I have not been following this thread too closely, but I would suggest that there may not be significant social pay-offs in raising the educational attainment of people on welfare and other low income groups. I did some work in this general area a few years ago using data on Canadian Aboriginal people and welfare recipients in New Brunswick who were part of a program known as "NB Works". In both cases, the idea was to bring people who, on average, had completed Grade 9 up to high school completion standards. I'm attaching part of the report I produced at the time as an html file. What it says, generally, is that benefits, in terms of income to the beneficiary, were less than the costs to the state of raising the level of education. However, this does not mean that there may not have been significant social benefits of another kind, such as the creation of a public better able to participate in democratic decision making, or parents more motivated to ensure that their children got a good education. Ed Weick (613) 728-4630 Visit my website: http://members.eisa.com/~ec086636 ----- Original Message ----- From: Timework Web <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Saturday, July 29, 2000 11:15 AM Subject: Re: Fw: education & pay > RE: > > > >> Unemployment and earnings for year-round, full-time workers age 25 > > >> and over, by educational attainment > > >> > > >> unemployment median > > >> rate, earnings, > > >> 1998 1997 > > Median or mean there is an unspoken but unjustified insinuation of a > causal direction in the numbers, that is, more education -> more > earnings. The association between education and earnings is better > explained by reference to social class origins -- children from higher > income households are privileged in there access both to higher education > and higher income. The implied direction of causation education -> > earnings provides both a (false) meritocratic justification for income > inequality and a (false) promise of mobility. > > Controlled for social class origin, I would be surprised if the MEDIAN > earnings premium for higher education amounted to much more than enough to > offset the cost of tuition and the opportunity cost of time spent outside > the paid labour force. In many cases, higher education may represent a > deadweight loss (financially). > > > Temps Walker > Sandwichman and Deconsultant >Title:
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Human capital
The foregoing raises the question of the extent to which the state would benefit from
supporting the education of welfare recipients. By doing so, it would seem that it would not
only enhance national productivity but also cut its welfare costs by enabling people to earn
more of their income. It could, by raising earnings, also increase the tax base.
"We think the workfare-training experiments appear promising. To some extent, they
offer win-win outcomes: they raise the net earnings of participants and generate net
savings for taxpayers. Even in cases in which participants might be indifferent
between income via a social assistance transfer and income via work, the rest of us
should not be. In addition to the quantified benefits measured in the studies, the
nonquantifiable, intangible dimensions of work are likely to be positive. The one
exception to this generalization is cases involving the mothers of very young children."
(Richards, John and Aiden Vining, Welfare Reform: What can we Learn from the
Americans, in Richards, John and William G. Watson, eds., Helping the Poor, A
Qualified Case for Workfare, C.D. Howe Institute, 1995)
Several themes surround the question of whether or not the state should subsidize the
education of social assistance recipients (SARs) in an effort to move them out of poverty. A
few decades ago, economist Theodore W. Schultz and others saw the building of the
national education and health stock as the means of providing the path to development and
prosperity. It was an implicit if not always explicit duty of the state to ensure that all citizens
were educated to the best of their ability. (Schultz, Theodore W., Investing in People,
University of California Press, 1980)
Following along this line of thought, Polechek and Siebert treat investment in education
much like any other investment that supports public goals. They cite equity and efficiency
reasons for subsidized education. Equity is involved because a student from a poor
background who wishes to undertake an investment in education needs to borrow to make
the investment, but has little or no collateral. It will be possible for him or her to make the
investment only if the state puts up the collateral in the form of a subsidy or loan. A loan is
justifiable because the student will benefit from the investment and should therefore be
expected to repay the loan along with accumulated interest from enhanced future earnings.
But a subsidy is also justifiable because the state too will benefit from the higher productivity
that the student will attain; that is, the investment has economic efficiency implications.
(Polachek, S.W., and Siebert, W.S., The Economics of Earnings, Cambridge University Press,
1993)
However, as with any other asset, returns will fall if investment is pushed beyond the
absorptive capacity of the system. The 1990s have witnessed a growing scepticism about the
value of higher education, stimulated by increasing numbers of high school and university
graduates who have had difficulty finding jobs. Education is no longer viewed as a
guaranteed path to prosperity, and university graduates are at times competing for jobs that
once fell to people with no more than high school. The problem is seen as being not only
matter of the demand side, but also of the supply side. It is seen as being driven by an
erosion of traditional values. Krugman, referring to schools in the United States, argues that
educational standards have declined:
"The decline in educational standards is not for the most part due to lower spending.
... Instead, the problems of our education system seem to be linked to problems of
motivation -- motivation of teachers, parents, and students. In our worst schools
education is lost in a climate of violence, but even in our more ordinary schools the
traditional drive for excellence seems to have been lost." (Krugman, Paul, Peddling
Prosperity, W.W. Norton & Co., 1994, p.64)
Not only is there a growing distrust of the educational system and a belief that work related
values are eroding, there is a re-emergence of the view that many people who are in the
welfare trap will never escape - that they are in the trap not because of social or family
circumstances, but because they belong there. This point of view has recently been given
intellectual and political support by books such as The Bell Curve, by the Contract with
America, and by the curtailment of welfare programs, particularly in the United States, where
"... economic and political forces have led to dramatic reductions in the real resources of
low-income families, pushing increasing numbers of children into poverty". (Fallows, James,
The Republican Promise, The New York Review of Books, January 12, 1995)
Questions are being raised of whether government incentives to promote employment do
any real good in an overall sense. At the macro level, Krashinsky points out that the
requirement to work for welfare, or "workfare", is economically neutral in the sense of having
no effect on the overall level of demand or employment. "Thus, any jobs found for those on
welfare will simply displace other people with jobs who, in turn, presumably will then need
some sort of public assistance. In that case, the policy will neither generate new wealth nor
save public money." (Krashinsky, Michael, Putting the Poor to Work: Why "Workfare" Is an
Idea Whose Time Has Come, in Richards, John and William G. Watson, eds., Helping the
Poor, A Qualified Case for Workfare, C.D. Howe Institute, 1995) There are also questions of
whether workfare can have any real impact on poverty. One source cites the American
experience:
"Reform efforts during the 1980s, culminating in the Family Support Act of 1988
(FSA), stressed welfare-to-work approaches that simultaneously provided work-directed services and introduced a participation obligation. The hope was that the
combination of opportunities and obligations would increase work, reduce costs, and
change the basic character of welfare from an entitlement to a reciprocal obligation
focussed on preparation for work. The evidence shows that: (1) implementing
participation mandates is feasible but difficult; and (2) such programs result in positive
and cost-effective -- although modest -- gains but do not lift large numbers of people
out of poverty." (Gueron, Judith M., Welfare Reform in the United States: Strategies to
Increase Work and Reduce Poverty, in Reynolds, Elisabeth B., ed. Income Security in
Canada: Changing Needs, Changing Means, Institute for Research in Public Policy,
1993, p.171.)
At best, the economics of programs which put welfare recipients into a position to work are
questionable - perhaps even doubtful. NB Works is one of the most carefully planned pilot
projects of its kind. It is also an expensive project, costing $177 million over a six year
period, or $59,000 for each of the 3,000 participants. (Milne, William J., Revising Income
Assistance Programs in New Brunswick: A Look at the Demonstration Projects, in Richards,
John and William G. Watson, eds., Helping the Poor, A Qualified Case for Workfare, C.D.
Howe Institute, 1995) Can it honestly be expected that the average six year earnings of
participants will increase by at least that much? Consider the following tables based on
material developed recently for the Royal Commission on Aboriginal Peoples:
The income figures in the first table are based on the average gain accruing to Aboriginal
people as they move from a mix of less than a grade 9 and incomplete high school education
to high school completion. It will be noted that the gain is considerably less than the cost of
providing training. We are not saying that the gain would not be more for participants in NB
Works, but it would have to be considerably more if annual benefits were to equal or exceed
annual costs.
The reason that we have not shown a net benefit figure is because costs and benefits occur at
different times - that is, costs occur during the first few years and benefits come later.
Moreover, they continue to accrue for a much longer period than six yeas, the cost period.
The following table looks at benefits and costs in the long-term, using a standard Treasury
Board discount rate of 10%. It assumes that the program begins to pay off in full after it has
run for four years - i.e. two years before completion.
It will be noted that even in the long term, the economics of an NB Works type program in
which the objective is high school completion or the equivalent are doubtful. Apart from the
uncertain economics, Milne cites several reasons why the NB Works program will be difficult
to evaluate: participants are chosen for their potential for success; there is no experimentally
designed control group; and lack of clarity on why participants chose to drop out. (Milne,
William J., Revising Income Assistance Programs in New Brunswick: A Look at the
Demonstration Projects, in Richards, John and William G. Watson, eds., Helping the Poor, A
Qualified Case for Workfare, C.D. Howe Institute, 1995)
However, we should not become too infatuated with conclusions about bad economics or the problems of evaluation. There are other, and perhaps stronger, reasons for workfare and educating the indigent than making sure that people can pay there own way. These reasons may be encompassed by notions such as dignity and self-respect, and, as we shall see below, the inter-generational preservation of the work ethic. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
