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Economic Outcomes and School Quality

Eric A. Hanushek
Published Date: 
Education Policy Series
Volume 4. Paris: International Institute for Educational Planning and International Academy of Education}

All governments of the world assume a substantial role in providing education for their citizens. A variety of motivations lead societies to provide such strong support for schooling – some of which come from pure economics and others of which come from ideas of improved political participation, of social justice, and of general development of society. No matter what the motivation, the fundamental question remains of ‘how much should society invest?’ Public investment in education comes at the expense of other public and private uses of the funds. Analysis of the benefits and costs of school reform summarized here indicates investments that improvements in quality of schools offers exceptional rewards to society.The underlying notion of human capital is that individuals make investment decisions in themselves through schooling and other routes. The accumulated skills relevant for the labor market from these investments over time represent an important component of the human capital of an individual. The investments made to improve skills then return future economic benefits in much the same way that a firm’s investment in a set of machines (physical capital) returns future production and income. In the case of public education, parents and public officials act as trustees for their children in setting many aspects of the investment paths. Most consideration of economic aspects of education has concentrated on school attainment, or the quantity of education. This is natural. It is easy to calculate the economic return on such an investment – both the costs and benefits are fairly clear. At the same time, relatively limited data have been available on the quality of schools, and there are great uncertainties both about how to change quality and about what it costs. Nonetheless, the 2 policy issues in most countries at the beginning of the 21 century are ones of quality. It is commonly presumed that formal schooling is one of several important contributors to the skills of an individual and to human capital. It is not the only factor. Parents, individual abilities, and friends undoubtedly contribute. Schools nonetheless have a special place because they are most directly affected by public policies. The human capital perspective immediately makes it evident that the real issues are ones of long-run outcomes. Future incomes of individuals are related to their past investments. It is not their income while in school or their income in their first job. Instead, it is their income over the course of their working life.