Capítulo IV:Análisis de las contribuciones y limitaciones de la Alianza
4.2 Contribuciones de la Alianza PRONIÑO en la
Since human capital theory was incorporated into the mainstream of economic thinking in the 1960s, education and training have been widely viewed as an investment. Because education and training impart skills and knowledge that enhance productivity, they have positive effects on individuals’ life-time earnings (Schultz, 1961; Becker, 1964). Enhanced productivity contributes to economic growth. In a competitive labor market, where wages are determined by the supply of and demand for labor, the earning differentials among workers with various levels of education reflect differences in the marginal productivity of workers. The private rates of returns to education (at the individual’s level) tend to increase with levels of education (Psacharopolous and Patrinos, 1993). In India, these private rates of return to both lower and senior secondary education have been increasing steadily over time, as economic growth has increased demand faster than supply, and provide a clear rationale for household (private) investment in secondary education.
Furthermore, the benefits of education transcend individuals, and are often associated with innovation,
social cohesion, better health and nutrition outcomes, poverty reduction, and political participation (Friedman, 1955; Barr, 1993, 2002). The net benefits of education which accrue to society often outweigh public expenditure on education, resulting in positive social rates of return to education (Psacharpoulos and Patrinos, 1993). Where the social returns are higher than the private returns, public financing is justified, because the market would under-invest in education without the government’s intervention. In theory, the level of public subsidy should correspond to the size of the positive externality, but in reality this is very difficult to assess. As the World Bank’s recent publication regarding secondary education in Latin America and East Asia states, “Policy makers must rely on inherently imperfect information in reaching decisions on public financing”.7
Even when private returns are higher than social returns, public financing can be justified on grounds of correcting household bias (for example, against girls education), information asymmetries (about benefits of education), and credit market failure (which precludes private borrowing to offset the cost of education), (Banerjee and Newman, 1993; Barr, 1993). These issues are particularly acute for poor households, which are least likely to be informed of the benefits of education and most likely to be excluded from credit markets. In addition, the opportunity costs of secondary schooling as a percentage of household income are greater for poor households, further dampening their demand. Thus, there is a strong equity argument for public financing, without which many talented children will simply be excluded.
In addition, with the rapid technological changes in the 1990s, developed countries shifted to considerable extent from resource-based to knowledge-based economies. The new growth theory holds that knowledge, unlike physical resources, is not subject to diminishing returns, thereby offering opportunities for continuous growth (Romer, 1986; Nelson and Romer, 1996). Therefore, not only should countries invest in education, but they should also invest in research and development, in order to generate
7 “Meeting the Challenges of Secondary Education in Latin America
and East Asia”, World Bank, 2006.
knowledge to drive growth. Knowledge generation typically means higher education which, of course, requires secondary education as a prerequisite.
Finally, as T. W. Schultz observed (1961), education’s impact on productivity is highest in dynamic environments, where marketing opportunities, prices and technologies of production are changing. India’s economic liberalization, increased global integration and sustained economic growth create the dynamic environment in which the returns to increased educational investment are likely to be high, and the risks to an uneducated individual (or to a country with a low stock of educated workers) are likely to be higher still. The following sections elaborate how public investment in secondary education in India can facilitate economic development, increase social benefits, open opportunities for the poor and the disadvantaged, and promote democracy.
1.2.1 Secondary Education Contributes to
Economic Growth
In India, technological innovations, openness to world trade, and rapid economic growth have fuelled the demand for skilled workers. Recent analysis confirms that most of the employment growth over the past ten years has taken place in skilled services (information technology, financial services, telecommunications, tourism and retail) and skill- intensive manufacturing, all of which require, at a minimum, a secondary education degree. Meanwhile, employment declined in low-skilled occupations, and stagnated in agriculture as agricultural value-added growth decelerated sharply in the second half of the 1990s.8 Even in rural areas,
job prospects are better for the more qualified. Further, there is a rising overseas demand for highly skilled and semiskilled workers from India, most notably in the USA, UK, Southeast Asia, and the Gulf states.
However, employer surveys increasingly indicate that shortages of skilled workers constitute constraints to new private sector investment and growth. The Federation of Indian Chambers of Commerce and Industry (FICCI) conducted a survey of Indian industry in July 2007, whose results clearly showed that
8 “India’s Employment Challenge: Creating Jobs, Helping Workers”,
“the shortage of skilled and semi-skilled… workers has emerged as a critical factor impacting the competitiveness of Indian industry”. The skills shortages appear when trying to expand production (fill new vacancies), upgrade existing employees to more technology-intensive production processes, or replace loss of employees to higher paying employers. Shortages were reported across many segments of industry, including oil and gas, biotechnology, food processing, IT, aviation, health care, construction, automotive, mining, textiles, plastics, finance, insurance, chemicals and pharmaceuticals. From industry’s perspective, a more skilled workforce (meaning workers with at least secondary education) is critical for increasing technical absorption, reducing rejection levels and enhancing the quality of products for both domestic and international markets.9
Furthermore, a 2008 survey of 600 companies – both Indian and foreign - conducted by a human resources consulting firm10
showed double-digit salary increases in both 2007 and 2008 in real estate, energy, retail, telecommunications, banking/ finance, accounting/legal, IT and back-office processing (all of which require at least a secondary education), which
9 FICCI Survey on the Emerging skill shortages in the Indian
industry, July 2007.
10 Hewitt Associates, quoted in Hindustan Times,
February 29, 2008.
suggests employers are having to compete more for scarce skilled personnel. Interestingly, staff at the junior manager and professional levels received the largest pay increases, rather than senior/top management. In summary, all of the trends discussed above led a recent study of the Indian labor market to conclude: “This highlights the importance of enhancing secondary education, an area where India is still lagging.”11
Quantitative economic analysis supports this conclusion - the marginal private returns to additional education have been highest in secondary education, although in recent years the increases have been greatest at the senior secondary and tertiary levels (Figures 1.1 and 1.2). Given that skilled workers and professionals can migrate abroad much more easily to search for greater opportunities, if the earnings of Indian overseas workers were taken into account, the returns to secondary and higher education would be even greater12 (World Bank, 2006c). The marginal returns to
girls’ education have consistently been higher than those for boys and, comparing 1999 and 2004 calculations, the returns to girls’ senior secondary and tertiary education increased much faster than the returns to boys’ education.
11 “India’s Employment Challenge: Creating Jobs, Helping Workers”,
World Bank, February 2008.
12 There are about two million Indian nationals working in the Middle
East, for example, according to Times of India, July 24, 2006.
Source: Authors’ analysis of National Sample Surveys, 43rd, 46th, 50th, 55th, and 60th rounds.
45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0
primary middle secondary higher tertiary 1984 1988 1994 2000 2004 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0
primary middle secondary higher Secondary tertiary 1984 1988 1994 2000 2004
Figure 1.2: Marginal Returns to an Additional
Educational Level - Females, 1983–2004
Figure 1.1: Marginal Returns to an Additional
Educational Level - Males, 1983–2004
The extraordinarily high rates of return for girls compared to boys are caused by the size of the earnings differentials between males and females at different levels of education. Females earn less than men at all levels of education, but the relative disadvantage is less for female secondary education graduates than at the elementary education level. The difference in earnings between girls with a secondary education and those with an upper primary degree is much greater than the difference between boys at these two levels. High returns for girls also reflect a selection bias, as girls who complete secondary education tend to be more able and motivated, and come from better socio-economic backgrounds, than the general population of girls.13 As a result, girls realize a much
higher rate of return on secondary education investments than boys (World Bank, 2002b). This selectivity bias will decrease as more girls attend secondary schooling.
The earning differentials between workers with high levels of education and those with less have widened, despite the expansion of the education system and an increase in the supply of educated workers at all levels. Since the early 1980s, the relative wages and relative supply of workers with secondary education have risen steadily in comparison with those of workers with only primary education. In recent years, the rise in demand for workers with senior secondary and tertiary education has been large enough to outweigh any downward pressure on wages resulting from the increased supply of such workers. This growth in demand for skilled workers is expected to continue, making the expansion of secondary education and improvement of quality a matter of some urgency.
India’s trend of increasing returns to higher levels of education is consistent with worldwide trends in East Asia (including China), Latin America and Africa. These trends are likely to be associated with market liberalization and free trade (Lam and Leibbrandt, 2003; Schultz, 2003; Behrman, Birdsall and Szekely, 2003; Lloyd, 2005).
1.2.2 Social Benefits of Secondary Education
In addition to the private benefits of secondary education which accrue to households (which link to overall
13 This selectivity will likely evaporate as the secondary enrollment
rate of girls increases, reducing returns.
productivity and contribute to growth), the social benefits of secondary education must be considered. Social benefits go beyond the wages of workers and consider other factors important to society. It is worth pointing out that the positive externalities of secondary education on health, gender equality, and poverty reduction are even stronger than those of primary education (World Bank, 2005a), although these are difficult to quantify in economic terms. Through its impact on young people’s age at marriage, and its propensity to reduce fertility and improve birth practices and childrearing, expanded secondary education of girls leads to significantly lower maternal and child mortality, slower population growth and improved education of children, all of which are important GoI goals.
Table 1.1 below shows recently released data from the Third National Family Health Survey (2007), and compares the education level of females with a range of reproductive health indicators. The positive effects of upper primary and secondary education, as opposed to primary education or less, are strikingly clear.
In 2002 the World Bank estimated the social rate of return to secondary education to be 40 percent for girls and 13 percent for boys (compared to private rates for girls and boys of 26 percent and 15 percent, respectively, in 2004). This is more than high enough to justify increased public investment, particularly given the other non-quantified social benefits mentioned above.
1.2.3 Social Equality
Social inequality has resulted in differential access to quality education by young people from different household consumption quintiles, affecting their skills and earnings later in life. This, plus the fact that social networking affects access to good jobs, has resulted in inequality in earnings, even among workers with the same level of education. Workers from the poorest quintile have tended to earn less per hour than workers in the top quintile, even though they have the same level of education, if not the same quality (Figure 1.3). This has also been seen in Latin America where socioeconomic segmentation results in the poor attending schools of lower quality compared to their wealthier peers, which
Table 1.1 Impact of Females’Education on Health Indicators
Education Level of Females
Fertility
Rate Median Age Women of Marriage % of Women 15–19 Begun Child Bearing Mothers’ age at 1st birth Children < 5 Mortality (per 1,000 births) % of Children with all basic vaccinations % of Children who are malnourished (weight for age: < 2 S.D) % of Women with Knowledge of HIV/ AIDS None 3.55 15.5 32.6 18.7 94.7 26.1 52 30.3 < 5 years 2.45 16.5 21.2 19 78.8 46.1 45.8 57.2 5–7 years 2.51 17.3 19.6 19.6 60.5 51.8 38.5 69.4 8–9 years 2.23 18.7 8.5 20.8 46.9 59.7 34.9 85.1 10–11 years 2.08 19.7 6.1 21.8 40.2 66.1 26.8 94.9 > 12 years 1.8 22.8 3.6 24.8 29.7 75.2 17.9 99.0
Source: National Family Health Survey III (2007)
translates into lower future earnings (World Bank, 2006). This situation has begun to change, however, as hourly wages have increased faster for those workers in the poorest quintile who have senior secondary and tertiary
education. This shows that education is a promising avenue for upward mobility for the poor, particularly in a rapidly growing economy. Government has an important role to play in encouraging this process.