Social Rate Of Return To Education Case Study

The social rate of return to education looks at the positive externalities of schooling, e.g. faster innovation, enhanced productivity, and the accrued benefits for the entire community. To give an estimation of its magnitude, social costs and social gains of education must be considered. Costs comprise the public spending destined to education, that usually represents one of the top three public expenditure recipients. The benefits are the sum of the private returns for each citizen and the benefits accruing to others. Empirically, social gains are hard to estimate and vague assumptions usually lead to an overall lower amount than individual magnitude. On the contrary, according to Acemoglu and Andgrist (2000), when analysing the effect of investment in schooling on
Since there is not wide research on the topic, Schultz makes some assumptions to illustrate the matter. Assume not only that an individual benefits from the higher productivity of the educated partner as in standard economic models of marriage (Becker, 1981) but also by a positive consumption complementarity between the schooling of the parents. In particular, suppose that the marriage market combined the most educated woman and man and so on down the schooling-rank of men and women so that the correlation between the partner's schooling is equal to 1. In that case if the years of schooling were to be equally distributed between men and women, the total welfare of the married pairs would be the highest given any total stock of schooling available to the population when the average gap of schooling were 0. This result depends on equal returns to schooling for both genders and, of course, in reality the correlation is somewhere between 0.4 and 0.6 (Kremer, 1997). Despite all of that, the gap in schooling tends to diminish as economic development furthers and for the correlation to increase