Incremental Income Benefits of Public Education

Abstract

IN economic welfare terminology, the social benefits of education result in an outward extension of society's utility possibility function.' These can be divided into current and future benefits with some accruing directly to the family whose child is being educated, while other benefits are mainly indirect. It is likely that of all the benefits of education, one of the most important is the gain in productivity and earnings of students. Public education increases the knowledge and skills of students and, therefore, tends to increase their potential earnings. While there is general agreement that the level of education attainment has a positive effect on income, relatively little is known about the magnitude of this relationship when differences due to other factors are taken into account.2 It is to this problem that we will address ourselves in this paper. Our procedure will be to advance a hypothesis about those factors, including years of schooling, affecting a person's income. We will then test this hypothesis by submitting survey data to a multivariate analysis, thus obtaining, in a case study, estimates of the net relation between education and future income. These findings will be used to estimate incremental lifetime earnings resulting from education and their present values, so that comparisons can be made between these benefits and corresponding annual education costs. Finally, some estimates of the rates of return of education investments will be made.