Wednesday, August 10, 2005

Why go to school? There's an obvious answer

Sassy Lawyer in her Manila Times column says:

The intention to cash in on one’s education is not an evil thing; it is a cultural thing. Perhaps, it is an offshoot of the Spanish colonial rule when Filipinos were denied education and doomed to poverty. When the Americans introduced the public school system, people saw it as a way out. In our culture, education is an investment. Many marginal families do not flinch at incurring debts and pawning or even selling their meager properties just to see their children through college. We are taught that having an education assures us of a bright future.

Bright means financially comfortable. And a bright future is something that the college graduate is expected to share with his parents, siblings and other relatives. In short, our educational orientation is focused on the individual and the family rather than on society.

My answer: sorry - it's not evil; it's not cultural; it's economic. Education is an investment. You spend money and time now, to reap higher wages later. It's that simple. It's not wrong, any more than investing in stocks is wrong, any more than investing in a business is wrong. This is simply an act of a rational, sensible human being. And going abroad to realize higher wages is simply an extension of this rational behavior.

This is the lesson of human capital theory (first conceptualized in 1964). After forty years economists have accummulated a large body of evidence on the main predictions of the theory:

a. higher education is correlated with higher future wages;
b. current wages are negatively correlated with wage growth;
c. older people tend to invest less in human capital;

and so on. (I can give you the references - if you're interested.)

However there is another, also economic, reason for wanting to keep all that human capital at home. It's got nothing to do with purity of motives. It's because of alleged "externalities." What's that? Oh, that's not obvious, so I'll save it for another post.

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