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CHAPTER . CONTRIBUTIONS OF EDUCATION TO ECONOMIC GROWTH

The return from education is here estimated as the proportion of the total increase in the national income contributed by education.

National income increases as a result of the following factors:

Factors Contributing to the Increase of National Income

A considerable part of the increase in national income caused by improved human capabilities is attributable to the increased level of education of the labor force, while the rise in the educational level or standard of the labor force is indirectly indicated by the increase in the stock of educational capital. The increase in the stock of educational capital brings a corresponding increase in its economic return from education. This increase in economic return from education contributes to the increase in national income. Thus, the economic return from increases in educational capital may be assumed to represent the contribution of education to the increase in the national income.

Though educational investment may not only result in increasing the educational level of the labor force, but also in greater productivity of physical capital and more efficient management, here only the effect of educational capital on the labor force will be considered

As estimates are available of the amount of the stock of educational capital, the return from educational capital can be calculated if the rate of return is determined.

Two methods have been employed to estimate the rate of return from educational capital. One is the method based on the differences in the level of income of graduates of various levels of school. The rate of return is calculated on the basis of the differences in level of income and the differences in costs of education. For example, the rate of return to university costs is calculated as follows.

the rate of return to university costs is calculated as follows.

Adopting this method, Theodore Schultz, professor of the University of Chicago, estimated the return from education in the United States. According to his estimates, the increase in national income attributable to added educational capital was about 33 per cent of the total increase in national income. In other words, the rate of contribution of education to the increase of national income was 33 per cent in the United States.

The other method is one adopted by S. Strumilin, a member of the Accademy of Science in the U.S.S.R. He assumed that those who engage in work requiring a higher level of technological talent need the higher level of education and are paid higher wages. That is, the level of education of a laborer relates to his wage. According to this assumption, complex labor was reduced to simple labor proportionately to the wages paid. For example, a university graduate is equated to two unskil1ed laborers. On this basis it was estimated that 30 per cent of the increase in national income in the U.S.S.R. resulted from raising the level of educational qualifications of laborers.

Applying the technics employed by Dr. Schultz to Japanese data, it is estimated that the increase of educational capital contributed 25 per cent of the increase in the national income of Japan in the 25 years from 1930 to1955.

Thus, the productivity of past educational investment may be estimated statistically. The role of education should be given greater stress hereafter, when increases in the level of education are required by the application of technological innovation. Furthermore, as the educational investment accumulates in the form of increased capabilities of the labor force, and, once invested in people, the effects last for a relatively long time, educational investment should be viewed as a very productive investment.

Expenditure for education has not only a character of reproducible capital and yields return on production, but it is also a component of consumption and contributes to the development of many socio-economic areas other than production. Thus, the consumption character of educational expenditure does not reduce the effect of education as an investment but rather complements the role of education in achieving economic growth.

In this chapter, macroscopic observation on the role of education in achieving economic growth has been made from the viewpoint of educational investment. However, evaluation of the contribution of education to the socio-economic development of the country requires historical review of the relationship between educational and socio-economic developments.

As indicated above, the size of the stock of educational capital has a close relationship to economic growth, and the return derived from the educational investment will increase more and more in the future. In analyzing the educational investment, it is important not only to consider how the educational investment has met the socio-economic needs and how the investment affected the quantity and quality of education, but also to examine such concrete points as follow: (l) the ratio of educational investment to national income and/or total governmental expenditure: (2) the balance between educational investment and other investments or consumption: (3) the areas of education to be stressed: (4) the appropriate share of the educational investment to be contributed by national and local government, private institutions and parents.

These problems will be considered in connection with the status of socio-economic development of our country in the following chapters.