esea
rch,
Inc
., C
EP
Eva
luat
bn M
etho
dolo
gy, P
hase
I R
epor
t, 'T
echn
ical
Rep
ort 6
17, D
raft
,Si
lver
Spr
ing,
Mar
ylan
d, 1
3 Ju
ly 1
970.
Cos
t dat
a se
e fr
om: L
easc
o Sy
stem
s an
d R
esea
rch
Cor
pora
tion,
Qua
ntite
tive
Ana
lysi
s of
the
Con
cent
rate
d E
mpl
oym
v:r
Prog
ram
, VoL
11,
Silv
er S
prin
g, M
aryl
end,
196
9.
Seven .different studies of manpower training exist that present abenefit-cost analysis. (See Table 7.) The Main study (1968, Ill.) is judged to givean accurate assessment of the net returns to institutional manpower training,since its methodology involves the use of an appropriate control group for anationwide sample and adjustments were made for major sociodemographic,motivational, and economic variables. If the benefits to such training areassumed to last only 10 years, then the marginal rate of return is 15.9percent11---the benefits are assumed to last 'the remaining working-fife Of-the trainee, 35years, then the marginal rate of n-is 20:2 percent. Note that because thebeneft increments_ar igh, the extra 25 years of benefit stream add little
jo-the--rate---6f-Teturn. The high benefits relative to costs imply a high discountrate which makes the extra years of benefit relatively unimportant. The othernationwide study, by Muir et al. (1967, Ill) Shows much higher Marginal rates ofreturn for institutional MDTA training, but there is an upward bias in theseestimates due to the use of a "before/after" labor market comparison for thetrainee rather than a control group comparison. In short, manpower training is anecessary complement to vocational training in a technologically evolvingeconomy. The fact that different populations may be served by the twoprograms also reinforces their complementarity,,The marginal rates of return tomanpower training at least equal and are probably higher than those tosecondary vocational education. But, to repeat, one should not necessarily drawthe conclusion that manpower training can be substituted for vocationaleducation, however, since the two program do serve different social groups.
Next, it should be noted that for the MDTA program, the marginal rates ofreturn to the institutional and the on-the-job cOmponents of the program areSimilar, based on the benefits by the Muir et al. study. Thus, given present data,there is no economic efficiency basis for expanding one of .these programcomponents at the expense of the other.
One troublesome aspect of these studies which casts some doubt on the.. empirical reasonableness of these high rates of return is the consistent failure of
the market to provide funds for what appears to be a return of liberalproportions. The response to this nuy be in the institutional constraintssurrounding the capital market-mainly the quasi-illegalilty of indenturingoneself plu3 the fact that the created capital is inseparable from the human agentand hence, not separately .capitalizable and marketable. However, with such highreturns one suspects that the market would eventually respond with institutionalarrangements to make the funds available. That it hasn't makes one suspect thatmajor risk factors which would reduce these'rates remain unaccounted for.
Finally, the study by Stem should be noted (forthcoming 1972, Ill) (SeeTable 7, notes). While his is not a benefit-cost study, Stem reports that displacedworkers who were retrained did considerably less well than -displaced personshon: the same plants who either transferred to a new job on the firm's invitation(not too surprising a result) or who, more importantly, simply sought new jobsin the market on their own initiative. Since Stem 'controlled for a variety ofsociodemographic variables and used social security data for.his wage measures,there should be little reporting error in it, though the method of extrapolatingthe data does impart some bias. In short, for all locales and all populations ofworkers, the final word is not in yet.
62
JOBS and CiP. The JOBS and CEP training programs are close substitutesfor MDTA training. The JOBS program is similar to the MDTA on-the-jobtraining program except insofar as the initiative of the JOBS program may be,more with private employers. The CEP contains elements of the institutional and.-on-the-job MDTA training. The study results appear in Table 8.
Unfortunately, before/after comparisons of enrollee experience must berelied upon for evaluating J011S and CEP, rather than the use of more suitablecontrol groups. The best analysis of the costs and benefits of the JOBS progranisis that by the U.S. Department of Labor. This analysis is based on a nationalrandom sample taken froni social security recqrds. A before/after comparison isused to Measure benefits. If a 10-year benefit period is.assumed, the marginalrate of return is 28.9 percent, while the rate Is 31.3 percent when benefits areassumed to last the remainder of an enrollee's wotking life. The MDTA studythat is most similar tothe JOBS analysis is the nationwide evaluation by Muir, etaL, which also uses a before/after comparison: Comparable rates of return toon-the-job MDTA trgning are 561) percent for a 10year benefit period and 56.7'percent for .. remainini. 4inking life after training. Thus, under, currentarrangements, Mink on-the-job training is yielding a marginal rate of return
which is almost twice that of the JOBS program. Other things being equal, then,_it may be desirable to devote additional social capital to MDTA on-the-jobtraining rather than to the JOBS program. Other things may not bi equal,however,iince it may be desirable to maintain or expand the present level of theJOBS prograM to continue private. involvement and intitiative in manpowertraining. In any case, the recent economic downturns have seen a drastic cutbackin the JOBS program, additional evidence that manpower policies in the absenceof general high demand will have little effectiveness.
The only study of CEP which allows a benefit-cost comparison relates todata gathered from seven central cities. The marginal rates of return based on abefore/after comparison . are quite high and fall in the mid-range of ratesestimated for institutional MDTA training: Thus, there is little basis at this timefor making a distinction between the two types of programs on efficiencygrounds. A nationwide evaluation of CEP based on an appropriate randomsample with an appropriate control group would be useful though the similarityof this program to the various MDTA components may make this superfluous.
Finally, there is no economic evaluation of the Work Incentive (WIN)program. Evaluations which do exist focus; on the administrative efficiency ofthe program, maialy within a sociological context. . . .
The Job Corim and NYC. The Job Corps and the out-of-school NYC areapproximate substitutes for each other. As Table 9 shows, the costs of the JobCorps are considerably higher than those of the out-of-school NYC. This is notnecessarily a criticism of the Job Corps since. it is patently wrong to make
1)efficiency judgments solely'on the basis o cOst comparisons without knowledgeof relative program benefits. However, f m the limited information available,the benefits of the Job Corps and the outi3f-school NYC appear to be of similarmagnitude. . .
The Cain (1967, III) study and the Resource Management Corporationstudy (1969, III) of the Job Corps are based on the same set of data, namely,
11' i63
TA
BL
E 9
CO
MPA
RA
TIV
E A
NA
LY
SIS
OF
CO
ST A
ND
BE
NE
FIT
EST
IMA
TE
S O
F SE
LE
CT
ED
&T
UD
IES
_OF
ME
JO
B C
OR
OS
AN
D N
EIG
HB
OR
HO
OD
YO
UT
H C
OR
PS (
NY
C)
Nam
e id
See
dy
Ilse
reel
edof
Sea
*W
es o
fSt
udy
Exp
lain
edG
rasp
Can
ted
Gro
up
Cos
t/Yen
rih
isei
wye
ar-
!D
amie
net
Tra
bieg
.in
Yam
Dor
atio
nO
f B
enef
itsin
Yea
rs
Ral
e of
Ret
urn
(pew
ee.)
Iles
est Y
ds,'
be D
ans
I lio
sind
Am
oyIl
lajir
l1
Am
ass
10%
JOB
CO
MPS
:I
.'
Cai
n '
1966
-67
Nat
ionw
ide
'Jud
gmen
t .Sa
mpl
ePr
ogra
mPa
rtic
ipan
tsN
o-dt
ows
3756
3756
.193
193
1 1
10,45
Nes
4.4
Nes
Neg
Nes
Nag
2.0E
019
66-6
8 '
Nat
ionw
ide
Prog
ram
Part
icip
anti
`
.
Bef
ore-
afte
rco
snpa
ri-
Ion
3613
3613
774
774
14.1 1
10 45.
,16
.921
.422
5196
6110
3936
55
3.R
esou
rce
Man
agem
ent
Cor
pora
tion
a. M
ales
.
b. F
emal
es
1965
-68
Nat
ionl
ide
Judg
men
tSa
mpl
e
Prog
ram
Part
icip
ants
No-
show
s
. 3756
3756
3756
3756
87 87 135
135
:1. 1 1 1
10 46 10 46
'
Nes
Nes
Meg 2.4
Net
Neg
Neg
Nes
Nes
Neg
Meg
Nes
NY
C O
sit-
of-
Scho
ol:
4.'B
orns
, et a
l.19
67In
dian
aPr
ogra
mPa
rtic
ipan
ts.
No-
show
s,E
ligib
leN
on-p
w-
561
561
172
172
I
1 1
10 4728
.130
.7, 7
3124
1145
110
36
NY
C in
Scbo
alan
d B
anos
erS
5.So
mer
s an
dSt
rom
sdor
fer
1965
-69
Nat
ionw
ide
,
..
Prog
ram
Part
icip
ants
,tici
pant
s
Elig
ible
Non
-Pa
rtic
i-pa
nts
,--
-
0
a. I
n-Sc
hool
b. S
umm
er.
c. C
ombi
ned
In-
Scho
ol a
ndSu
mne
r'1
I
46 41
502
2e 44
7310
80.4
429
382
421
128.
033
230
510
1860
.033
128
5
Not
es:
I. T
his
cate
gory
is f
or N
YC
par
ticip
ants
who
per
ticip
ated
in b
oth
a su
mm
er a
nd a
n in
-sch
ool
2. T
hese
are
mon
thly
cos
ts.
3. D
urat
ion
is e
xpre
ssed
in m
onth
s.T
his
mon
thly
ben
efit
is n
ot s
tatis
tical
ly d
iffe
rent
fro
m z
ero.
5. G
eral
d D
. Rob
in in
his
stu
dy o
f th
e in
-sch
ool N
eigh
borh
ood
You
th C
orps
fou
nd n
o ef
fect
rate
for
NY
C p
artic
ipan
ts. (
See
Rob
in, I
969
,1II
.) S
ince
this
stu
dy w
aren
act
ual c
ontr
olle
dproj
ect.
for
the
prog
ram
in r
educ
ing
the
drop
out
expe
rim
en1
mod
el, t
he r
esul
ts a
re o
fso
me
inte
rest
Som
ers
and
Stro
msd
orfe
r (1
970,
111
) fo
und
only
a m
inim
al e
ffec
t of
the
the
drop
out r
ate.
Nam
ely,
an
addi
tiona
l mon
th in
the
prog
ram
incr
ease
d sc
hool
atte
ndan
cein
-sch
ool
and
sum
mer
NY
C o
n re
duci
ngy
one
addi
tiona
l day
.
SoU
rces
:1.
Gle
n G
. Cai
n, "
Ben
efit/
Cos
t Ana
lyse
s fo
r Jo
b C
orps
," M
adis
on, W
isco
nsin
, 196
7.2.
Off
ice
of E
cono
mic
Opp
ortu
nity
, A a
nd X
Rep
orts
Na
II, "
Job
Cor
ps B
enef
it/C
ost S
Plan
s m
id E
valu
atio
n D
ivis
ion,
Pla
ns a
nd P
rogr
am D
irec
tota
te, J
ob C
orps
, Was
hing
ton,
DC
.y,
" E
valu
atio
n an
d R
esea
rch
Bra
nch,
3. B
enef
its a
re ta
ken
from
: Res
ourc
e M
anag
emen
t Cor
pora
tion,
-Ere
issa
tions
of
the
Now
int
Ana
lysi
s- f
or M
enpo
ner
botto
ms,
IN
C R
epor
t 131
-054
, Bet
hesd
a, M
aryl
and,
196
9.'O
lene
fit/C
ost
.," o
p. c
it., 1
967.
eery
: The
Fea
sibi
lity
of B
enef
it-C
ost
osts
are
take
n fr
om: G
len
G. C
ain,
.
4. B
onn,
Mic
hael
E.,
et e
t, "A
Ben
efit
Cos
t Ana
lyis
of
the
Nei
ghbo
rhoo
d Y
outh
Cor
ps:
elc-
4orw
reef
of
flur
rene
Res
t:duc
es, 5
, 139
-159
, Spr
ing,
197
0.So
mer
s, G
eral
d G
. and
Str
omsd
orfe
r, E
rnst
W.,
A C
ost-
Eff
ectir
enes
s St
udy
of th
e In
-Sch
Out
-of-
Scho
ol P
rogr
am in
Ind
irin
a,"
end
Sum
mer
Nei
ghbo
rhoo
d Y
outh
Cor
ps, M
adis
on, W
isco
nsin
, 197
0.
'.
-.
.
.
.
,.
.
iT
AB
LE
10
--
CO
MP
AR
AT
IVE
AN
ALY
SIS
OF
UN
EM
PLO
YM
EN
T R
ED
UC
MD
TA
AN
D A
RA
INS
TIT
UT
ION
AL
RE
TR
AIN
ING
.
,
a
.
,'
";*
'
c,
.
OF
Nam
e of
Stu
dy
.
Tim
e Pe
riod
of S
tudy
..
LO
CO
S of
&na
yE
xper
imen
tal
Gro
up
1,...
7.
.,-
-"--
- _
Com
a& G
roup
.
Var
iabl
es C
ontr
olle
d
1 .
Met
hod
Con
t,of
Ited
ectin
inU
lm 1
110Y
-m
eat R
ate
ter
cotta
ge r
ims)
Peri
odM
aim
edN
umbe
r of
Olm
emat
ions
I. B
orus
;
1962
-63
Con
nect
icut
.
AR
A a
nd s
tate
prog
ram
!
grad
uate
s
Une
mpl
oyed
wor
kers
who
refu
scd
trai
ning
Age
; Edu
catio
n; M
arita
lst
atus
; No.
old
epen
dent
s;co
urse
are
a; w
eeks
fro
men
d of
trai
ning
to in
terv
iew
;tr
aini
ng s
tatu
s.
1.,
Reg
ress
itinh
I
Com
plet
e-D
idno
t use
Tra
in-
ing:
-95
-
Dro
pout
with
out e
m7
ploy
men
t: -
12.5
(ind
of
trai
ning
to in
ter-
view
285
2. G
ibba
rd &
SWIM
S19
59-6
3.
Wes
t Vir
gini
aA
RA
and
sta
tepr
ogra
mgr
adua
tes
.
Une
mpl
oyed
and
unde
r-em
ploy
edw
orke
rstr
aini
ng
Age
; Edu
tion;
Mar
ital
stat
us; s
ex; r
aft;
labo
rm
arke
t are
a; p
rior
labo
rfo
rce
expe
rien
ce; r
egul
aroc
cupa
tion;
pre
viou
sm
obili
ty; y
ear
and
quar
ter
of tr
aini
ng e
nd; t
rain
ing
stat
us.
Reg
ress
ion
1 6
,
Dro
pout
s: n
odi
ffer
ence
.. N
ot a
ccep
ted:
-27.
7D
id n
otre
port
: -20
.8N
ontr
aine
es:
;28.
8
1 ye
araf
ter
trai
ning
1065 -
3. M
ain
0
1965
-66
Nat
ionw
ide
MD
TA
gra
du-
ates
and
drop
outs
-c
Une
mpl
oyed
rela
tives
and
.,ne
jObo
rs
Ay;
Edu
catio
n., M
arita
l!
stat
us; s
ex; r
ace;
reg
ion;
I
mon
ths
unem
ploy
ed 1
yea
rbe
fore
trai
ning
; mai
n w
age
earn
er; c
hild
ren
unde
r i 8
;tr
aini
ng s
tatu
s.
Reg
ress
ion2
',
_
Con
trol
s:-2
0.0
-
End
of
trai
ning
toin
terv
iew
2260
,
4. S
olie
(m
ales
only
)V
*
1962
-64
Ten
ness
eeV
.
AR
A g
radu
ates
.
Rek
ts-
Dro
pout
sN
ontr
aine
es
Age
; edu
catio
n; m
arita
l'
stat
us; l
abor
mar
ket a
rea;
prio
r la
bor
forc
e ex
peri
-en
ce;-
occu
patio
n; m
obili
ty;
prev
ious
trai
ning
; tra
inin
gst
atus
.
Reg
reni
on.2
5
V
Rej
ects
: No
diff
eren
ceD
ropo
uts:
-12.
5N
ontr
aine
es:
-13.
0
24 m
onth
saf
ter
trai
ning
217
5. S
trom
sdor
fer
1959
-63
Wes
t Vir
gini
aA
RA
gra
duat
es' D
ropo
uts
Age
; edu
catio
n; m
arita
lR
egr4
sion
Dro
pout
s: -
8.11
8-m
onth
879
Rej
ects
stat
us; s
ex; r
ace;
labo
r7
Rej
ects
: -26
.0pe
riod
-N
on-r
epor
ters
mar
ket a
rea;
pri
or la
bor
Non
-rep
orte
rs:a
fter
Non
tram
ees
forc
e ex
peri
ence
;reg
ular
-26.
7tr
aini
ng1
occu
patic
in; m
obili
ty;
Non
trai
nees
:tr
aini
ng s
tatu
s.-1
93'
Not
es:
1. T
he 'v
alue
in th
e co
lum
n Is
the
coef
fici
ent o
f th
e m
ultip
le d
eter
min
atio
n.T
hus,
in th
e G
ibba
rd a
nd S
omer
s st
udy,
the
vari
able
sin
clud
ed in
the
regr
essi
on a
ceou
nted
for
16
perc
ent o
f th
e va
rian
ce in
the r
ate
of e
mpl
oym
ent i
n th
e 12
-mon
tli p
eriO
d af
ter
the
end
of tr
aini
ng.
2. C
oeff
icie
nt o
f m
ultip
le,d
eter
min
atio
n w
as n
ot r
epor
ted.
.4C
111
Sour
ces:
For
Mai
n, B
orus
and
Str
omsd
orfe
r, ie
e T
able
7-
2. H
arol
d A
. Gib
bard
and
Ger
ald
G. S
omer
s, "
Gov
ernm
ent R
etra
inin
gof
the
Une
mpl
oyed
rri
Wes
t Vir
gini
a,"
in G
eral
d G
. Som
ers,
(ed.
), R
efra
inin
g th
e U
nem
ploy
ed M
adis
on, W
isco
nsin
: Uni
vers
ityof
Wis
cons
in P
ress
, 196
8.R
icha
id J
. Sol
ie, "
An
Eva
luat
ion
of th
eE
ffec
ts o
f R
etra
inin
g in
Ten
ness
ee,"
in G
ikal
d G
: Som
ers,
(ed
.). R
etra
inin
gth
e
,
Une
mpl
oyed
Mad
ison
, Wis
cons
in: U
nive
rsity
of
Wis
cons
in P
ress
,19
68.
Naa
aeau
glig
mg
*TA
BL
E 1
1C
OM
PAR
AT
IVE
AN
AL
YSI
S O
F PE
RC
EN
T O
FT
IME
- E
MIL
OY
ED
FOR
VO
CA
TIO
NA
LSECONDARY EDUCATION
t
Nam
e of
Stu
dy
Tun
e ,
Peri
od o
fSt
udy.
.L
ocus
of
Stud
y.
aped
-m
enta
lG
roup
Con
trol
Gro
upV
aria
bks
CO
ntro
lkd
Met
hod
ofC
outr
oll
Dif
fere
ntia
lR
educ
tion
inU
nem
ploy
-.m
ent r
ate
(per
-ce
nt*
Pant
s)
' Peri
odM
easu
red
Num
ber
ofO
bsei
va-
tions
I .
liu, L
ee,
Stro
msd
orfz
r19
59-6
6
.
Bal
timor
e,Ph
ilade
lphi
a,D
etro
it
Voc
atio
nal-
Tec
hnic
alA
cade
mic
Cur
ricu
lum
;la
bor
mar
ket;
sex;
IQ
; rac
e;m
arita
l sta
tus;
V
fath
er's
edu
catio
n.
V
Reg
ress
iols
t yea
r:il
16t
h ye
ar:
.28
6-ye
arav
erag
e:.1
8
1St y
r.: 1
4.2
6th
yr.:
10.1
6-54
. ave
rage
:7.
5
.
1st y
ear,
6th
year
,av
erag
e
1255
2.. K
aufm
anan
d L
ewis
--
1958
-65
Thr
ee c
ities
in P
enns
yl-
vani
a
Voc
atio
nal-
Tec
hnic
alan
d,
Gen
eral
Bus
ines
s
'Aca
dem
ic
...
City
siz
e; I
Q;.
V
curr
icul
um.,"
sei-
race
;oc
cupa
tion
onfi
rst j
ob; p
ost-
high
scho
ol tr
aini
ng;
trai
ning
rel
ated
ness
of o
ccU
patio
n:
Reg
ress
ion
.12
Voc
atio
nal-
Tec
hnic
al:
5.7
Gen
eral
Bus
ines
s: 6
.1
..-Peri
odsi
nce
grad
uatio
n
.
1226
Not
es:
I T
he v
alue
in th
e co
luni
n is
the
cOef
f de
nt o
f ni
ultip
le d
eter
min
atio
n:T
hus,
in th
e H
u, it
a/.
stud
y, th
e va
non
ce in
the
perc
ent o
f tim
e em
ploy
ed in
the
firs
t yea
r af
ter
grad
uatin
g fr
om v
ocat
iona
l hig
h sc
hool
.
Sour
ces:
See
Tab
le S
..
.
les
cont
rolle
d ac
coun
for
I I
per
cent
of
the
vari
-
^
:+1
follow-Up data cellected by. Louis Harris Associates. Althongh.theassumptionsthese studies make concerning relative benefits differ somewhat, the differencesare not greet enough to cause major divergences in the estimated marginal rate 'ofreturn. In both studies-, .the rate of return Is less than the five percent ilowerbound assumed for the social cost rate of capital. The 0E0 study (study 42 inTable 9) of the lob Corps bases benefits on a before/after tomParison. Such acomparison has a built-in upward bias to It, although the magnitude of the bias isnot known. If foreed to make a judgment, we would judge that the NYC is amore efficient social investment than the lob Corps, since the itudy of Borns et .aL .(1970, 111) has had to make fewer compromises with optima! social sciencemethodology.
Finally, the infchool. NYC has some of theattributes of a cooperativevocational educatioror a work study program. That is, while the mein focus ofthe_imschool_NYCAs_to-reducethe-oppodunity-costsof- going-to school, thework experience is also intended to impart some skills, though there is nonecessary tie between the skills one uses on the NYC job and the courses onetakes in school. HoweVer, the in-schopl NYC is a substitute for cooPerativevOcational education-insofar as it imPtoves work discipline* and reduces theopportunity costs of high school education. While the Somers-Stroirsdorferstudy (1970; 111) shovis almost no effect of the in-school and summer NYC inreducing the high school diopout rate, as the table shows, the earnings benefitsattributable to the program are very higji, especially' in light of fne shod 18month benefit period.
Cost-Effectiveness Aspects of Education and Training Those studieswhich used regression analysis to estimate benefits also provided estimates of thenet gain .in employment\ due to their particular program. Tables 10 and 11display the results as well as show the basic structure of the regressionmodels.
The similarity of the results is noteworthy, given the differences inmethodologies. The Gibbard and Somers (1968, III) Main (1968, III) and Solie(1968, 111) studies all sugest a gain in employment over the nontraineecomparison iioup of greater than 10 percentage pe'dits but less than 30. Perhapsthe Main estimate of a 20 percentage point pin is the best estimate. TheStronsdorfer data is essentially the .same as the GibbardSomers data. The onlyconflict in the data is with respect to the experience of *opouts. Gibbard andSomers report no difference for dropouts vis-a-vis trainess, while Solie,Stromsdorfer (1968,111) and Borns (1964, III) report trainee employment gainsover dropouts in the area of 10 percentage points.
With respect to secondaty vocational-technical education,. the employmentpins over the study periods measured appear tà fall in a range frOna five to 10percent. (See Table 11.)
Impicts of VOcztional and Manpower Training on SdectedSociodemographic Groups
Tables 12 through 20 display the effects of vocational, technical andmanpower training on selected sociodemographic groups. Generally, this analysissu ffers from the fact that small cell sizes exist for many criticalsociodemographic subgrOups, thus resulting in ambiguous results.
a
'TABLE 12
NET EFFECTS ON EARNINGS (IN DOLLARS) AND EMPLOYMENT (INPERCENTAGE POINTS), VOCATIONAL VERSUS COMPREHENSIVE
GRADUATES FOR SEPARATE REGRESSIONS BY RACE AND SEX
Sarapk Gr oups
First Year AfterGraduation
Sixth Year AfterGraduation
'''t Average in1 Six Years
E2 N2 E N E N
White MaleComprehensive .
Vocational 43**3 9.0** 30 2.0 44** 5.7**n=854' ,(14) .(3.0) (16) (1.8) (14) (2.l)
Nonwhite maleComprehensiveVocational 21 9.0 61 7.1 49 4.7n=98 (27) (8.7) (38) (5.5) (29) (6.1)
White femaleComprehensive 1Vocational 65** 19.5** 9 4.4 46** 12.7**n=1522 ( 7) (2.1) (11) (2.4) (7) (1.6).
Nonwhite femaleComprehensive!Vocational 41** 10.8* 32 . 54 43** 9.3*n=293' . (13) (4.7) (21) (4.5) (13) (3.6)
Source:School Graduates," Journal of Human Resources; VI (1), Winter, 1971.
1 This regressot of the variable enters into the intercept term. The other regreslors of thevariable areinterpieted as deviations from this mgressor. The variablo of labor market,IQ, marital status, and father's education are included in the separate equations, but the tcoefficients are deleted here.
2 E denotes average before tax monthly earnings, and N denotes percent of timeemployed. .
3 These itatistics are the partial regression coefficient and (in parentheses) the standarderror of the coefficient. The statistic indicates that white male vocational graduatesearned $43 more per month than did white male comprehensive graduates in the firstyear after graduation.
. * significant at the .0! level of significance, two-tailed test." significant at the .01 level Ofsignificance, two-tailed test.
Teh-wei Hu, et al., "Economic Returns te Vocational and Comprehensive High
One of the major questions plaguing the analysis of the effects ofvocational education is the issue concerning the length of time that benefitspersist. Table 12 shows that for one study for white and nonwhite males andfemales, benefits to vocational education tend to disappear after about six years.This contrasts' with the results in Eninger's study (1965, 11) of T and 1 educationfor males which estimated that benefits tend to disappear after 10 years. Thus, it
70
seems apparent that the high advantage vocational graduates eAperience doestend to disappear. The question is why, and this has not been adequatelyanalyzed. The reason may be that comprehensive students gain more on-the-jobtraining than do vocational students. Hu, et a/. (1969,11) found that high schoolgraduates completing some post-high school education hadhigher earnings ($396per year) in the sixth year after leaving high school and were employed twomore weeks during that year. But they did not investigate the exact reasons forthe,sonvergence of earnings from the standpoint of on-the-job training.
It may also be possible that comprehensive graduates have access to-jobladders which allow a more rapid earnings progression (which also implies greateropportunity for on-the-job training). This hypothesis, too, remains to be,investigated.
Vocational Education and Blacks. Table 13 displays evidence of the .premium which blacks pay to participate in the labor market.
The socially disruptive effects of racial discrimination extend throughoutthe labor market and result id generally lower earnings and eMployment ofnonwhites, both for those who elect a comprehensive high school curriculumand those who study within the vocational-technical curriculum.
Labor market discrithination based on race may be considered as of twokinds. The first can be termed "historical discrimination," attributable to
-practices and institutions that result in a generally lower leVel of health,education, and training for the nonwhite population coMpared to the whitepopulation. The second can be termed "current labor market discrimination,"the result of discrimMation between nonwhites and whites who have equalproductivity in the labor market.
. The analysis which follows is one of current labor market discrimination.The sample of observations are derived from nonwhite and white high schoolgraduates from the 1959-60 graduating classes in Detroit, Philadelphia, andBaltimore. None of these graduates had any post-secondary or two year or fouryear college education at the time they were interviewed, six years after theirgraduation. In addition, the white and nonwhite samples were futtherstandardized on the basis. of IQ, father's education, sex, marital status, type ofcurriculum followed in high School; and condition of the labor market at thetime of graduation. To our knowledge, this is the only major study of racialdiscriminatiMfrin the labsar market that controls for all the above influencessimultaneously and, hence,. isolates in its present form the effects of currentlabor market discrimination on nonwhites. Table 13 shows the .results of theanalysis of a random sample of white and nonwhite high school graduates inthree northern cities..
In the first Year after graduation white vocational-kademic graduates earn$124 more per month than do nonwhite graduates from that curriculum. Also,the whites are employed 30.63 percentage points more than nonwhite graduates.By the sixth year after high school graduation there is no statistically significantdifference in the earnings of white and nonwhite vocational-academic graduates.Howeier, in order to achieve earning equality, nonwhites must be employed8.44 percentage points more than whites.,
71
-
5
1.
TABLE 13
EPFECTS OF RACIAL DISCRIMINATION ON EARNINGSAND EMPLOYMENT FOR GRADUATES FROM SELECTED SECONDARY
CURRICULUMS. THREE NORTHERN CITIES, 19S 9-60.19661
- .Average Mint My More
Tax brainyPercent of Time
Employed
Sixth6-YewAverap First Sixth
6-YearAverage
Vocational-Academic and Vocational-Technical Secondary Graduates,Total Samplen = 1080 '
Maion = 322
Females i
n= 758 1
124**(13)
144**(33)
120**(14)
-6(19)
106**,(35)
-20(20)
81**(14)
145**(31)
71**(14)
30.61**(3.91)
22.11**10.4)
32.910!(3.6)
-84* __12.0**(3.5)
2.0(4.4)
-7.6(4.5)
(2.6)
9:7*(4.5)
15.8**(3.0)
Comprehensive Secondary Graduates- .
Total Samplen = 1687
Malesn = 630 ,Femalesn = 1057
100** 24(12) (17)
99** 145**i (27) (32)
: 93** -11(11) .(18)
76**(11)
123**(26)
59**(11)
23.6**' (3.1)
17.1**(6.0)
24.0**(3.6)
-6.0*(2.9)
.
7.0(3.9)
-8.7*(3.7)
1.1**(2.3)
10.9*(4.3)
11.1**(2.7)
Source: Unpublished data from Teh-wei Hu, et aL, A Cost Effectiveness Analysis ofVocational Edswatkat, Institute for Research on Human Resources, ThePennsylvania State University, University Park, Pennsylvania, March, 1969.
1. This analysis standardizes for the effects of month and Year of high school graduation,\ labor market at the time of graduation, IQ, post-high school training other than 2-year or
4-year college, education, marital status, sex and father's education. Thus, the differencesbetween whites and blacks in this analyds are a very close measure of currept racialdiscrimination prictkes as they existed rz three northern cities from 1959-60 through1966.
There statistics are the partial regression coefficients and their stizdard errors inparentheres. The partial regression coefficient Is interpreted as follows: It measures thedifference between average earnings or employment of white graduates and blackgraduates. Thus, white vocational-technical graduates earned $124 more per Month thanblr ck vocational graduater in the first year after they graduated.
2. First = first year after graduation; Sixth = sixth year after 'graduation; 6-year average =average experience during the 6-year period after graduation.
** significant at the .01 level of significance, two-taled test.significant at the .05 level of significance, two-tailed test.
72 so
0
The' data show, that discrimination as meatured by monthly earnings is ..
more serious in in :absolute sense for nonwhite' male vOCaticinal-technicalgraduates than , it is for their nonwhite fenule counterparts: White Malevocational-technical graduates earn $144 more per.month than their nonwhitecOunterparts in the first year after graduation; white femakiocational-technicalgraduates earn $120 more per month in the first year after graduation than theirnonwhite counterparts.
. . .
.
In the sixth year after graduation white males' earl $106 more than theirnonwhite male Vocational-technical counterparts. Although there' i nostatistically significant difference between the earnings of the two female thnicgroups,.the nonwhite. females are financially better off in that they are ea ian average: of $20 per month more and winking an average 7.56 percentagepoints less time than their white female cOunterpart4 The nonwhite malevoCationakechnical graduates, in addition, to earning $106 per Month less thanthe white graduates, are shown as wosking More '(2.0 percentage points).
The picture Pi slightly. different for COMprehaiiive high school r.aduates. .
In the first year after graduation, Whites earn $100 'a month more than ..
nonwhites and Whites are employed 23.57 percentage 'points more. In the sixthyear after. graduation there is no difference in monthly earnings between these .
racial groupings, butto achieve thia, nonwhites must work six perCentage pointsmore than their white comprehensive program counterparts. Whereas for .
'nonwhite male vocational-technical graduates the absolute . earnings cost ofdistriminatiem improved somewhat over The six-year post-graduation period, fornonwhite 'mile comprehensiVe graduates the impact of discrimination increased.In the first year nonwhites earned only $99 per month less than their *tatecounterparts; the difference increased to $145 per month in the sixth year aftergraduation. For nonwhite female comprehensive graduates the eaminipsituationUnproved. There was a $93 pet mpnth difference in the first year. In the sixth
year there was no statistically significant difference in eariiings, but this waSachieved only because nonwhite female comprehensive graduates worked 8.69percentage points more in the sli!th year than did their white femalecounterparts. , '
Thus, for a black male oi othetnonwhite 'male, it isbetter in the.lonirunto be vocational-technical graduate,than a comprehensive high ichool graduate.It will cost about,$39.á month less in-current labor market. discrimination.Among nonwhite females, however, the absolute iiiktimination costis lower forcomprehensive gradnates'than, for vocational-technical graduatiii, *- \
Education and Dropout Behavior. High schooi dropouts are inimportant sociemograPhic group whosemeeds are apparently not being Met by '
. the edOcational system. Thete-hasimn much criticism of vocational educationV because its dropont rate ha been highirthan that of .the academic curriculum.ty.
,Table 14 .ffives the relative dropout rates for Project TALENT Males. Thiscriticism oir vdcatiOnal-technical education is warranted, but is more coMplexthan a simple condemnation of the. program; as the discussion following thetable suggests.
As suggested previously, the, student who, takes the vocaVonaltechnicalcurliculum is someWhat . different froM the acadernie student in terms of
73
C) I
TABLE 14
DROPOUT RATES OF HIGH SCHOOL STUDENTSBY PROGRAM AND ABILITY QUARTIL!.!
0
( iAbility Quartde
High Si.hool Program Total ,
Low II IH High,
General 16.2 25.6 16.7 9.1 5.7 .
College Prep 3.9 22.5. 6.8 1.9 1.4COmmercial 12.5 .18.3 10.9 r 9 3 5.7Vocational 22.4 29.8 .. 18.7 8.7 .-- 2
, Agriculture 27.3 39.3 9.9 1_:___2 ___2
0
Dropput rates are based on information collected on 10th graders in 1940 and*.11ow-up analysis in 1963;.both miles and females are included.
2 The size of the population within the cell did notówarrint the calculation ofdmpout rates. -
Source: Unpublished data from Project -TALENT,--Reported in -Howard Vincent, "AnAnalysis of Vocational EducatiOn in Our Secondary Schools," Office of Program.Planning and Evaluation, U.S. Office of Education, July 21, 1967.
sOciodemographic backfround as well as in reasons' for choOsing a specific kind. ofedicalion. He may hakie a shorter time litUriztintitat is, he may value present
0economic gain more highly thin future econninic gain. This is an4mderstandablebehavior pattern for the disadvantaged person who is enrolled in vocational;courses. Likewise, the yocattnal student may value the money incomecof a jobmore highly and the' statin of rjob less higIdy thini would an academic graduate.Also, he is training for a jots in which he is to be employed immediately uponleavinghigh school.Wherilabor markets are tig& he does 'not niceisarily need tobe a high school graduate to get this job as long as he has thi skills necessary iomeet the occupational minimum. (There is /a direct relation between.; theunemPloyment rate and the high school retenlion 'rate which backs upthi;hypothesis). Thus, he miy, in Fleet, be able to fulfill thi fnirpose 'Of the
.
programplacement in a job dropping out of school. , In contras the.academic student Must have a hiei school diplopia in order to proCeed t ahenext step in hisnectipational.cireercollege attendance. Also; the ultimate I;the college-bound. student strives for is different from that for which thvocational graduate 'strives. One May be able to get such a job if he is a c011ege
. diopout, but not if he is a high school dropout. In short', the comnbination ofdifferent 'sOciodemographic ackground, different .'weights on incoMe vertils
:status, different time .horixonsand different constraints op job' entry (e.g., highschool diploma,pecessary/not necessary) Make it inevitable .tkat therewill be ahigher gioss drimout rate for vocational-technical educatioii: The phenomenon0 P
ia fact; built into the program.What the data in Table 14 suggest; therefore, is that the calendar time
, spent in a vocational-technical program may be too long. This pOssible excessivetime is actually the'reiult of a curriculum mix that is forced upon the students
TABLE 15 .
PRESENT VALUE OP EARNING STREAMS FOR MALES AGE 17BY OCCUPATION, YEARVIF SCHOOL COMPLETED, AND ETHNIC
LA li CAMP.' , Ir 'IJR. II nr. ILAN! IDLY 0 11 Pt I ZO, 1177U .
Whiteommmo
Nonwhite
. Experienced Civilian Labor ForceHS 4 .$38,384 $26,329HS 1-3 35 960 23 645
2,424 2,684.' Experienced Civilian Labor Force -
HS 4 . 39,0182HS 1-3 / 36 6012
2,417
. Professional, Technical and KindredHS 4 44,428 33,0373HS 1-3 42 448
1,980
. Designers and DraftsmenHS 4 ,HS 1-3
46,98046 41 1
.
5695. Farmers and Farm Managers . .
HS 4 ... 22,762HS 1-3 21507
1,255
. Managers, Officials and Proprietors'HS 4 45,941HS 1-3 0 45 869
72
. . Buyers and Department Store HeadsHS 4 46,049HS 1-3 - 46 891 ,
-842. Clerical and Kindred
HS 4 37,066 31,7 13HS 1,3 35 770 30 952
1,296 761. Bookkeep!rs
HS 4 35,902HS 1-3 . 35 065
.. 837
10. Shipping and Receiving Clerks ., HS 4 34,730 31,9882HS 1-3 35 689 36,2 13
-959-- -4,22511. A11 Other Clerical . ,
HS 4 _ -- -
HS 1-3 '
36,525 __,35 699 \
-28,767328 012
.. - 1,826 755
White Nonwhite12. Sales Workers
HS 4 $38,067 $28,2812HS 1-3 32 178
: 5,889_4642----0/
1 . Insurance, Brokers and UnderwritersHS 4 44,430HS 1-3 45 464
1,0341 . Craftsmen, Foremen and Kindred
HS 4 42,548 30,956
\HS 1-3 42 155 28 727
393 2,22915. Brickmasons, Stonemasons and Tile
HS 4 45,081HS 1-3 - 42 539
2,54216. Carpenters
HS 4 3&,449HS 1-3 38,624
---1773-
17. Compositors and TypesettersHS 4
, HS 1-3
,42,85944 979
.
2,12018. Electricians
HS 4 . 46,103HS 1- 3' 48 3582,255 ..
19. Lineman and Service. HS 4 46,889
HS 1-3 48,9922,033
20. Machinists ._HS 4 - . 43,707HS 1-3 44 187
2 . Mechanics and Repairmen- HS 4 . 38,816
HS 1-3 38 769'' ,/.1," 47
22. Airplane Mechanics and Repair, HS-4 45,0493
HS '1-3.
- . 45 149
23. Auto Mechanics and RepairHS 4 . 35,962
.
HS 1-3 36 428..
-76
t.a
White Non White2 . Painters, Construction and Maintenance
$35,51 1HS 1-3 32,925
-1,37g25. Plumbers and Ilpefitters
HS 4 46,446HS 1-3 45 427
1,10926. Toolmakers and Diemakers, Setters
HS 4HS1-3
52,8475321 1,
-38427. Operadves and Kindred
.. HS 4 37,576 27,167HS 1-3 36 821 26 5 19
765 64828. Truck and Tractor Drivers
H$ 4 37,502HS 1-3 3,8 997 .
--1,4-9529. Other Specified Operatives
tIS 4 . : 37,089 25,9073HS 1-3 35,256 25,729
1,833 -178Service Workers
.
HS 4.
HS 1-3 .
30,86027 431
21,24920 170 -
3,429 1,07931. Barbers
HS 4 33,622HS 1-3
--TA-2-3
32. Protective Service Workers11S4 41,895HS 1-3 40 453
1,44233. Other Service lilduding Households
HS 4 . 24,659 20,330HS 1-3. 22 720 19 754
1,939 1 57634. Farm Laborers & Foremen
18,693 1 1 ,6022HS 1-3 16,540 9 7842
2,153 1,818Notes:1 'The data presented were calculated as follows:
Return to 4 at age 17 = 'Y4 17'- + Y4 ig + Y4-64
(1+01
I
Return to 1-3 at age 17.= + y1-318
y1-364
IS
(1+01 0+02 (1+048
where .,
Y4 and Y1-3 = median earnings of those with 4 years of high school and0 1-3 years, respectively, subscripts refer to agg,
and
17= 0 by assumption.
AlsO
'Y18 = Y19 = = Y24
Y25 =. Y26 = Y34
and
. Y55 = Y56. 6 Y64 for Y4 and Y1-3,again, by issuMption,',..
= 10 percent
2 Age 18-24 and 2564 cohorts used.3 Age 55-64 cohort earnings estimated.
Source:
Stuart 0. Schweitzer, "Occupational Choice, High School Graduation, and Investment inHuman CapitaV Hearings of the Joint Economic Committee, Subwmmittee on Economyin Government, National Priorities,.1-18 June 1970.
bin which may not correspond to labor market realities or the needs andlong-term plans of students. The MDTA program purports to give a Man entrylevel skills after no more than 52 weeks or one calendar year of training. Whatpoint is there in dragging out the education for this equivalent goal to twocalendar years in high school? The dropout rate from vocational-technicaleducation might be reduced if the calendar time spent in high school were cid,by one year, from four to three years. As Table 15 shows, an additional calendaryear of high school is a detriment to preparation in a number Of occupations,such as electrician and machinist. One should note, also, that most of the
. occupations listed represent skill specialties offered in vocational-technicalschools.
Finally, further evidence to support 'this hypothesis is found 7n the studyon low achievers (defined as those potential inductees who failed to pass theArmed Forces Qualification Test) by -nansen, Weisbrod and Scankni (1970, H).The authors found that extra education, in the sense ofadditional, years ofschooling, was of much less value in improving earnings than were various typesof skill trair;ng learned outside Of school. in short, they. point up the crucial.difference between extended time in school, versus what one aztually learns inschool.
1
18.
i770
,
.4A
TABLE 16
IMPACT OF MANPOWER TRAINING .ON SELECTED. SOCIODEMOGRAPHIC GROUPS,
PERCENT OF TIME EMPLOYED IN 18-MONTH POST-TRAINING PERIOD
SampleSubgroup
.
DropoutDid Not.Report
Non-Trainee -
b
(s)
b(s) (s)
m
(s)
Total .
Sam . le .8.9* -25.2* -1 8.1* 60.3 -(n=854) (3.5) (5.6) (3.6) (30.9)lEduation .
D-8 -26.3* -47.6* -29.8* 46.3(n=207) (9.9) (12.5) (8.6) (38.6)9-11 -9.5 -164 --21.4* 59.9(n=254) (6.4) (10.1) (6.6) (35.8)12 -6.0 18.4* -10.9 68.0(n=320) (5.2) (8.7) (5.8) (35.1)13 and over -10.4 -4.0 -40.0* 675(n=73) (10.6) (28.8) (10.7) (32.5)
Alli30 or less -5.5 -14.7 -8.9 63.9(n=408) (4.7) (6.9) (5.0) (34.7)31-45 -9.6 , -302* -21-7e 59.0(n=321) (6.9) (10.1) (6.2) (38.3)46 and over , -42.0* .86.3* -36.9* 51.9(n=125) (123) (22.6) (1 13) (39.3)Sex .
Male -5,4 -25.0* -14.7* 63.8(n=618) (3.8) . (6.6) (4.5) (36.2)FeMale 0 -7.0 -21.7* -1 5.4* 50.9(n=236) (8.8) (10.2) (6.4) (37.4)
Age and Sex -
Mak -
30 or less -7.0 .19.1 12.0 68.8(n..-'3V8) (5.0) (8.1) (6.2) (33.4)31-45 :3.8 -30.6* -19.7* . 62.7(n=218) 1 7.3) (13.2) (8.3) (37.6)46 and over I -24.1 -68.5* -16.4 -.. 47.9(n=82) (21.3) (34.2) (21.9) (38.0)Female ii .
30 or less -0.6 -21.1 2.4 46.4(n=90) (14.2) (14.0) (9.2) (33.5) ,31-45 25.3 0 -17.4 -23.4*
, 51.3(n=103) (12.0) (15.2) 449.8) . '',.3.7)
a.
-
79
.45 and civet(n=43)
Prior LaborForte Experience
-97.5*(33.4)
-102,4(42.3)
-61.5*(25.1)
-
59.6(41.0)
NLF 47.5 -40.5* -23.3* 52.5(n=131) (9.9) (15.9) (9.0) (39.2)
UE 6 mos. or less -2.7 -23.0 -19.1* 67.9(n=173) (6.6) (13.9) (7.7) (33.1)UE over 6 months 14.6* -20.5* ;236* 46.8(n=242) (6.6) (11,8) (7.2) (38.4)EMI) 6 mos. or less 1.7 5.9 17.1 66.9(n=69) (i3.0) (22.2) (21.0) (34.4)EMI) over 6 months 0.9 -11,8 4.2 70.8(n=239) (7.8) (10,2) (7.6) (32.3)Eth* Origin .
White -9.2* -24.1* -18.1* 60.7(n=831) (3.5) (5.8) (3.6) (36.8)Marital StatusMarried -9.7 * -24.8* -17.0* 60.6(n=586) (4.2) , -----(7.1) (4.3) (38.0)Single -23.7* -16.3* 60.3(n=198) (7.6) (10.1) (7.6) (34.5)Widowed, Separatedor Divorced -6.2 -21.0 -1.6 57.2(n=70) (15.3) (27.6) (17.0) (35.3)
Notes: Significant at the .05 level or higher.b lathe partial regression coefficient.
(s) is the standard error of the partial regression coefficient or standard deviationof the mean.
m mean of the dependent variable.(n) is the number of observations in the interaction subsample.
-In addition to what is shown in the table for each int( raction equation:1. All equations contain a labor market variable in dummy form.2. All equrtions contain a job placement variable in f summy form.3. No equic.3n contains the ago-sex interaction sets4. Age and age squared are in equations containing an edue.ation variable..5. Education and education squared ate in the eqrations containing an age variable.6. All equations contain a mobility variable in chunmy form.7. The regreuor for the "Reject" training status is included in the model but omiited in the
table.
Thils, for example, for all respondents who have only 0-8 years of education, the followingindependent variables are used to explain earnings and employment: age and age squared;sex for male and female; labor market area for Charleston and Huntington, and McDowell,
c-Monongalia, and Harrison counties; prior labor force experience-NLF. 6 mos. or less, NLF°over 6 mos., UE 6 mos. or less, UE over 6 mos., EMP 6. mos. or less rind EMP over 6 mOs.;placement effort-metal working skills and 4raining for a specific company; maritalstatumarried, singia, widowed and separated or divorced; race-white and nonwhite;mobility-whether or not a person moved any distance at all; and, rmally, the training status_variable as shoWn. Thusa the same equation is run for the respondents who are 30 years oldor less, except that education ind education squared are substituted for the ago-variable. .
80
A
The values of the partial regression coefficients ;for the training status variable aredifferences from the trainee regressor which enters the intercept term. Thus, thosenontrainees who had only 0-8 years of education werf employed 29.9 percentage points lesstime than the trainees over the 18-month post-retraining period.
Source:
Unpublished data, West Virginia Retraining Research Project, Department of Economics,University of Wisconsin, Madison, Wisconsin.
Effects of Manpower Training on Sociodemographic Groups. Tables 16and 17 give a detailed analysis of the effects of Ares Redevelopment Training onseveral crucial sociodemographic groups in terms of earnings and employment..The pattern of net effects of retraining among the independent variables isdifferent in terms of size, sign, and statistical significance for the two dependentvariables. The independent variables generally explain more of the variation inthe earnings variable than they do for the employment variable. The coefficientsof determination as a group tend to be significant at a higher level of statisticalsignificance with respect to the earnings compared to the employment variable.
Employment. Major interest in this study lies in the size, sign, andstatistical significance of the partial regression coefficient of the nontrainee
, regressor of the training status variable. If retraining is effective, nontraineesshould have less favorable employment and earnings experience than treinees.Therefore, the sign of the partial regression coefficient of the nontraineeregressor should be negative since the nontrainee experience is-interpreted interms of its deviation from the trainee experience. Retraining should raise themarginal productivity of the trainee, other things equal, and hence, trahseesshould have higher employment or earnings than nontrainees.4 With respect toem loyment, this is generally the case. Exclusive of the results for the totalsample, 16 of the equations in Table 16 show that retraining has a positiveand statistically significant effect on post-training employment. Eight equationsshow no statistical difference, though the signs are negative but for two cases.
Of interest is the suggestion in the data that retraining has been of greaterhelp to those persons with greater labor mirket disabilities than to those personswho have higher labor market qualifications. Thus, for those with only 0-8 yearsèf education, trainees are employed 29.9 percentagi points more or 5.4 mooths(18 x 29.9) longer than nontrainees. For those with 9-11 years education thedifference is 21.4 percentage points, or 3.8 months. And for those with 12 yearseducation the, net employment difference between trainees and nontraineesdrops to 10.9 percentage points, or 1.9 months. This is not entirely unexpectedsince it is theoretically reasonable to assume that a given amount of retrainingwill have I% larger impact on marginal productivity for a person with a low stockof skill or acquired ability than it will for a person with a high stock of skill. The13 and over education group represents an .abberation from this trend. Apossible reason for this abberation could be that the trainees with 11 or moreyears of education are still attending ccIlege while the nontrainee counterparts
4 For a given level of wages, eMployment will increase if productivity increases since this willincrease the demand for labor. For a given level of employment, wages will increase if productivity increases employment because the rise in productvity, other tMnp equal, will in-crease the demand.for labor.
-Al
are not. College students may be using the training process itself as a means toacquire part-time employmen t. However, the trend holds up for the age and theprior labor force experience subgroups. For those who are employed prior to thetime when retraining began, there is no statistically significant post-trainiiigemployment difference between trainees and nontrainees. For males or feinalesunder 30 years of age there is no statistical ,difference between trainees andnotitrainees. These results suggest that, if a goal of retraining is to increaseemployment, retraining efforts should be concentrated on those persons withlabor market disabilities the older, the less educated and the unemployed orthe non-labor force participant. Theyounger, more educated persons who have ahistory of very recent or con§istent employment tend to benefit very little fromretraining in terms of net incieases in employment.
The pattern of statistical significance for dropouts is of interest since thosedropouts who suffer the more severe labor market disabilities such as loweducation, advanced age or long-term unemployment, fare significantly worse .than the trainees. However, for most .other sample subgroups, there is nostatistically significant difference in employment between trainees and dropouts.This phenomenon does not mean that completion of retraining was of littlebenefit to the trainees, since dropouts had, on the average, completed aboutone-third of their retraining before dropping out and often took jobs in relatedtraining areas. However, one implication might be that, on the average, certaingroups of the unemployed need less training to prepare them for employment ina given job *an was being offered to those groups in the retraining programs. Ofcourse, this it the theme underlying the discussion of dropout behavior above.
Effects on Earnings. The advantages of retraining are less dramatic withrespect to increasing earnings than they are with respect to increasingemployment, if one of the major objectives .of retraining is .to significantlyincrease earnings, then, for the total sample, this objective is achieved. For thetotaLsample, trainees earn $43 per month more over the 18-month period thando nontrainees. The difference is significant at the .01 level of significance.However, the picture differs among the 24 sample subgroups. For these 24subgroups, only nirie of the differences in earnings between trainees andnontrainees are statistically significant. Four of the coefficient's for thenontrainees have a positive sign, implying negative benefits to retraining; but thecoefficients are not statistically significant, and so there is, in effect, nodifference in tarnings between the trainees and the nontrainees for those groups.Also, the lack of statistical significance for other groups, even though theregression coefficient has the appropriate negative sign, indicates no differencebetween trainees and nontrainees.
Again, there is a tendency, though not nearly as clear cut as withemployment, for retiaining to have the greatest absolute impaCt on earnings forthose with the more severe labor market disabilities. Trainees with 0-8 and 9-11-years of education, eam significantly more than nontrainees in the sameeducationatsubgroups but there is no statistical difference in 'earnings betweentrainees and nontrainees for 12 and 13 years or over of education. For thosewho were not in the labor force or who were unemployed for over six monthsbefore retraining began, retraining has a significant effect. But for those who
82
<,
TABLE 17IMPACT OF TRAINING ON SELECTED
SOCIODEMOGRAPH1C GROUPSTOTAL 18-MONTH POST-TRAINING EARNINGS, IN DOLLARS
Sample
IlligreluP
Dropout Did notReport
Non-Trainee
b
(s)
b(s)
b(s)
..
m
(s)
TotalSample -651* -1297* -782* 3199n=(854) (226) (3 59) (229) (2628)Education0-8 -1 137 -2318* -1 1 37* 2509(n=207) (668) (8 2 5) (583) (2562)9-11 -514 .........009 -1290* 3005(n=254) (404) (639) ' (42 0) (2592)1 2 a -677* -1032* -99 3614 -(11=320) (298) (502) (330) (2532)1 3 and over -1 129 3406 -742 4010(n=73) (918) (2488) (91 9) (2837)
Age30 or less I -978* -970* -534 3402(n=408) . (283) (4 16) (299) 12452)31-45 -119 -1266 4081* 3272(n=321) (425) (706) (43 3) (2893)46 and over(n=125)
. ,l'
-1 529*(774) '
-3598*(1398)-
-595(71 3)
2348(200)
SexMale -612* -1582* -800* 3868(n=618) - (280) , (484) (329) (2695) s
Feinale -343 -746 -273 1446(n=236) (331) . (385) (242) (1319)
Age and SexMale30 Or less -1 122 -1394* -745' 3985(n=318) (326) (53 5) (410) (2404)31-45 110 -1458 -979 4908(n=218) (586) (1059) : (666) (3039)._45 and.over -864 -3582 ll. 162 2808(n=82) (I 520) (2436) (1560) (2572)Female30 or less _ -90 -972 - 1 16 .1344
(n=90). (5 1 8) (509) (334)31°45 -262 -353(n=103) (502) ;(638) (409)46 and over -3062* -1 324 °
(n=43) Mf9) (1293) (768)Prior Labor ForceExperienceNEP -757 -1584 -758*(n=.1 31) (485) (780) (442)UE 6 mos or less -81 6 -167 -805(n=1 73) - (440) (9 6) (5 1 8)UE over 6 mos -934* 90 -1348*(n=242) (399) 71 8) (434)EMP 6 mos or less -173 1494 149(n=69) (1 779) (171 8) (1 628)EMP over 6 mos 31 8 -541 -62(n=239) (555) (726) (541)RaceWhite -689* 1244* -8 1 6*'(n=831) (226) (375) (228)
Marital StatusMarried -337 / -1 110* -664*(n=586) (277) (468) (282)Single -1 364 -1443* -1 1 29*(n=1 98) (450) (597) (45 3)Widowed , Separatedor Divorced 175 -925' 1 064(n=70) (794) (1430) (879)
Note: The notes of Table 16 aU apply to Table 17.
(1192)1524
(14,38)
1472(1288)
2034(2026)4004
(2550)2433
(2534)3825
(3064)3844
(2504)
32201(261 7)
3418(2762)2942
(2332)
120911 (1 822)
were employed before 'retraining or who were unemployed only six months orless, there is no *statistical difference: in earnings between the trainees andnontrainees. In short, while 'retraining pays well foi the study sample in theaggregate, important subgrom)vithin the sample have tended not to benefit atall on the average. These retalfi; of course, apply only to the specific saMple inthis study ?slid refer to a very specific locale and time so that generalizationsbeyond this sample are risky if riot inappropriate.
These reiults also highlight an important policy issue concerning theprivate and social objectives of retraining. If the objectiie of retraining is simplytO get people back to wotk, regardless of the wage tate they receive, then, on theaverage, even for rather specific categories of people, retraining can, be judged asuccess. for this sample. Rut, if the fiat1 of retraining is to yield a net moneybenefit over money costs, then retraininglr not been very effective, fer, certain
Ind 12
TABLE 18
ES11MATED NET EXPECTED INTERNAL RATES OFRETURN TO SELECTED TRAINEE SUIltROUPS
Trainee SubgroupAverage!
CostsDifferencein Average
Benefits
Social
Rite of Retarn4
Education .
74255$515591
656548525
789
21
789789789
401401401
.
321696590628687
576
599688
334
.
.
758860662
4952
35627203972
5331822
497653
-108
.
.77z,..,
32328822
5055732898.992412
544
- 443752
-71:12
\
.
98.91529
4.8794
,
46.1129.3 .
70.3
61.4
,35.4
56.2 L782 ..
- a
3
50.3219.3
1
155.9 4----;'777
150.7
_-__3__
90.7
.
168.5101.4
J.
0-8
9-11.1213 and over . a
AK30 or less31-45
-, 46 and over
SexMaleFemale
Sex and Age
Male.30 or less31-45
46 and over. .
Female
30 or less -
.31-45
46 and over,
Prior Labor Force.Expeilence
NFLDE 6,awaths or lessDE over 6 monthsEMP 6 months or lessEMP over 6 months
Race .
White
Marital StatusMarried -Single
. Widowed, Separated,Divorced
1 These isminp diffeientials ate the 18 month benefit diffe4tids adjested to a12 month basis:*
ett,
1
,17's
, .- ..2 'Not statistically significant.3 Negative rates of return are implied.4 A 10 year post-training benefit period is assumed. .
Source: Costs: Glen G. Cain and Ernst W. Stromsdorfer, "An Economic Evaluation ofGovernment Retraining Programs in West Virginia." in Gerald G. Somers, (ed.),Retraining the Unemployed MadisOn, Wisconsin, 1968. Table 1X.2, p. 313.
Renefitt Unpublished date West Virginia Retraining project.
tsan1i4stgroups gain little or no net monetary benefit on the average. Twoimplicions arise. First, perhaps some of these subgroups simply did not requireretraim or required less of it or different kinds than that which was offered.Second, erale may fail arid general disenchantment may result among thosesubgroups who do not benefit in money terms. Such an effect could threaten. the CsoCial and political commitment' of society to the entire retraining program and/could deprive of retraining those subgroups which can receive some benefit fromthe programs.
Investment Effects. The earnings data in Table 17 can be combined withcost data .from Cain and Stromsdorfer (1969, Ill) to provide estimates-of thesocial rates of return for these various groups. Table 18 displays the results. Forthose uses where the benefits are statistically significant, the rates are generallyvery high. In addition, the subgroups with the greatest labor market disabilitiestend Jo benefit the most. However, no female subgroup has benefit differentials
whic Neire statisdcally significant. For those _benefit differentials which lackstatist al significance, the rate of return is effectively zero. Were it true that thenegative-benefits-for ,certain subgroups sucl, as single trainees were statisticallysignificant; then'the internal rates here would be negative. Since they are notstatistically significant, the rate of return for tfiese'subgroups is effectively zero,too. ' _
_ When benefits are statistically significant, they equal the cost outlays in ayear or two, well within the data estimation pgriod of this study. Thus, even ifconsiderable umierestimation of money costs exists, which is not the case,adjustMent. for diis cost underestimation would still leave the rates Vry higfi.The same holds true for potential overestimation of benefits due 'to the/act thatbenefits are assumed to accrue by a constant amount for 10 vats aftrr training.-
The results from the Sewell study generally corroborate the findings in theWest Virginia Study. As Table 19 shovtipr both on-the-job and institutionaltraining, blacks benefit more dian whites in terms oreamings; those .over 44
1 . years benefit more than those under 21 y9irs. And farMeris and sharecroppers1benefit even more than those pehons ,fineMployed over<ix months. For'on-the-job training, thoSe with 0-8 years of education earn 13,dol1ars more perweek than thfir control gilups, and surpasi those with 9-11 grades of education
.... by two dollars per week, while the situatiski is reverse with respect to.instifutional training.. ," .11.
flii:ally, Table 20 brings-additional evidence to bear on these issues basedon thel Hardin and Borus study (1969, III). In additiOn it shows° the effect ofdifferent lengths a training. WhereSs the West Ihrginia study shows trainees
- earning about $780 more than nontraMees in an 18 month period after training,the Hardin and Borus study, shows irainees 1 skorter (60-200 class hours)t
..... -
86
TABLE 19 ,,IMPACT OF MANPOWER TRAINING ON WEEKJ.Y EARNINGS AND
HOURS WORKED PER WEEK FOR SELECTED DISADVANTAGED GROUPS
'
Sample Subgroup- -
Weekly earnings (dglism) Hours worked per week
On-the-jobTraining1
Mai.tutional2
On-the-jobTraining
Insti-tutional
Labor Force experienceprior to trainingFarmer (96) 17.8** 14.7** 4.1* 8.1**Unemployed over
6 months (37) 10.1* 8.4 4.3 -0.5 ,
ColorNonwhite (416) 8.9 7.5** 2.1* .2.1
Age as of 1 Jan., 196644 years & over (95) 1 7** 7.8 6.2** 73*Under. 2 1 years (79) 0.0 -8.8 2.6 0.9
Education0-8 grades (224) I 3.0** 7.0* , 4.8* , 4.0*9-11 grades-(l40)T ---1-110*-11-- llitut 3.8* 0.2
Notes: * Significant at the .0.5 level:** Significant at the .01 level.1 Net regression copfilcient for on-the-job training.2 Net regression coefficient for institutional training.
Nurnberg in parenthesis are the sample sies.
Source: David 0. Sewell, Training the Poor, KingstorL Onturio, 1971, Table 8, p. 70.
-training progrnms earning about $980 in a 12 'month period, or about twice themonthly benefits. However, the patterns of teturn respec, increasinglevels Of education is. similar, more educated people ben tles:-..biltr mightexpectkitt those who were previously. on Welfari benefit more than thosewho were not prior to the time training began. Again, it is inter sting4to note thegenerally negative benefits gained by those groups other than nonwhites and -
those whites of 5-8 yeais education who stayed in the training program for over.200 hours of instruction.
. .
Effects of Vocational and Manpower Training by Program Area' and Skill
There are very few good studies of the differential earnings benefits ofvocational program areas or pccupational skills. There are no useful benefit-costanalyses by skills, mainly because of the difficulty of collecting costidata by
4° skill. It is difficult enough to collect on the basis of broad curriculurplateas or
87
1-
TABLE 20SOCIAL ECONOMIC BENEFITS OF TRAINING BY,
SOCIOECONOMIC GROUPS FOR VARYING:LENGTHS OF TRAINING, IN DOLLARS
.° Socioeconomic Group Clumoom noon Per Trainee
64200 201-1920
, . .Whole SanipliWhite Men ..
White WomenNonwhite MenNonwhite *Millen ,
White, 54 Years Education" White, 9-11 Years Education
White, 12 years & over EducationNoneihite,. 5-8 Years EduCation.Nonwhite, 9-11 Years Education _
Nonwhite, 12 Years & Over EdncationPrior Welfare:
IYes I, r
NoTraining Occupation:
FactoryHealth Care -.
OfficeAuto Repsir.Other
,
,
S 976670998
1,3851;3121,002
829750
1,330. 1,293
1,359
1,049959
8451,140
1
negative-3
-129-247
-60305171
-1512
2,0011,553
-44-61
-15-251
-9810
-123716
-1060
Notes;
Source:
1 No. 60-200 hour classes were intended for office occupations.2 there is only one obiervadon for this albgroup.-Adapted from Hardin, Einar and Bores, Michael E., Economic Benefits and Costsof Retraining. (Lexington, Mau.: (Lexington Books, D.C., Heath and Co. 1971),'Chapter 12, Tables 12-2, p. 144; 12-3, p. 146; 12-4, p. 147; 12-5, p. 149;1 2-6, p.151; and 12-7, p. 152.
7
even for a yocational school if this school is part of a larger school diMrict suchthat accounting records are aggregated. To be hue, there are separatebenefit-cost studies o( given skills, in a case study context; honever, the widediversity of methodologies, with the fact that the, studies do not contain all thenecessary data or information on their. methodologiei, , Makes- it extremely.difficult to. make valid comparisons.among skilhs
. .
Secondary Vocational Course,. The Hu, et al. study (1969,11) providesearninp and employment comparisons among 12 different vocational skillsoffered in vocational-technical programs in three 'northern cities. Usingregreuion analysis' to stadardize for the effects of such factors as sex, age, IQ,race, marital status sod father's .education, it was found that there- was nostatistically ignescent difference among the skills when compared with the
88 SG
TABLE 21 .
PERCENT OF TIME EMPLOYED IN PERCENTAGE poem ANDAVERAGE BEFORE TAX MONTHLY EARNINGS Fog NON-COLLEGE
ATTENDING VOCATIONAL-TECHNICAL HIGH SCHOOL GRADUATES '
WadableAvenge isSix Yesn
First Year MeeGraduation
Sixth Yoe AfinGreenling
(1). b (s) Ili (s)
Courses'n=565
Percent of TimeEmployid
Commercial2 I
Food Service . -5.8 (7.3) -13.6 (8.3) -4.4 (11 .8)Building Trades .
,
Occupations -3.3 (12.6) 15.5 (14.2) -1g.6 (20.4)Mechanical and Repair -2.2 (6.4) -8.4 (7.2) 2.2 (10.3)Tool Deiiin 1.4 (6.5) 0.3 (7.3) 8.2 (10.5)Wood WorkingOccupations 2.7 (8.6) -7.8 (9.7) 9.0 (I:: .9)Electrical and ,
Electronics 2.8 (6.6) -6.8 (7.5) 1.9 (10.7)Aghiculture & Horti-culture , 4.5 (17.2) -18.5 (19.3) -0.8 (27.7)Professional Occupations -2.4 (4.6) 4,6 , (5.2) . 5.9 ( 7.4)Distributive Education -6.0 (10.6) 16.2 (11.9) -22.1 (17.1)Personal Servias .10.8 (5.5) 4.4 (6.2) -0.2 ( 8.8) -aOthing and Fabrics -8.8 (7.4) 6.5 (8.3) -21.6 (11.9)
Average Before-Tax Monthly Earninp. ----.
Commercial2 ,
FoOd Service -21 (44) -70 (41) :-16 (59)Building TradesOccupations -87 (76) -36 (71) -166 (101)Mechanical and Repair 4 (38) -58 (36) 45 (51)Tool Design 98* (38) 94" (36) 100. (52)Wood Working Occupa-tions 51 (52) -21 (48) 69 (69)Electrical and Electronics 8 (40) -0 (37) 8 (53)Agriculture & .
Horticultuie 34 (103) -108 (96) 140 (138)Profesgonal OccuPations 26 (28) -30 (26). 79 (37)Distributive-Education - -49 (64) 3 (60) -71 (85)Personal Services . -85** (33) -75.- --(31)- -84. (44)Clothing and Fabrics -23 (44) 11 (41) -49 (59)
, Notes: Significant at the .05 level.** Significant at the .01 level.
. b is the partial regression coefficient.(s) is the standard error of the partial regression 'coefficient.
I The i,..--gression model controls for the influence of labor market at iime of graduation, sex, lQ,race '. marital stat us and father's education.
2 This regressor of the 'violable enters into the intercept term. The other regressors of the variableare interpreted as deviations from this regressor. Thus, over the six year period after.graduation,,persons trained in food service occupations were employed 5.8 percentage points less than thosewho were trained in commerical occupations. However, this difference is n^.1 statistically signi-ficant .
Source: Tebwei u. et at., A Cott-Effectivenets Study of Vocational Education.University Pak, Pennsylvania, 1969.
commercial courses, 'either in the first, or sixth year after high school graduationas well as over ihe six year .average; (See Table 21.) Tool design yieldsapproximately $100 a month snore than Commercial cburses during the first,.sixth, and six year average after high school graduation. Personal services coursessuch as beautician Courses, earn from $75 to $65 less, as shown in Table 21.
However, if sonie course other than commercial were taken as the standardof comparison, a different pattern of earnings and employment differentialswould emerge, so the evidence in this and similar tables in this piesentafion ismit always conclusive.' A slightly different portrayal of the data could give adifferent set of impressions. However, the general lack of statistical significancein Table. 21 is striking and might well persist if other skills were used as al-.comparison, especially with respect to the employment variable:: .
. Table 22 contrasts .the . earnings and employment of the six vocationalprogram areas against the academic curriculum. Thus, the average hourly startingwage rate for distributive education ,graduates was 21 Cents less than that ofstudents who graduated from the academic curriculum.
Likewise, graduates from the technical program earned 23 cents more ontheir first job than did the -academic graduates. Up to three years later, officegraduate's were earning 22 cents more per hour on their current or last job; tradeand indUstryt 19 cents more and technical 26 cents &ore. But there was nodifference betwom the hourly earnings of the academic graduates and the
- distributive, health ur ':iticulture graduates.. .Unlike the results shown in Table 21, there are marked differences in
employment level, with, for instance, office graduates experiencing 14.1percentage points more of employment than academic graduates. These resultswould be more interesting, however, had they been shown by sex and possibly,ethnic origin.
Junior College and the Vocational hymn Areas. Table 23 shows asomewhat similar comparison for junior college graduates, although hele thecontrast is between the technical program area and the five other . areas.Curiously3.-the health occupations group earned about 34 cents more per hout onits starting wage rite than did thelithiikal-graduatesThe-Hardin.and Borns
90
2
study (1969, 111) also shows health occupations achieving earnings greater thanthose of factory workers. (See Table 20.) In addition, those in the agricultureprogram earned 39 cents per how- less than technical graduates with respect totheir current wage rate, a direction of effect which is not unreasonable. There isno statistically significant difference. in current way rate betweez technicaleducation and . distributive, 'office or trade and industry. WIAe thh lack of'cliffereace between the current hourly wage rates of technical and trade and.industry is not unreasonable, it does not seem likely that there should be nodifferential between technical and office or distributive education where there isa high concentration of females: This is so even in light of the fact that Sharpand Myint (1970, II) control' for sex in in ',their regression .modeCsinceinteraction effects between sex and the various programs have not beenaccounted for in the model.
Tables 24, 25, and 26 show the interaction effecte between level ofeducation /mid vocational program area. The striking fact about these results isthe general lack of statistical significance between educatiOnal levels foreach of
a
:TABLE 21REGRESSION ANALYSIS OF STARTING WAGE; CURRENT WAGE;
AVERAGE MONTHLY EARNINGS AND PERCENT OF TIME EMPLOYED,BY PROGRAM AREA, FOR SECONDARY VOCATIONAL GRADUATES
harmStarting WayCisteist
wi1224Wage
n11224BON.,IPS 1 9
Percent of timeaa1028
b3 ()3 b (a) b (s) b :-(a)
Academic2 .
Office 1.17" .06 .22" .07 77** 19 14.1** 2.9Trade & Industry .05 .07 .19* .08. :26 21'. 9.4** 3.3Distributive .21" .08 .09 .09 .37 24 1 1.3** 39Health .17 .17 .26 :19 58 45 14.9 8.2Agriculture .04 .09 .002 .1 1 7 30 5.3 4.5Technical .2 3** .09. .2e .1 1 68* 31 6.5 4.5
*Minificant at the .05 level of sipificance.*Significant at the .01 k'vel of significance.
All significance tests are twotailed tests.Notes:
.1The wage rate regression equations also control for the effects of:Neon, father's education, sex,Jrsarital status, socioeconomic status, race and additional education after graduation. The earninpequation ciiitrols for all the above except .socioeconomic status and additional education afterpaduation. The employment equation controls for all of the ibove except socioeconomic status.
Amu variable against which the others are compared. Thus, students in office occupations had astarting wee 17 cents higher than students in the academic curriculum.
3b lithe partial regression coefficient. (s) is the standard error of ele partial regression coefficient.
Source:Susan Fernbach end Gerald G. Somei s, An Analysis of the Ecomotnk Benefits of Vocational
Studies in Vocational end Technksi Education, Madison, Wisconsin, 1970. Tables 5.3,5.6, and 5.9.
91
TABLE 23RELA1WE IIGURLY WAGE RATES, BY PROGRAM AREA, .
. FOR JUNIOR COLLEGE GRADUATES
Starting-Wage Rate Comet Way Rate
bi- Pr Orem. pre68
. .
hill ilReredosCoefficient
Significance Pad IIRemotionCoefficient
Siyif Icaoce,
Technical1HealthDistributive EducationAgricultureOfficeTrade ind Industry
. .344-.177-.075-.024.001
.0099 .
.1251
.4687
.8411
.9940
.
.347'.031
-.392-.186-.073
.0829,.8586.0123.3048 -.6568
.
Motes:. 1ln addition, this regrealion model controls for the effects of relatedness of work to training;
additional education, sex, repon, age, marital status, race, father's occupation, father's education;and socioeconomic status. Since technicel occuptions are contraeted 'apinst each of theotherskills, the table shows, for instance, that health occupations earned 34.4 cents more for theirstarting wage rate than did technical occupations.
Source:Lame M. Sharp and Thelma .Myint, Graduates of Vocatiorsal-Teduskal Programs
atikies,.Wathington, DC., September, 1970. Tables 5.33 and 5.34.
G.
the program areas. Thus, it is only in health occupations that the junior vollegelevel earns a higher last or current wage rate than vocational high school. There isrio difference in first, last DI current wage rate or earnings between vOcationalhigh school and post-vocational high school education. However, this result issupported also by' the study of Corazzini (1966, II) for limited occupations inthe trade and. industry program area. Clearly, since the sample sizes for theprogram areas are relatively large, this pattern of results is of great importance iffurther research 'substantiates the results. Since Morsch (1970, II) found that forgiven skill areas there was little difference in cost between post-vocational highschool and junior college, yet both !evels of education cost more than vocationalor technical high school education, then the'efficacy of these two extra years of .
education istcalled into question. ,
One study is insufficient evidence on which to make far-reaching policyconclusions of an educational institution such as the junior college, communitycollege or post-secondary school system. First, we are talking only in terms ofmoney returns. Next, the study, although nationwide in scope, has problemsfrom: the standpoint of non-response bias. Finally, when program areas areaggregated, junior college yields a significant return over vocational high school,thouet the benefit of post-secondary school over vocational or technicalseocndarY education is less clear cut and may be noti-existent.
Tables 25 and 26 also show the interution between vocational programareas and education levels, but in this case, office. education is compared against
92
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.51
-
n=88
.02
.45
.78
' .61
n=73 -
n=19
7.2
2 , .
18.6
7**
.16
n=19
7.0
7.2
9.8
5" .2
7n=
175
-
+ 191
.
.
n 82=
-.09
.39
-.28
36
n=82
-14
.56
;..60
.52
1161
3
+-
+
.c,,, \
n=36
2.0
7.1
2_
.09
.14
'n=
362
-.02
.16
-.0
7 -
.19
_n=
337
+G
+
Nili
n:Sn
itifi
cant
at t
he .0
5 le
vel o
f ilf
icen
ce, t
wo-
taile
d te
st.
."."
Sipi
fice
nt a
t the
.01
keel
of
sign
ific
ance
, tw
o-ta
ded
test
..
bis
the
pane
l rep
esei
on c
oeff
icie
nt.
.(s
)is
the
stan
dard
Met
of
the
part
ial r
egre
ssio
n co
effi
cien
t.-
1 T
he r
egre
ssio
n M
odel
s fi
n fi
rst,
Ian
or c
urre
nt w
ay r
ate
cont
rol f
or r
egio
n, r
elat
edne
ss o
f jo
b to
trai
ning
, soc
ioec
onom
ic s
tatu
s, f
athe
r's e
duca
tion,
sex
, age
,mar
-ita
l sta
tus,
rac
e, u
rbes
-rur
al s
ettin
g ai
d gr
ads
poin
t ave
rage
.The
mod
ei is
the
sam
e fo
r av
erag
e m
onth
ly e
amin
p ex
cept
that
rel
ated
ness
of
job
to tr
aini
ng is
ex-
-pr
esse
d fo
r bo
th f
irst
End
s:w
rest
or
last
job.
_
2 Se
cond
ary
tOca
tionM
Psdu
atss
we
the
grou
p ag
ains
t whi
ch th
ese
coef
fici
ents
are
to b
e co
mpa
red.
Thu
s, th
ose
offi
ce o
ccup
atio
n gr
adua
tes
from
pos
t-se
cond
ary
voca
tiosa
ticho
ol e
arne
d on
e ce
nt e
s ho
ur le
ss-i
ns !
fun_
fis
t job
s th
en d
id O
ffic
e oc
cups
tion
grad
uate
s fr
om m
cond
ary
high
who
& ;
-.
3 +
indi
cate
s th
at th
e pa
rtia
l reg
ress
ion
coef
fici
ent i
s po
ntiv
e bu
t not
sta
tistic
ally
sig
nifi
cant
; - in
dica
tes
that
the
part
ial r
egre
wio
n co
effi
cien
t is
nega
tiveb
ut n
ot
stat
istic
ally
sig
aiic
ant.
-.
.
Sour
ce: G
eral
d G
. Som
ers,
et e
l., T
he E
ffec
tiven
ess
of V
oost
iow
el e
nd T
ecim
icel
ItO
gren
u: A
Nat
iona
l Fol
low
-up
Surv
ey, M
adis
on, W
isco
nsin
, 197
1. T
able
V1.
13,
Tab
le V
1.18
, App
endi
x T
able
23.
..
.
...
TA
BL
E 2
5R
EG
RE
SSIO
N A
NA
LY
SIS
OF
WA
GE
RA
TE
ON
'FIR
ST J
OB
, WA
GE
RA
TE
ON
CU
RR
EN
T O
R L
AST
JO
B-
AN
D A
VE
RA
GE
MO
NT
HL
Y E
AR
NIN
GS;
SY
PR
OG
RA
M A
RE
A, B
Y E
DU
CA
TIO
N L
EV
EL
&lo
catio
n L
evel
l
Tra
de a
ndIn
dusb
y3D
istr
ibut
ive
_Hea
lthA
gric
ultu
reT
echn
ical
-
(s)
,.(s
)b
(s)
b(s
)b
(s)
..
.
Wag
e R
ate,
Fir
st J
ob.
Voc
atio
nal H
igh
Scho
ol.0
9.1
0-.
21.1
1-.
04.1
9,.
.01
.13
.13
. .10
n=57
2'
.
Post
-'oca
tiona
l Hig
hSc
hooi
.26*
*.1
0.2
9*.1
3.1
5.0
9-.
10.3
033
**.1
0
n=72
$-
..
Juni
or C
olle
gen=
321
.'
.13
.20
.23
:21
43"
.15
-.02
.17
.13
.15
Wag
e R
ate,
Cur
rent
or
Las
t Job
4V
ocat
iona
l Hig
h Sc
hool
.20
.15
-.20
16.2
1.2
8.0
6.1
8.1
6.1
5Po
st-V
ocat
iona
l Hig
h Sc
hool
,.4
2".1
3_4
3".1
7.1
4.2
1.
-.16
.40
.36*
*°.1
3Ju
nior
Col
lege
-.12
33.2
734
.27
,.24
..
-A 5
'.-
---.
28.0
2.2
5
Ave
rage
Mon
tbijf
Ear
ning
sV
ocat
iona
l Hig
h Sc
hool
n=43
5+
2.
-
__
Post
-Voc
atio
nal H
igh
Scho
oln=
647
--
69*
++
Juni
or C
oile
ge+
+--
+
Not
es:
Sign
ific
ant a
t the
.05
leve
l of
sign
ific
ance
, tw
o-ta
iled
test
.Si
gnif
fant
at t
he .0
1 le
vel o
f si
gnif
ican
ce, t
wo-
taile
d te
st.
b is
the
part
ial r
egre
ssio
n co
effi
cien
t.M
is th
e st
anda
rd e
rror
of
the
part
ial r
epes
sion
coe
ffic
ient
ou...
a
-,
IE
d*. r
egre
ssio
n m
odel
con
trol
s fo
r gr
adua
te o
r dr
opou
t sta
tus,
reg
ion,
soc
icie
dono
mic
sta
tus,
rel
ated
ness
of j
ob to
trai
ning
, fat
her's
edu
mtio
n, s
cx, a
ge, m
alita
l
MIL
O, r
ace,
aid
ed e
duca
tion,
urb
an-r
ural
set
ting,
and
gra
de p
oint
ave
rage
..
2 +
indi
cate
s th
e pa
rtia
l reg
ress
ion
coef
ficie
nt is
pos
itive
but
not
sty
listic
ally
sig
nifim
nt; -
indi
cate
s th
e pa
rtia
l reg
ress
ion
coef
ficie
nt is
neg
ativ
e bu
t not
sta
tisti-
cony
siig
nifie
nnt.
3 F
oe a
ny e
duca
tiona
l lev
el, e
ach
of th
e po
ps=
are
as is
con
tras
ted
with
Offi
ce E
duca
tion.
Thu
s, T
rade
and
Indu
stry
gra
duat
es in
voc
atio
nal h
igh
scho
ol e
arne
dni
ne c
enti
an h
our
mor
e on
thei
r ru
st jo
bs th
an d
id o
ffic
e oC
cupa
tion
grad
uate
s.
4 Sa
mpl
e du
es a
re s
ame
es f
or w
age
rate
, fir
stjo
b.
Sou
rce:
Ger
ald
G. S
omer
s, e
t aL,
The
Eff
ectiv
enes
s of
Voc
atio
nal a
nd T
echn
ical
Pro
gram
s: A
Nat
iona
l Fol
low
-up
Surv
ey.
Mad
ison
, Wis
cons
in, 1
971,
Tab
le V
I.10,
Tab
le V
I.17,
App
endi
x T
able
20.
.
TA
BL
E 2
6R
EG
RE
SSIO
N.A
NA
LY
SIS
ON
WA
GE
RA
TE
FO
R F
IRST
AN
D C
UR
RE
NT
OR
LA
ST J
OB
AN
DA
VE
HA
GE
MO
NM
LY
EA
RN
ING
S, B
Y P
RO
GR
AM
AR
EA
, FO
R V
OC
AT
ION
AL
HIG
HW
HO
. OL
PO
ST-S
EC
ON
DA
RY
VO
CA
TIO
NA
L S
CH
OO
L A
ND
JU
NIO
R C
OL
LE
GE
GR
AD
UA
TE
S, S
EPA
RA
TE
"
RE
GR
ESS
iON
S
.
,Se
m P
ieps
-
-T
rade
and
2
WIN
*.
Dis
trib
utiv
eH
eal*
Api
cultu
re.
Tec
hnic
al
b(s
)b
(s)
b(s
)b
(s)
b.
Wap
i Rat
e,.
.--
Firs
t Job
Tot
al S
ampl
e-.
004
.05
.03
.07
.19"
.07
-.06
°.0
9.1
4**
.06
n=15
24-
Mal
en=
823
.15
.10
..2
6*.1
3.1
8.4
0.1
4.1
2.3
1**
.09
Fem
ale
n=70
1-.
15.
.10 -
0
-.11
.08
.14*
.07
nore
spon
ses
-.08
.10
Wag
e R
ate,
'.
'
Cur
rent
or
Lut
Job
Tot
al S
ampl
e'
.
-.08
.09
.11
.10
.24*
.10
-.06
.13
.17*
.08
n=15
24m
ale
' n=
1323
-.3
4**.
.13
35*
- .
:17
.37
.54 .
.17
.17
.39*
*,.1
2'
Fem
ale
-.21
.15
.01
.13
.18
.10
'no
-.17
''
.16
n=70
1.
resp
onse
s
Mer
ge M
onth
ly -
,0.
Ear
ning
s".
lota
l Sam
ple'
-n=
1337
Mal
e
n=73
5Fe
mal
e'.6
0!*
n=60
2
+
,+ no
resp
onse
s
-35
**
60*
.
Not
es:
Sign
ific
ant a
t the
.05
Wel
Of
igni
fica
nce,
two-
tille
d te
st,
Sipi
tican
t at t
he .0
1 le
ml O
f si
gnif
kanc
e, tw
o-ta
iled
test
.b
is th
e pa
rtia
l reg
rem
ion
coef
fici
ent
OD
is th
e st
anda
rd e
rror
of
tlii p
artia
l reg
rem
ion
coef
fici
ent
,1
TY
res
tudi
s m
odel
s jil
t con
trol
for
leve
l 'of
edu
catio
n, r
egio
n so
cioe
cono
mic
sta
tus,
rela
tcdn
ees
of jo
b to
trai
ning
, fat
her's
airi
catio
n; N
s, m
arita
l Sta
tus,
MC
C,.
adde
d ed
ucat
ion,
nir
al-u
rbaa
get
ting
and
grad
e po
int a
vera
ge.
.. 2
Eac
h of
the
prop
-ant
are
as m
a co
ntra
sted
witl
icfr
.m e
duca
tion.
Thu
s, f
oi th
e w
age
rate
; fir
st jo
b, to
tal s
ampl
e, tr
ade
and
indu
strP
..
-m
eupa
tions
sen
sed
.4 c
ents
less
per
bor
than
did
off
ice
occu
patio
n *i
lls.
.
3 +
WIM
P po
sitiv
e ba
t sta
tistic
ally
insi
gnif
ican
t par
tialr
eres
sion
coe
ffic
ient
;in
dica
tes
a ne
gativ
e bu
t ita
tistic
ally
'mag
nifi
cent
.
repe
l= c
oeff
icie
nt.
.
Sour
ce:
Ger
ald
G. S
omer
s, e
t eL
. The
Eff
eetir
eses
i of
Voc
atio
nal a
ndT
echn
kal.P
rogr
ants
: A N
atio
nal F
ollo
w-u
p 'S
urve
y, W
adis
on,
Wis
cons
in, T
abks
V1.
9, y
i.1s,
App
endi
x T
able
18,
197
1..
.,
.I
%
7.
p.
?.
b.
.
0 '
. .
.o
each of the five remaining\ program areas. In. Table 25, some consistent resultsbegin to show. Tilde and industry, distributive, and technical education allyield Iilher. 'first and last or current wage rIftsc than do the office programs.Howtever, except for the health program; junior ollege shows mi net benefitbetween office educatiort and eath of the five other programs. Clearly, this is astartling result, if trtie, indbears further Investigation to substantiate it. Ananalysis of the added interaction effects of sex would have helped shed morelight On these issues, tut wheri one breaks the saMple into subgroups ceil sizes incritical areas dirninish rapidly. This of coUrse, means:a very large initial size forthe aggregate sample, ind, since there are not many economies of scale in thistype .of survey,-;esPecially settle critical data editing stage, it implies very high.costs for this kind of complex analysis.
Table 26, however, doe.? shed 'some light Ortinteraction iffectsibetweenmules and females. Note, for instance; that for the`lotal sample the positive male .and negative female earnings benefits of trade and industry compared to officeoccupations cancel each other out. One would wrorigly bt: led to conclude thatthere is no difference in ea(nings between trade and industry and offiee'. .
occupations. Vet the Significant faCt is that males earn $69,ntore 'and fetnale's$60 less.in trade and industry occupations in contrast to office- occupation*?Throughout the ,table one can see how the male and fenialeeffects dilute orcancel each other in the analysis of the total sample. It should be clear tat flo.study which purports to measure the impact of education or training on labormarket success :should neglect the analysis of sex interaction effects: Theclassical way to do this is to separate the sample into its male- and feinFlecomponents, though anotherway is to add interaction terms to one's regressionequation. . ,
In summary, Table 26 'displays reasônable :results for tirles fer last orcurrent wage rate and for average monthly earnings. 'A cautious analysisimplymust rennin skeptical concerning the results in the cells aetheremainder of the
4 table.
I.
Manpower Daihing and Skill Areas. Tables 27 and. 2/3 show the effects of'27Manpower training on improgerished ruraLand fqm laborers in North Carolina,
'most of wHom are black. Table 27 again brings out the'importance of controlling-..for sex interastions.,(See tables above for further analysis toUchini on this issue.)Thus, for malls-4tIT coMpleters carn aborit.one dam:a week more than doinstitutional completers when both- are compared with their reipective.controlgroups. The table suggests that male 03T'4opouti,.d0-mtschliorse than maleinstitutional training dropouts so_that'Afein dropOuts and completers arecombined,all institutional-tfam'"Ies earn about a dollar More per 'week than allOJT traineesrYet; If one. were forced to Make a judgment, for this sample and
--studilcale, OJT. training seems to have a slight edge Oven' institutipnaltrainingfor males. This is clearly the case for females where both OIT coMpleteri anddropouts earned, relativelY large amdunu is contrasted to institutionalcompleters and dropouts who gained no earnings benefits vis-s-V1s,4heirrespective control groups. ,
98
a
0.
TAKE 27IMPACT OF MANPOWER AMNING ON WEEKLY EARNINGS
AND HOURS WORKED PER WEEK, MALES AND FEMALES
,
.
.Weekly earnings
(dollars)Hours worked
per week
Male'. ,,,
..;,..., OJT completersOJT dropouts . -
Institutional completersInstitutional dropoutsAll OJT traineesAll institutional trainees
Females 1
OJT immpletersOJT dropouts '-..institutional completersInstitutional dropoutsAll OJT traineesAll instutional trainees
.
,
.
u,... ,
9.5**0.7 -.8.5*-1-8.17.4**8.3**
-17.0**11.4**0.2-3.214.5**°-0.3'
0
0.61.91.92 9. ...0.92.1
10.111f*
4.0-1.2-1.87.7**
Notes: Significant at the .01 level.1 The coefficients are to be interpreted as deviations from the average
experience of the control group members. Thus, male OJTcompletsrs earned $9.5 a week more than male centrol groupmembers and worked .6 hours more per wftk.
Source: David 0. Sewell, Training the Poor, Kingston, Ontario, 1.971,Table 7, p.71.
= Table 28 displays weekly earnilgs benefits by occupation for the same.sample. of rural poor. (See also Table 20.) 'Only seivice workers do notexperience a net gain in weekly earnings compared to the control group. In viewof the heavy concentration of blacks in this study sample, plus changingaspirations and racial attitudes; perhaps it is not too efficacious to train blacksfor service jobs. For a variety of reasons, they simply may not sucCeed at thisoccupational activity.
Finally, in his study E.. well (1969,1111) discusies The issue cOncerning wagerate improvement versus employment improvement as a measure .of the impactof training, on productivity. While, as. mentioned above, the general argumentthat the effects of education and training should not be confounded byemployment effects is a correct one; it is an argisnent tempered for an economyWhere no structural unemployment or other rigidities or' structural bOttlenecksconfuse the picture. Given the obvious structural unemployment_and ---underemployment of his sample, earnings is a better measire of program effectthan wage rates. Wage rates can be assumed inflexible downward ecially inthe short run, due .to suph things as the social minimUm wage. Thus, they wr
. \
TABLE TS
MULTIPLE REGRESSIONS OF WEEKLY EARNINGS AFTER TRAINING,A ND ME COMPONENTS OF WEEKLY EARNINGS AFTER TRAINING,
ON RESPONDENT CHARACTERISTICS: TRAINING STATUS CLASSIFIEDBY TRAINING OCCUPATION
Weeklyawnings(dollen)
Noon '
workedper vveek
Newlyminim.(cents)
lutitutional Trainees! .
Net regression coefficients:Building tradesmen 2.91* -4.0 36.51*Nurse aide - . -5.4* -8.7"Oicupational farm tractor" 0.3 3.9 5.3
, Miscellaneous . 14.4** 5.1* 26.31*
All Trainees! N,
Net regression coefficients: N,Clerical and sales workers 26.21. 8.2** \ 34.3**Building tradesmen 10.5** 0.5
. \Mechanics .6.7** 4.6** 40.0Plant operatives 6A** r.6 157**Servick workers -0.1 -1.5 -7.0 \
Notes: *Significant at the .05 level.1* Significant at the .01 level.1 The coefficients are to be interpreted as deviations from the average
experience of control group members; thus building tradesmenunder the institutional training componenj earned $12.90 MOM perweek than their control group counterparts. .
Source: David 0. Sewell, Trek* the !tor, Kingston, Ontario, 1971, Tigble 9,Pale 79.
. not adjust themselves downward to allow persons of low productivity ,to be -
employed in the market place. Hence, the strategy is to. raise worker'sproductivity up to that level required to justify paying him current money. wlevels. When this occurs, the program will show ,no wage effect ,bu anemployment and , earnings effect. Thus, Main was' inconect to concliide thatretraining hid no impact on the productivity of MDTA institutional trainees inhis national sample simply because trainee wage rates did not rise. In short, for .
MDTA trainees and other 'structurally unemployed workers, employment andeainings and 'hot wage rates are the preferred indices ,of labor marketperformance. *
Taken in this light, the residts reported bY Sewell are of some interest,especially since he shows clerical and ealea workers redeiiing greater earningsbenefits than building tradesmen, mechanics Of plant operatives, occupationalareas where, in Contrast to clerical and sales, there has been a longer hctoricalpenetration by blacks.
100 .0.1S,11113
IN
SUMMARY, IMPLICATIONS, RECOMMENDATIONS
Ilummsry and Implications
Methodology. .The methodology exista to perform benefit-cost stndies inan appropriate manner. Much of the current ambiguity that exists concerningthe implications of benefit-cost studies is the result of Using faulty methodology.The use of control groups is- an absolute necessity, for-instance, yet manystudies, especially the earlier ones, use.no control or comparison group.
Adequate sampling procedures and adjUstment for non-responn bias andself-selection bias are necessitiei. Random probability samples of the poptilationof interest 'seem Obviout, yet, judgment samples continue to be.-used. It costs
5 more to perform a random sample since the population frame muat be .
established before sampling is performed, but the extra cost is preferable to thepossibility that the entire study may have to be junked because no one it sure ofthe meaning or applicability of the results.
Control for non-response bias is costly, too: It often costs several hundreddollars to run down* a single observation. But,-in Many caies even the mostelementary information is lacking with respect to non-response groups. This can,usually be traced to the fact .that it costs more per unit o( information and isdistracting to deal with a group of persons on whom there, is often no concreteinformation available.
Self-selection bias, the bane of retrospective evaluations, has mit beendealt with. adequately in the past. The -use Of. probit analysis, a standardeconometric technique, to estimate a discriminant function can help a long way,especially if motivational or other psychological information is available.
Both tabular analysis tand regression analysis should be used. Tabulitionsare valuable in laying out . the main dimensions of the study, .but it is .orilyregression analysis which has the flexibility to handle large numbers of varksbkssimultaneously. In retrospective studies of population cmss-sections, even a basiclist of . variables to properly investigate labor market influences can, run to adozen; sex, age, race, education, marital status, socioeconinnic status, IQ,occupation, industry, labor market struCture and geographic region are likelycandidates. Tabular presentation , simply cannot simultaneously handle thisnumber of variables and their interactione efficiently. -
Finally, more attention .should be paid beforehand to the acceptable levelsof, statistical significance (tempered by cost constraints) which are desired. Themethodology for establishing desired levels of statistiftl significance in one'ssample is laid out in most elementary statistics texts Li the use of ,it is notapparent in the stUdies represented in this survey. An example of the use of sucha .methodology linked with cost constraints is with the Gary Income-Maintenance Experiment which, is being conducted by Indiana University at
1.09. 101
Gary. By establishing control over significance levels beforehand, it woUld be'possible tO avoid the calculation of complex results, all .or most of which are oflittle use since one has variances too high to provide definitive results.
From the standpoint of benefit-cost analysis, both average and marginalbenefit-tost ratios should be 'used. Thus far, most studies do not allowcomparisons on a marginal basis among program alternatives. .
Most of the studies do not compute true marginal benefits. Regression'coefficients based on . dumMy variablei yield differences between .. averages.Marginal benefits can be calculated by expressing prograM benefits as a functionof length of expOsure tolhe program. The study by Hardin and Borus (1969,
. III) does this rather well: If the vocational or technical students and their;controls are handled in the analiais by using dummy variables (or by Means ofcross:classification in tables) the result one gets is 'a difference. between the .
avers* experience of the vOcational student and that of the control group. A .
marginal, benefit cannot be estimated 'in this way unless the assumption is madethat tht difference between the averales is equal to the marginal difference, Not
.
-everYorie will' accept such an assumption.The diseussion over the true value of' the social opPortunity cost of capital
, remains-unresolved. For groups other than. society, the borrowing rite of funds,if thesducational investment is financed by borrowing, and the lending rate, ifthe irfvestment is financed from savings, are the appropriate rates fen individuals, .,firms, and governmentunits other than the federal governments
The proper Investment criterion to be used inmaximizing the'present valuesof neWbenefits depends -an the constraints which exist in the, progranesinstitutional structure. All of the three basic criteria auffer from shortcomingswhen humii capital innstments are considered.
Benefit-Cost: Secondary _Vocational Education. What can be said? Thefederal .government is still not 'confident since it has recently: funded a newnationwide Study of vocational education to be performed by the NationalPlanning Association. Yet the federal governMent appeari too. cautious: Exceptfor the. Taussig study (1968, II), all of the major studies here shOw a positiveeffect of secondary vocational education. A.Nrnajor question mark lies with thedata fromProject TALENT. These data have been yet to be effectively analyzed,by investigators not directly associated with the federal government. Since thisdata bank is a national sample, it is important 'that it be appropriately analyzed.in the very near future. The major problem with these data lies in a relativelyhigh non-response rate;
1n-short, based oil current evidence, it seems clear that die secondary voca-tional curriculum yields greater labor market benefits relative to the compiehen-sive curriculum. This judgment is qualified by the fact that the objective functionsof the two groups are not the same and the population served are not identical.
Little or no reliable knowledge of the relative investment gains of vocationalcourses of program areas exists. The estimates of benefitS of prOgram.areas ire-still inconclusive and sound cost measures are yet to be done. Benefit-costmeasures whichcomtiare sets of vocational skint on which one would be willing
/to. stake millioni of dollars simply don't exist. The benefit Measures areaMbiguous at best and are of no use in any case in the ,absence of measures of
,
102
_
realtive costs. It does no good,to provide tabulations of gross earnings or wagedifferentials by skill if information on costs is lacking. However, it is worthmentioning m this point that the analysis by Schweitzer (1970, II) suggests thatthe length of fOrITIThe schooling processsuggested by the Hansen-Wei
hooling for many occupational areas .may be too long.be longer than the learning process as 'furtherrod-Scanlon study. .
Benefit-Cost: Post-Secondary Vocational Education and Junior College.The studies are pointing to the likelihood that post-secondary vocational°education it a losing proposition for students who already gave a sound highschool vocational preparation. The junior college, however, does appear to yieldsubstantial benefits overt secondary vocational edutation, though again, theproblem ,exists that the objective functions of the .two different populationssimply may not be the saMe.
Morsch (1970, 11) reports that.the.sost for the same occupational trainingis about the sarne for post-se'condary vocational and junior college education. .Thus, if junior college pays on the, _average while post-secondary vocationaleducation does nOt, the, average mix Orikills at the two types of institutions maybe the critical point to investigate. Of course, as With secondary vocationaleducation, this analysis remains to be done effectively.
... Benefit-Cost: Manpower 7Yaining. That the present MDTA manpowertraining program is a worthwhile social investment seems indisputable. It iF stillnot clear, however, whether it is.the actual skills learned, the various servicesthat accompany retraining such as placeinent, or the sheepskin effect as aselective device which is mainly responsible for the high rates of return: Aneffort should be made to identify the net effects of these three possible causalfactors. Yet, one hesitates to recommend the additional investment of socialcapital in .this effort at this time unless it is accompanied bY a careful -study, ofthe absolute and relative costs and benefits of, differ:at occupational skillswithin the program plus an assessment of the reasons for the continuing"shortage" of persons in occupatiOns.such as nurse's aide even in the face ofcontinual retraining.
he studies of the remaining manpower programs'are a mixed iot. Rothdue to subtle and not so subtle differences in populations bens served as Well aswide variations in methodologies one cinnot make reasonable marginalinvestment adjustments among these programs based on these data. One canonly judge that thisiliogrami-afi_coyering their average costs. There is a basicproblem in attempting to use retiolpectivestudies 'for 'economic\decision-making. The usual. approach has been for the governrnennoexpressinterest in a target population, whereupon a program was designed to aid it. Thisprogram' Was then retrospectively evaluated. Two alternatives to this sequenceare available. First, planned experiments, as with the three ongoing incomemaintenance studies in Seattle -- Denver, Gary, Indiana, and New.Jersey-Pennsylvania should be attempted. Thus, consider whet might be thernproper training program for welfare mothers: The Work Incentive program(WIN), the MDTA approach, adult ofremedial education, and no program at, allimmediately piAsent themselves as possible altermtivet-Experiments with ainoper control group design could be devised to see which of these methods is
3
most effective in, alleviating the stress of poverty among Welfare mothers, forinstance.
Alternatively, a particular target group Could be selected among thevarious ongoing programs to estimate the differential program effects on thispoulation. In terms of research findings these two alternatives may be more
.--ixpensive than the unit study cost of the present type. Hdwever, they might bemuch lessrexpensive in terms of the amount of usable poiicy guidance theymight provide.
Re Search in Progress.
Vocational Ediscation. At the present time several major evaluations ofvocational education are ongoing. The Project METRO study by Max Eninger(197: II) is a nationwide analysis Of secondary vocational education funded bythe U.S. Office of Education. Theie data _are based on high school records and a
, mail labor market questionnaire Of the 1968 graduating class. Preliminarytabular analyses of the data ire in progress. Regression analysis of benefits will
. be conduCted but there are no estimates of costs hased on this sample.The National Planning Association has just been awarded a major contract
by the US. Office of Education toatudy the labor market andother nonecononticeffects of vOcitional education at the SecondarY level. An.effoit will be.Made toestimate the net: effects of vocational _education by program area and bytreatment such as iooperative educatini. 'Inis study is planned to run into 1973:Two cohorts of students-will be analyzedthose 10th graders who could havegraduated in 1968 and those who could have graduated in 1970. ApproximatelY20,000 Obseriations are planned for analysii. A mail labor market questionnaireis planned to collect the needed labor,maket.date. Da'ta frOM school records willalso be collected. Costs will not be collected except for a small Subsample ofschools.
Manpower Studies. Operations Research; Inc., in conkinction with theOffice of Ccondmic Opportunity .(0E0) is conducting a major benefit7cost studyof four manpower proerams which promises to be defmitive: The programs areMDTA institutionsf training; the Job Corps; NAB-JOBS; and the outof-schoolNYC. Data will be collected by Operations Research, Inc., and analysis will, bedone liy the Office of Econcimic Opportunity: .
This study 'shows great promise since the response rate his beenmaintained at over 95 percent and an'. elaborate .iampling pmcedure wasdeveloped to select a sample front a aet of large Metropolitan areas Whichthemselves were judgmentally selected.
An elaborate: person.Ally administered questionnaire is the main data basebut large masses of individual records frcim- training centers, and the like, arebeing collected on apprOximately 10,000 sample observations. . . .
The cost analysis is beiag conducted by the present author in Conjunctionwith Operations Research, Inc. Benefit analysis will be conducted 1,4, the OE0.
This study promises to be ahe definitive work on manpower programs todate, especially since it will allow marginal eConomic' comparisons awing majormanpower progfams on the basis of a commOn methodology throughout.
. 104iStz
Finally, the present author is conducting an- economic and institutionalanalysis of the Work Experience and Career Exploration Program (WECEP).WECEP is designed to provide occupational 'training and career explorationopportunities to disadvantaged, handicapped or otherwise alienated 14 and ISyear old high school youth in an effort to reduce the dropout rate.
This benefit study is nationwide in scope and will relyfor its data mainly.Oh records which are collected at the WECEP sites on the experimental groupand a preselected sample of controls. .
Preliminary analysis of the 1971 class is scheduled for the Spring of 1972while a final report incorporating the experience of the 1972 class as well is &liein the Fall of 1972.
Other Data Sources. For the energetic person,..both the data from theCoeman Report and Project TALENT remain to be properly exploited,
Finally, and perhaps most iMportantlY,.the.1970 Decennial Census has asection on vocational education based on a five percent iamplekThese data arecurrently coded and.aviait proper analysis.
. N.
The Future qf Benefit-Cost Analysis in Vocational Edniation
-The future of be ne fit-c o st analysis depends in part on what the presentstate of the art offers. So; the questiOn is, what does the typical benefiticoststudy now offer? As suggested 'aboie, the study will typically show only that aprogram appears to pay' or does not. (See Barth, .1971; Ill, on which thediscussion of the next few paragraphs is largely based.) The next judgment iswhether to expand or contract the program, depending on what the calculatednumbed indicate. However, the calculated rate of return or net present value .
does not tell you how much to expand or contract .the program. First, thebenefits or costs or both will' often be assumed constant over the relevant rangeof output and for all future periodi. &it, in the real. world, this is an unlikelySituation: With a 'failure to use nonlinear total cost or benefit functions and. ageneral lack of estimating such things as average cost functions, one hu no ideawhether one is operating in a range of increasing or decreasing returns or.costs orwhat the optimal scale of operation may be. One simply can't tell how fai toexpand or contract, and. knowledge of the future stream of costs and benefitsdoes not rAist.
Second, if one expands or, contracts a program on* the bash of thebenefit-cost analysis', it is not clear what one gives up in order to expand the
. program or what will replace the program in the event that its kvel of fundingiscut. Present benefit-cost studies do not address themselves to these hues, but itis clear that the broader' the expanse of alternatives one considers as iubstituteprograms, the less relevant any given efficiency .comparison becomes, since _theprogram objectives and outputs begin to differ .widely. Benefit-cost !studies as yet
. have not even extensively evalusted different production techniques for thesame type of output and program. H
Finally, most' Of the studies have not even cfAculated marginal coita and:benefits so they exhibit a fundamental inability -so aid in making choices amongalternatives.
, "With such fundamental problema one may rightly ask, why bothee withbenefit-cost analysis at. all? Yet, in spite of the above defects, benefit-costanalysis should and will continue to be done 'since it interjects a rational,systematic analysis into an area where judgment and implessionistic analyaisformerly operated with little contamination from orderly economic analysis or ac le a r-cu t spec ification of program objectives, outputs and evaluationmethodology.
However, we are clearly not yet at the, stage where benefit-cost mulishcan be widely adopted. and automatically integrated into the very fabric ofdecision-making at the federal or state educational level much less at the schooldistrict lrfel. For_ the present, too mars- methodological issues remain to berefilled, leaving the estimated measures of benefit too crude. Also, at present:itwould simply be too expenhive to continuously generate data good enough tobe -used in the resource allocation process on all specific local programs, even ifeconomic considerations had a weight of unity in the decision-making process(which they do not). For the time being, therefore, we may expect to see only a
---------ciantinuation of ex post analyses of specific programs or activities for veryspecial purpose-Cif-0i o r judgmentAwilbe some time even before extensive useof the type of methodological approach InIfirOperatio Research, Inc. - Officeof Economic Opportunity's study of four manpower prom --iswidelyadopted. Ihe cost of such types of comparative imaluations, Usually severalmillions,seems an effective deterrent to their widespread adoption at present.
:.
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Roomkin, Myron. An Evolvation of Adult Bask Education under the ManpowerDevelopment and Trwining Act in' Milwaukee, Macomb:. Unpublisheddoctoral dissertation. Madison, Wisconsin: University of Wisconsin,. 1970.
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Schleck, Robert W. Antipoverty' Prograns Under the Economic. OpportunityAct. New York, New York: Tax Foundation, 1968. .
Schultz, George P., and Weber, Arnold' R. Strategies for the Displaced Worker:Confronting Economic Cliange. New York: Harper and Row, 1966.
Scott, Loren C. "The EconomiC Effectiveness of On-the-Job Training: TheExperience of the Bureau of Indian Affairs in Oklahoma,"Industrial andLabor Relations Review 23:220-36, No. 2. January, 1970. ..
Sewell,- David 0. "Discussion," in G.G. Somers and W.D. Wood, (eds.),Cost-Benefit Analysis of Manpower Policies. .Proceedings of a NorthAmerican conference. Kingston, Ontario: Queen's.University at Kingston,Industrial Relations Center; 1969. 188 pp. (ED 039 334, Document notavailable from EDP). 29, !!
Silverman, Leslie J. Follow-UP Study of MDTA E end D Project at NorthCarolina A and T State Colkge. Washington, D.C.: Bureau of ScicialScience Research, Inc., March, 1967. .
Folk;w.up Study of Project Upiijk, the MDTA E and D ProjectConducted by Florida A & M Unhirsity. Washington, D.C.: Bureau ofSocial Science Research, Inc., July; 1967. ,74 pp. (ED 013 967 ME $0.65HC $3.29).
Smith, AD. "Active Manpower and:Redundancy Policies: Their ,Costs andBenefits," International Labour Review. pp. 49.60. January-FebrUary,1967; .
Smith, Ralph E. "Foregone Earnings During Manpower Retraining," WorkIngPaper 350-11, TheUrhan latitute, January 28,;1970.
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Software Systems, Inc. A Job Corps Study of selanve Cost Benefits: Volumes Iand IL Washington, D.C.: Software Systeins, In'O. April, 1969.:
Solie, Richard J. "An Evaluation of the Effects 4. Retraining.in Tennessee:"Retraining the Unemployed, Gerard G. Somarsf(cd.), MadisOn, Wisconsin:,University of Wisconsin Press; 1968. 0 , t. ,
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"Evaluation of Work Experience and Training of Older Workers,"Unpublished report to the National Council on the Aging, Madison,-Wisconsin: University of Wisconsin, Industrial: RelatiOns ResearchInstitu te, 1967.
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"Retraining: An Evaluation of Gains and Costa," in Arthur M. Ross,(ed.), Employment Policy ond the Labor Market, Berkeley, California:University of California Press, 1965. pp. 271-98.
. "Training the Unemployed," in Joseph M. Becker, (ed), In Aid of the.Unemployed, Baltimore, Maryland: Johni Hopkins Press, 1965. pp.227-251. -0. The Training and Placement 4 Older Workers: an Evaluation of FourCommunity Projects. Prepared for the National Council .on the Aging andthe Office of Manpower Policy, Evaluation and Research, U.S. Departmentof Labor. Madison, Wisconsin: Unirisity of Wisconsin, 1967.
.. "Vocational Retraining of the Unemployed: Art Evaluation," IndustrialRelations Research Institute Report. Madisik, Wisconsin: IndustrialRelations Research Institute, Center for Stdies in Vocational andTechnical Education, University of Wisconsin, April, 1966. pp. 6-8.
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, and Stromsdorfer, Ernst W. "A Benefit-Cost Analysis cf ManpowerRetraining," Proceedings of the Industrial Relations Reseirch Association.17:172485. Winter, 1964. 40,
A Cost-Effectiveness Study of the In-School and Summer NeighborhoodYouth Corps. Madison, Wisconsin: Industrial Relations Research Institute,
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Center for Studies in Vocational and Technical Education. The Universityof Wikonsin, 1970.
. "A Cost-Effecti eness Analysis of the In-School and SummerNeighborhood Youth orps: A Nationwide Evaluation," in U.S. Congress,Joint Economic Conmlttee,L Compendium on Cost4ienefit Analysis;forthcoming.
Seminar Progress Rert on the Study:A Cost-Effectiveness Analysis ofthe In-School and Summer Neigh od Youth 'Corps, Publi6 PolicySeminar.. Series, The Utban Institute, U.1: Working Paper No. 350-22,
_ Wasliington, D.C., November; ,1970.
, a41 Wood, W. D., (eds.). Cost-Benefit Analysis of Manpower Policies.-: Proceedings of a Nonh American Conference. Kingston, Ontario:
Industrial Relations Center, Queen's University at Kingston; Madison,'Wisconsin: University of Wisconsin, Center for Studies in Vocational andTechnical Education, 1969. 35
owes, Carl E. An Instrument 4 Evaluate MDTA Institutional Trlining Protectsin Arizona. Phoenix, Ariz a: Arizona State Department of VocationalEducation, 1968. 39 pp. (E 025 638 MF $0.65 HC $3.29).
Stern, James L. "Consequences f Plant Closure,"Journal of Iiwnan Resources.Winter; 1972. Forthcoming. 62
Stevenson, Diantha. Eollow-up Ssdy of MDTA E and D Projects Conducted by it.Morgan State College, WaJiington, D.C.: Bureau of Social ScienceResearch, Inc., May, 1967. 57 . (ED 015 287 MF $0.65 HC $3.29).
Stromsdorfer, Ernst W. "Determinaits of Economic Success in Retraining theUnempj.ked," The Journal c'f Human Resources,' 3:139-158. Spring,1968. ,69
"Dismission," in C.C. Somers and W.D. Wood, (eds.), Cost-BenefitAnalysis\ o,f Manpower Polk-lei Proceedings of a North AmericanConferince,; Kingston, Ontario: Queen's University at Kingston,
. Industrial Relations Center; 1969. ."Probleths' in Estimating Social Costs and Benefits' in Education: The
Case oT the In-School Neighborhooa Youth Corps," InternationalFederatkin 'of Operational Research Socieiies International Cost-Effectiveness Conference. Proceedings. Washington, D.C. April 12-15, 1971.
. Forthcoming.Systems Development Corporation. Evaluation of 'the JOBS Program by Nine
Cities, final Report. Falls Church, Virginia:. Systeriu DevelopmentCorporation, September, 1969. ;
The North Carolina Fund. Manpower Improvement through Community Effort.Final Report Durham, North Carolina: U.S. Department Of LaborContract. No.,82-32-30.-1967.
Therkeldsen, Paul; ind Rno, "Cost-Benefit Evaluation of the BernalilloCounty, NeW Mexico. Work Experience Project," Welfare in Review. .
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Thomas, Brinley; Moxham, John; and Jones, J.A.G: "A 'Cost-Benefit Analysis ofIndustrial Training," British Journal of Industrial Relations, 7:231,164.No. 2auly, 1969. 1
Troboff, Benjamin Michael. Employment Experience Aftr MDTA`Training: A
. o Study. of the Relationships between Selected 7)Wnbl Characteristics andPost-training Employment Experience. Unpubl14%e1 doctoral dissertation.Atlanta, Georgia: Georgia State College, 1968.
U.S. Congress. Review Of EconoMic Opportunity Progrenrs. Comptroller General\ of the United States. Made Pursuant tolitle H of the 1967 Amendments
to the Economic Oppoitunity 'Act of 1964. Report to the Congress of theU.S., 91st Congress, 1st Session; Washington, D.C.: GoVernment PrintingOffice, 1969.
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Senate, Committee on Labor and PubliC Welfare. SUbcommittee onEmploymeut Manpower and Poverty. "Manpower PrOjfams in theAntipoverty Effort," by Garth L. MangUm. Examination of the War onPoverty. pp. 235, et. seq. Staff and Conaultants Reports, Vol. 11, 90thCongress, ist.Session. 1967.
U.S. Department of Health, Education, and Welfare. Assistant Secretary forProgxam Coordination, .Office of the U.S. Department of Health,Education and Welfare, Human Investment Programs; Adult BasicEducation, Work Experience, rill Paining. Washington, D.C.: 1966.
U.S. Depariment of Labor, Ateepower Report of the President, Washington,D.C.:.Government Printing Office, Maich, 1970.
. Manposeert Research, and :Doling Report of the Secretory of Labor,Washington, D.C.: U.S. DepartMent Of Labor. Mut, 1965.
The Influence of MDTA Delning on &Wisp.- Wishington, D.C.:Manpower Administration, 1968, 40 pp. (ED 026 542 MF $0.65. HC$3.29) . .
U.S. Department of -Labor, Manpower Administration. 'The NeighborhoodYouth, Corps. A :Review of Reeearch," Mimpower Rama Monograph,No. 13. Washington, D.C.: Government Printing Office, .1970. 60 pp. (ED040 279 MF $0.65 HC not available from EDRS).
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Office of Manpower, Automation,.and Training. Measuring. the Benefitsaryl Costs of Retraining norms for Unemployed Workers. East Linking,Michigan: Michigan State University, n.d. .. , Report of the Secretary of Labor on Research and Paining byAccordance ts4th &aim 309 of the Manpower Development and TrainingAct, Trottnyitted to Congress, March, 2964.
U .S... Office of Edncation...Eiehrelion end Benefit-Cost Relationthip of .
Manpower.. Training; Propane in New. York State. New. YOrk State..:Department of Labor, October,- 1967.
U.S. Senate, Cenimittee on Labor and Public Welfare, Subcommittee onEmployment, Manpoiver and Poverty. The JOBS Program, BackgroundInfonnation, 91st Congress, 2nd Sersion, April, 1970.
Virginia State College. Factors in Workers' Decisions to Forego Retraining under,the Manpower Development and Maiming Act. Norfolk, Virginia: U.S.Department of Labor, 1964.
Walther, Regis H. Methodological Considerations in Evaluative ResearchInvolving Disadvantaged Populations; a study of the effectiveness ofselected out-of-school Neighborhood Youth Corps Programs. Washington,D.C.: George Washington Univereity, Social Reattach Group, 1968. 34 pp.(ED 028 223 MF S0.65 HC $3.29).
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et al A Retrospective Study of the Effectiiersess of Out-of-SchailNeighborhood Youth Corps Prograntsbi Four Urban Sites. Washington,D.C.: George Washington -University, November, 1963. 157 pp. (ED 020407 MF $0.65 liC $658). ,
Walther, Regis H., and Mignusson, Margaret L. A Study of the EffectivenessSelected Out-of-School Neighborhood Youth CornMetlsodOlogjcal Considerations in Evaluative Research InvolvingDisadvantage d Popirletion. Wuhington, D.C.:. Social 'Science ResearchGroup, cooing Washington University, May, 1968.
Young, Stanley. Manpower Training: Some -Cost Dimensions. Amherst,Massachusetts: Labor. Relations and Research Center, University ofMassachusetts, 1968..51 pp. (ED 027 390 MF $0.65 HC $3.29).
O,`;'
IV. GENERAL WORKS. . .
Advisory Council on Vocational Edulation.."Vocational Education": The Bridge. Between Man and His Work," 'Publication 1.Nores1and Working Papers
Conceming the Administration of Programs Authorised under VocationalEducation Act of 1963. Ptak' Law 88410; as Amended Subcommitteeon Education, Committee on Labor and Nblic Welfare, U.S. Senate, 90thCongress, 2nd' Sesiion Nov., 1968. 248 pp. (ED 028 267 M $0.65 HCnot available from EDRS). . I ;
"Vocational Education: The :Bridge Between- Map and His Work,'Publication 2. Notes 'and Working Apes Concerning the Administrationof Programs Authorised Under Vocational Education Act of 1963. Publk,Law 88.210, as Amendid. SubcOmmittee on Education, Committee onLabor and Public Welfare, U.S. Senate, 90th Congress, 2nd Session, Nov., .
1968. 248 pp. (ED 028 267 MF $0.65 HC not available from EDRS).
&doe', Melvin. 'Vocational Edsication. Chicago, Illinois: National Society forthe StUdy of Education, 1965, . .
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Becker, Gary S. Human Capital, New York': Columbia University Press, 1964.
Brindon, George L., (ed.), "Research Visibility. Research in Vocational and.Technical Education," American Vocational Journal, .44:41-51 14o. 2.February, .1969,
Correa,'Hector. The Econcrics of Hamm Resources. Amsterihm, Holland: TheNorth Holland Publishing Company., 1967. ..
Evaluation in Ve;cational Education Research Summary. SacrameotO,California:Coordinating Unit for Occupational Research and Davelopthint. 1967. 81.pp. (ED 025 587 MF $0.65 IIC $3.29).
Ginsburg,.WoodroW; Robie, Edward A.; and Taylor, David P. "Manpower andJob Education and Training': Discussion," The Development and Use ofManpower Proceedings of tfte Aventieth Annual 'Pinter Meeting,Washington, D.C., December 28-29, i967. pp. 47-59. Madison, Wisconsin:Industrial Relations Research Association, 1967.
Griggs, Charles M., et al. Vocational Rehabilitation for the' Maim ihm;illaneconomic and sociological evaluation. Lexington, Massachusetts: HeathLexington Books, 1970. 275 pp.
Lampman, R.J. "Towards an Economics of Health, Education and Welfare,"Journal of Human Resource& 1:45-54. Summer, 1966.
Meade, ward I., Jr., and Feldman, Marvin I. "Vocational Education: Its Placeand Process," The Jownal of Human ILTurces. 1:70-74. Summer,1966.
Monroe, Walter Scott, (0.). Encyclopedia of Educational Researck New York:The Macmillan Company, 1950.
Puce!, D.J., and Evans, R.N. "Manpower Economics and Vocational EdUcationl'Ametican Vocational Journal, 39:18-19, April, 1964.
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Robinson, E.A.G.; and Vaizey, J.E.; (eds.). The Economics of 'Education.'Proceedings of a Conference held, by the Internelonal EconomiCAssociation, New Yorki.New,York: St. Martin's Press, 1966.
Russell, Vocational 'Education. President's AdviscnY Committee onEducation, Staff Study No: 8, Washington, D.C.: Government Printing ,
Office, 1938. . .
Schultz, T.W. "Investing in tOor People:. An Ecoltmist'i View" American.*Economic Review 55:510-529. No, 2. Mai,. 5:
Somers, Gerald G., and Little, J. Kenneth. Vocational Education: Todiy andTOMOROPI. Madison, Wisconsin: Center for Studies in Voca3ional andTechnical.Education, University Of Wisconsin, .1971.. -
Sundquist, James L "Jobs, Training, and Welfaie for the Under' Cliu,'4 in ,
Kermit Gordon, (ed), Agenda for the Nation: Pepin OA Domenic andForeign Policy Issues. Washington, D.C.: The Brookings Institution, 1968.pp. 49-76. .
140 ''.
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Tweeten, Luther G. The .ilde *of Education tel A ling Ram; Poverty.. Agricultural EconomiC Report No. 114. Washington, D.C.: Economic
Research ServiCe, U.S. Department of Agriculture, June, 1967. 60 Pp. (ED. 020 039 MF $0.65 HC $3.29). . - '
U.S. Department of Health, Education,and Welfare. Education for a ChangingWorld of Work; Report of the Panel of Consultants in Vocational .
Education. Washington, D.C.:- Govethment Printing Office,1964. 307 p0.. (ED 019 500 MF $0.65 HC 113.16). . .
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Vaizey, J. The Present State .of the Economics of Edmcation. London, England::..Faber.and Faber, Inc., 1963. ..
Venn, -Grant, and Marchese, Theodore, J. Jr. Akn, Education,' and[Work.Washington, D.C.: Amerkan Council on Education,'1964.
William, Walter. OE0 Illanpow e randkanpoly e r Related Research Was1Lington,D.C.: Office of Economic Opportunity, U.S. Department of Labor, 19671
V. (B;;;LIOGRAPHIES
Abstracts of 'Research Materials in. Vocational and .Teeknical. Education.Colimbus, Ohio: The Ohio State University, The Center for VocationaEducation. 1967-1972. . .
An Annotated Bibliography of Benefits and Coits in the rub& Sector.Philadelphia, Pennsylvania:, Research for Bitter Schools, Inc., 1968. 254pp. (El) 026 744 MF $0.65 HC $9.87),,
Blaug; Mark. EconomicsOfEduortion: A Selected AnnotatedBibliograplsy. NewYork, New York: Pergamon Pfeil, 1966. .
. A Selected' Annotated 'Bibliography in the Economics of Education:Education' Librariei Bulletin, Supplement, No. 8, London; England:
. 'Institute of Education, University of London, 1964. .
Case, C. Marston, and Clark, Stephen C. A BibliograpNcal Guide toOperations,Analytis of Education. Technical Note' Number 43. Washington, D.C.:National Centei for Educational Statistici, U.S. Office of Education.September. .
Corplan Association. A Bibliogra. phy of 'Published and Unptiblished Vocationalend Technical EducatiOnal Literature.. Chicage, Illinois: Illinois. Research .
and DevelopMent COordinating Unit, June, 1966: .,
Darcy,' Robert L. Economics of limn= Resowees: A Biblthgraitt,, 4ktheas,Ohio: Ohio University, Department of EcOnomks, January; 1968.Mimeographed.
Deitch, Kenneth M.; McLoone, Eugene P.; compilers. The Economics ofAmerican Education: A Bibliography, Including Sdected Ms/Or Referencesfor Other Nations. Blooinington, Indiana: Phi Delta Kappa, 1966. 69 pp.(ED 024 108 MF $0.65 $3.29).
0
9.
Edding, Friedrich. Bibliography of the Economics of Education. Paris, France:0.E.E.C., 1961. Mimeographed.
.Eidell, Terry L., .and John A., (compilers). Annotated BibiloirePhy onthe Evaluation or Educational Programs. Eugene, Oregon: OregonUniversity, 'Eugene, Oregon: ERIC Clearinghouse on EducationalAdministration, November, 1968. 19 pp. (ED 625.. 857 MF $0,65 .HC$3.29).
Homer, Jamei T., (ed.). Summaries of Studies in Agricultural Education, CentralRegion, 1968-69. A n Annotated Bibliography of Studies in AgricultwalEducation. Lincoln, 'Nebraska: University of Nebraska, Department ofAgricultural Education; 1969. .
Little, J. Kesineth. Revie w and. Synthesis of Research on the PlaceMent andaf Vocational Edmonton Students. Columbus, Ohio: The Ohio
State University, The Center, for 'Vocational and Technicil Educition;FebruarY, 1970. 54 pp. (ED 037 543 MF $0.65 HC $3.29).. .
'McGivney, Joseph H., and 'Nelson, William C: Program; Banning, Budgeting.. Systems for Educators, Volume III: An Annotated Bibliography. Final.
Report. .Ribliography Series No.. 3. Coltimbus, Ohio: The Ohio State..University, The Center for Vocational and Technical Education, 1969. 57
. pp. (ED 035 756 MF $0.65 11C $3.29).
Microfiche Collection of Documents Reported in Abstracts ,of Research Ma-totals in Vacctional and Technical Education, Wintir, 1967. Columbus,
. Ohio: .The Ohio State University, The Centeofor Vocational and TechnicalEducation, 1967. '1 1,214 pp. (ED 015 349 MF $23.10 HC not availablefrom FDRS).. .
Nelson, William C.Progrnm; Planning, Budgeting Systemi jot Educators; VolumeIV. A Research Bibliography. ColuMbus,.OhiO: The Ohio State-University,The Center for Vocational and Technical Education, 1970. 1 17 pp. (ED038 512 MF $0.65 Hc $6.58). .
Poverty end Hump Resources, Abstracts. Univitiity of Michigan-Wayne StateUniversity: Industrial Relations/InstitUte of Labor.. Volumes 1-4.1966-1969.
, .
Rand Corporation. A Bibliography of Selected Rand Publications. Santa Monica,California: Rand Corporation, July,'1970. , .
Rearman, Elisabeth H. Bibliography, of Cost-Benejli Analysis and ManningProgramming-Budgeting. McLean, Virginia: Research AnalysisCorporation, February, 1966. . .
Sharp, Laure M., and Kramegor, Rebecca. The Use of Follow-Up Studies in the&vitiation of Vocational Education. Washington, D.C.: Bureau oi SocialScience Research, Inc. May, 1966. 42 pp. '(ED 010 072 MF W.65 HC$3.29). , . .
U.S. Department of Labor. Cost-Benefit Analysis: Theory old Application to .
Manpower Paining Programs: A Bibliography. Washington, D.C.: U.S.Department of Labor, May, 1971..
U.S. Office of Education. Technical end Vocational Education in the USA. ABibliographical Survey. Education Studies and Documents, No. 36, Paris,France: UNESCO, 1959.
University of Minnesota, Laboratory for Research in Social Relatiofis. AnAnnotated Bibliography of Research Related to Unemployment andRetraining. Washington, D.C.: U.S. 'Department of Labor, Office ofManpower, Automation and Training, 1965.
University of Wisconsin, Bibliography No. 12, Addendum No. 6: Cost BenefitAnalysis. Madison, Wiscomin: Center for Studies-Vocatioiral andTechnical EdUcation. January to April, 1968,
.11ibliography No. 16, Addendum No. 6: Manpower. Center for Studies inVocational and Technical Educati,Januaty-April, 1968.
Bibliography No. 18, Addenda No. 6: Retraining. "January-April, 1968,,Mimeographed.
.
cent, Howard L. Selected Bibliography.-.-Application of Economii Analysis`4n' -Operailons Research to Problems in Educational Plannint
Wa
Lieson, D.C.: U.S. Department of Health, Education, And Welfare,
' National nter for Educational Statistics. 1966. ,
VocatiOnal and Technical Education Reviews the Literature for the 6-Year-period since October, 1956: Review of Educational Research, October,1962. 32:363-433.
. ,
Warmbrod, L Robert. Review and Synthesis of Research on the Economics of tVocationd-Technical Education. Columbus, Ohio: The Center for \Vocational and Technical Education, The Ohio State University,
.1November, 1968. 62 pp. (ED 023 937 MF $0.65 HC $3.29).
Wood, W. Donald, and Campbell, H.F. Cost-Benefit Analysis and the Economicsof Investmeat in Human Resources: an Annotated Bibliography. Kingston,Ontario: Industrial Relations Center, Queen's University, 1970..
e.
*U.5.13ovornpiont Printing Offices 1972 755-7113/4 Rogion No. 5-11