Cost Benefit Analysis Education

Readers Question: Outline the technique of cost-benefit analysis. How can it be applied to the assessment of investment in education projects and what are its strengths and weaknesses?

See: Procedure of CBA 

Potential Benefits of Education Spending

  • Increased Labour Productivity in the long run. i.e. more literate and numerate workforce should be more efficient enabling higher rates of economic growth
  • Decreased Unemployment. In a modern economy, it is important workers have relevant skills. Structural unemployment is often caused by a lack of skills and training. Education aims to reduce structural unemployment, especially amongst young workers.
  • Higher wages for workers. More educated workforce can command higher salaries (see MRP model of wage determination)

Costs of Education

Higher taxes

  • The opportunity cost of spending. If the government spend more on education it means less can be spent on other types of investment such as infrastructure spending. e.g. Building new roads may be more efficient
  • Spending may not increase productivity (especially if workers are unreceptive to education
  • Education aims to increase labour productivity in the long run.

Difficulties of CBA Analysis for Education

  • Difficult to isolate whether productivity increases due to education
  • Time Factor. Most benefits are a long time in future.

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