Returns To Education

Returns to Education
Returns to education is the benefit that families get for sending their children to school beyond what the schooling costs. Education is important in development, as it leads to more effective utilization of resources by a more skilled workforce. On a micro scale it increases a child’s potential income and can help a family get on the development ladder. Returns to education stimulate investment in education. If there are no perceived benefits parents will not send their children to school.

Banerjee and Duflo use the demand wallah's stance to explain a cause of low returns to education. “The quality is low because parents do not care enough about it and they don’t because they know that the actual benefits (what economist call the “returns” to education) are low.” India’s Green Revolution increased the education level needed to succeed as a farmer, which increased the returns on education, and subsequently increased the demand for education in the areas most affected[1]. The demand wallahs hold that increasing the returns to education will increase demand, and the market will supply education where there is demand.

Returns to education are based on the idea that when a child gets education and is able to make more money, that child will then help provide for it’s parents. Some children do not return to support their parents after they’ve received an education; in these cases there are no returns to education for the parents[1]. Likewise, the assumption that parents will invest in the education of a child based on the promise of long-term returns for the child may also be flawed. Individuals with lower education and individuals in poverty tend to have difficulties selecting delayed gratification over instant gratification. Parents may choose to feed their children in the present, rather than risk investing limited resources for the uncertain promise of education’s deferred reward.

As education levels increase, the returns to education increase as wel. Despite the higher returns, there are relatively low rates of enrolment in secondary education. This could be due to prohibitive opportunity costs to the extremely poor.

[1] Banerjee, A., and Duflo, E. Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. New York: PublicAffairs/Perseus Books Group, 2011. 75. Print.