EDUCATION, INEQUALITY AND POVERTY

"Education is not a way to escape poverty — it is a way of fighting it.''

— Julius Nyerere, former President of the United Republic of Tanzania

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Education and Inequality

Education has emerged as an important factor underlying inequality. It is true that highly educated workers earn more than persons with basic education and the difference has grown particularly over the 1980s. There are both economic and social advantages to achieving higher levels of education, both for individuals and society. But the growth of inequality cannot be reduced to this sole factor, i.e. education. The argument that employers’ demands for skills were bidding up the wage rate to those with more education was arguably true (other factors were involved here) over the 1980s and 1990s, but not after 2000.

While increased skill (education) demands were certainly one force in play, other factors were also driving up the wage gap:

1. The real value of minimum wages fell steeply over the 1980s and less educated workers are more likely to earn the minimum wage.
2. Growing trade deficits and globalization also led to the loss of high-quality jobs for non-college-educated workers, putting downward pressure on wages among similarly skilled workers.
3. Union representation has been declining, which is another important reason for greater inequality.
4. Finally, unemployment was high, on average, over the years when the wage rate for skilled workers grew most quickly. When unemployment fell sharply in the latter 1990s, the growth of the wage gap slowed, suggesting that the absence of full employment, and the diminished bargaining power associated with slack labour markets, is another factor that must not be overlooked.

In other words, wage inequality is driven by a number of factors, of which differences in education is but one. More recently, in the 2000s, there is no evidence of increasing skill demands, or at least no evidence that these demands are not being met by enough skilled workers. Instead, in recent years, it appears the inequality has largely been driven by increased concentration of income and wealth at the very top of the scale.

In fact, research shows that half of the growth in wage inequality over the 1980s, and most of the growth in the 2000s, occurred within education groups, meaning that growth of inequality is currently being driven by the gains of some educated workers relative to others with the same education credentials.

Policy makers and analysts must avoid reducing the inequality debate to a sole explanation regarding education. Education is an obvious and important area but it is not solely responsible for the growth of inequality, not over the longer term, and especially not in recent years. Thus, other policies like minimum wages, a level playing field for union organizing, health care and pension provision, work supports for low-income workers, full employment, and responding to the downsides of globalization also need to be pursued.

Education and Poverty

Poverty is much more complex than simply lack of income. Poverty entails–

 Lack of empowerment

 Lack of knowledge

 Lack of opportunity

 Lack of income and capital

Despite increased access to education in recent times, the poor (among them the poor women disproportionately being high), socially disadvantageous groups, the physically disabled, persons in remote regions - are often deprived of a basic education. And when basic education is available, the poorest are unable to avail of it because the direct and opportunity costs attached to it are quite high for them.

Poverty is thus both a cause and an effect of insufficient access to or completion of quality education.

Children of poor families are less likely to enroll in and complete schooling because of the associated costs of attending school even when it is provided "free''. The cost of uniforms, supplies and transportation are well beyond the means of a poor family, especially when the family has several children of school age. This means that choices have to be made, and the choice is often to drop out of school or, worse yet, to deny schooling to girls while enrolling the boys thereby contributing directly to maintaining the inferior status of women. And as poor children who are enrolled grow older, the opportunity cost (their lost labour and the forgone income it may entail) becomes greater, thus increasing the likelihood of abandoning school.

Furthermore, dropping out of school because of poverty virtually guarantees perpetuation of the poverty cycle since the income-earning potential of the child is reduced, not to mention overall productivity, receptivity to change, and capacity to improve quality of life. Lack of education perpetuates poverty, and poverty constrains access to schooling.

The relationship between education and poverty reduction is thus quite straight and linear as education is empowering; it enables the person to participate in the development process; it inculcates the knowledge and skills needed to improve the income earning potential and in turn the quality of life. Moreover, education of girls and women helps in improving the number of other indicators of human development.

Eliminating poverty requires providing access to quality education. Education thus helps to lay the foundation for the following pillars of poverty reduction: empowerment, human development, social development and good governance.

Education transforms the vicious cycle of high birth rates, high maternal and infant mortality and endemic poverty into a virtuous circle through investment in human capital-enhancing labour productivity, reducing fertility and mortality, raising economic growth and thus securing domestic resources for further investments in people.

Education is a powerful tool for introducing members of a society to the system of government and the concept of governance. Educated persons are more likely to vote and participate in local and national government. They are more likely to demand better and more accountable government, thus creating demand for improved governance. Education is linked to empowerment, and a major manifestation of empowerment is the demand for better governance.

The continuing challenge for education is to ensure that all people have the knowledge and skills necessary for continuing human and economic development and for breaking the poverty cycle. The linear relationship between education, poverty and empowerment is, however, governed by the circumstances of a country and within a country in a particular region. Education, thus, influences and is influenced by the context in which it is developed. This synergistic relationship implies that education must be in a constant state of change as it responds to changing social and economic needs and that education in itself is a force for social and economic change as people become more empowered and more productive.

Education might be furthering inequalities and hence poverty if equitable distribution of the benefits of economic growth among people is not achieved. This requires pro-people policies, especially in a region where the benefits are limited to a small minority of educated urban populations. As Amartya Sen says in an essay titled ‘How Does Basic Education Influence Human Security', "When people are illiterate, their ability to understand and invoke their legal rights can be very limited. This can be a very significant barrier to make use even of the rather limited rights that they do actually have."

Acknowledgment: K. VENKATASUBRAMANIAN, Member, Planning Commission, The Hindu, December 04, 2001

www.infochangeindia.org

http://www.undp-povertycentre.org/pub/IPCPovertyInFocus11.pdf

http://www.whitehouse.gov/news/releases/2007/01/20070131-1.htm

EDUCATIONAL INVESTMENT IN DEVELOPING COUNTRIES

In the context of economic development, the educational product as a whole not only includes components of consumption (enjoyment of the fuller life permitted by education) and direct investment (increased earnings to the educated person, i.e. “internal” gains of education), but also “external” gains which accrue to other members of the community, i.e. the economic and social system at large.

The most important characteristic of educational investment is externality. This aspect of external benefits of education lies in the change in the social and cultural climate, incident to the widening of horizons, which education entails. At the same time, this benefit result is not an automatic consequence of general education, but only of the proper type, quality and quantity of education. Supply of professional people who cannot be absorbed into appropriate positions may readily become an external diseconomy and source of instability.

Apart from the factor of externality, educational investment has certain other characteristics:
The product of education outlays carries the joint features of consumption and investment. For this reason, the share of resources allocated to education cannot be considered wholly an investment outlay. The consumption component of education may be divided into current consumption (the delights of attending school) and the future consumption (the ability to appreciate life more fully later on). Future consumption being the major element, the consumption component is largely in the nature of a durable consumer good and hence investment. Thus the essential distinction is not between consumption and investment aspects of education, but between education investment which generates imputed income (fuller life later on) and education investment which generates increased factor earnings to the labour supplied by the educated person.

The imputed-income component of education tends to be of particularly great importance at the early stages of development. Extension of secondary education becomes the primary goal of education policy in countries with a low level of education capital stock with extension of elementary education and technical training at the next level of capital stick and expansion of higher education at a more advanced stage.

Secondly, investment in education is characterized by a gestation period which is substantively longer than that of many other types of capital formation. Periods of ten to twenty years may be involved, depending on how far the education process is carried, and even longer spans may be involved if teacher training is taken into consideration. Even though certain skills may be acquired fairly rapidly, especially if a previous foundation is laid, the educational capital stock cannot be changed quickly, particularly for the more advanced type of education. This is a constraint in investment planning requiring public policy guidance and planning.

A further feature of investment in education is the relatively long useful life of the educational asset as compared to other competing investments. Obviously, there may well arise a difference between the government’s and the private investor’s allocation of share for education in investment outlays. The relatively long, useful life makes it necessary that the type of education be chosen in order to meet future demands in particular skills. This applies more to specialized and technical education. Thus, educational planning in the context of a longer-term development view is essential.

Finally, the resource cost of education not only includes teachers’ salaries, buildings and equipment, but also the opportunity cost of lost income on the part of the student. Where there is a general surplus of labour supply, the opportunity cost of foregone earnings will be small or non-existent. Other components of education cost (school teachers’ salaries in particular) tend to be relatively high in developing countries. So, even though the income stream from a given factor input into education will be large, the rate of return on educational investments is therefore not as high.

Sensible education targets must be developed by considering the needs of the particular economy and the demands posed by its specific plans in order to absorb additional supplies of educated manpower. The matter of educational priorities is of vital importance. Unless the right kind of education is provided, setting overall targets has little meaning. Educated persons who are unable to find suitable jobs, fail to add to the national product and also become a source of political instability. Since the cost of various types of education differs greatly, the very setting of overall targets has to be based on the composition of education supply.

Whether undertaken privately or in the public sector, the necessity for investment planning cannot be denied. Left to household decisions, neither market knowledge, nor foresight nor financial requirements are present which are needed to secure adequate supplies. This is especially the case in developing countries where the whole attitude towards education has to overcome conventional barriers and become reoriented to the development process.