Economics of Education

Course content

This course explores why individuals and societies invest in education. Education has many private benefits (earnings, employment, health and longevity, consumption value), as well as social benefits (GDP growth, tax income, positive externalities). Education also affects inequality within a generation and across generations. Throughout this course, current policy issues concerning education will be discussed. Economic models will be connected to data that can be used to test the models' implications, and students will learn how models and data can serve to inform education policy. Applications will address primary and secondary education, university education, and vocational or on-the-job training, and place the Danish and European experience in an international context.

First, we introduce human capital theory to study individual decision-making. It will be used to analyze investments in education and how they are affected by ability, comparative advantage, family background, and macroeconomic conditions. We will encounter the empirical problem of disentangling the return to education from the return to innate ability, and investigate how the association between education and individual earnings has changed over time.

At the societal level, we study the social return to education and the financing of publicly provided schooling. Looking at the production of education, we ask how educational outcomes are produced by schools, whether financial resources improve student achievement, and which school inputs are more or less effective in producing desired educational outcomes (such as PISA test scores). We will consider the potential of early childhood education in the context of skill-formation over the life cycle. We will also reflect on possible conflicts between societal goals - efficiency, equity, and liberty - that influence decisions about the allocation of education resources.

From a macro perspective, education matters for national economic growth as well as for individual mobility. We investigate whether there is a risk of over-education, or whether individuals under-invest in light of a rapidly changing economic reality and international competition. We also study the intergenerational transmission of economic status through parental investments, credit constraints and achievement inequality, and the resulting income distribution.


MSc programme in Economics – elective course

Bacheloruddannelsen i økonomi – valgfag på 3. år

The Danish BSc programme in Economics - elective at the 3rd year

Sidefagsuddannelsen i Økonomi-Erhvervsøkonomi - valgfag på KA delen

Learning outcome

This course will teach students how to apply economic thinking to education-related questions. In doing so, the class will draw on a wide range of economic principles and apply previously learned material. The variety of models and perspectives will range from macro to micro, including labor economics, macroeconomic growth, and public finance. Students will be equipped with an economic toolbox to evaluate education policy issues methodically, and should eventually be able to use these tools to inform education policy. While the course will be based on theory, it is nevertheless of an empirical nature: recent data will be used to evaluate current issues, and students will learn how to read empirical articles that form the state-of-the art in economics of education.

After taking this course, students should be able to apply economic theories to address education question as a well-trained economist and should be able to:


  • Understand economic models in the education context,
  • confidently identify determinants of equilibrium/optimality and describe the role they play relative to each other.
  • Recall the frameworks and their assumptions, as well as their economic predictions.
  • Know the empirical state-of-the-discipline where they need to be able to read selected articles in economic journals and exctract the appropriate conclusions. Additionally, they need to examine whether the presented empirical evidence convincingly identifies causal relationships. Later, evidence needs to be recalled to address topics.



  • Identify key questions in a brief non-specific text, presented as a policy issue rather than an economic model. Then, link the key questions to economics of education.

  • Need to select the theories and pieces of empirical evidence which are relevant for the question or debate. Students need to learn how to choose the correct theory or framework that helps them organize an argument around a given education issue (manage the topics).

  • Evaluate the real-life relevance of possible economic explanations or scenarios, to give an assessment of which explanation or hypothetical outcome is more or less likely. This means they have to navigate the sometimes contradicting models or papers that we have studied and present their trade-offs.


  • Present arguments orally and in written form, which are based on their reading of theory as well as state-of-the-art empirical findings.
  • Construct concise cases where they show their well-rounded appraisal of a situation that connects economic theory to the real world.
  • Equipped to evaluate policy proposals critically and scientifically, and present arguments in favor or against them.


Lectures are not only frontal teaching, but involve discussions between students and the instructor.

Active participation is expected during the lectures, as well as the exercise classes which include peer-feedback on assignments.

With some topics, we will practice the argumentation skills in a panel-discussion, where prepared content is debated and the strengths of different arguments evaluated.

Mandatory individual assignments prepare technical material and practice the exam form (written evaluation of policy-relevant education issues, demonstrating ability to draw on appropriate economic theories).

Main textbook: Checchi, D. (2006) The Economics of Education, Cambridge University Press (all chapters). ISBN: 9780521066464,

In addition to the following examples of journal articles,
lecture notes (slides) are considered study material and are part of the syllabus.

Examples of further mandatory reading (a complete list of mandatory reading will be posted at the beginning of the course):

  • Becker, G. S. and N. Tomes (1986). Human Capital and the Rise and Fall of Families. Journal of Labor Economics 4 (3), 1-47.

  • Becker, G. S. (1991) Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education. National Bureau of Economic Research, distributed by Columbia University Press. Chapter 4 and its Appendix.

  • Belley, P. and L. J. Lochner (2007). The Changing Role of Family Income and Ability in Determining Educational Achievement. Journal of Human Capital 1 (1), 37-89.

  • Cunha, F. and J. J. Heckman (2007). The Technology of Skill Formation. The American Economic Review: Papers and Proceedings 97 (2), 31-47.

  • Psacharopoulos, G. and H. A. Patrinos (2004). Returns to Investment in Education: A Further Update. Education Economics 12 (2), 111-134.

  • Solon, G. (2002). Cross-Country Differences in Intergenerational Earnings Mobility. The Journal of Economic Perspectives 16 (3), 59-66.

  • Hanushek, E. A. and L. Woessmann (2010). Education and Economic Growth. In D. J. Brewer and P. J. McEwan (Eds.), Economics of Education, Volume 2, pp. 60-67.Amsterdam: Elsevier.

  • Lleras-Muney, A. (2005). The Relationship Between Education and Adult Mortality in the United States. Review of Economic Studies 72 (1), 189-221.

  • Lochner, L. J. and E. Moretti (2004). The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports. The American Economic Review 94 (1), 155-189.

  • Belfield, C. R. (2000) Economic Principles for Education: Theory and Evidence, Edward Elgar Publishing, Inc. Chapter 2.

  • Borjas, G. J. (2000) Labor Economics, 2nd Ed., Irwin Mcgraw-Hill. Chapter 6.

The course material has two components: Economic theory as it relates to education, and the application of this theory to real-life issues, using empirical methods.
In the first couple of weeks of the course, therefore, we study human capital theory and students are expected to be able to follow the derivations of these models themselves. This requires knowledge of constrained optimization techniques. They will be practiced in the exercise classes.
Then, building on this foundation, we study empirical papers and discuss the benefits/disadvantages of different approaches to using available data to evaluate questions such as the returns to education. While students will not be working with data themselves in this course, a basis in econometrics is needed to a) understand issues such as causality, and b) interpret the estimation results presented in the scientific papers.
Ideally, students should have taken the courses Microeconomics I, Microeconomics II, "Probability theory and statistics" (Econometrics A) and Econometrics II corresponding to the 2nd year undergraduate sequence in the Department of Economics at KU.

2 hours lectures 1 to 2 times a week from week 6 to 20 (except holidays).
2 hours exercise classes a week from week 6 to 20 (except holidays).

Timetable and venue:
The schedule for the semester spring 2018 will be available no later than 7th of November 2017

7,5 ECTS
Type of assessment
Written examination, 3 hours under invigilation
at the computers of Copenhagen University. The exam assignment is given in English and must be answered in English.
Without aids
Marking scale
7-point grading scale
Censorship form
External censorship
if chosen by the Head of Studies.
Criteria for exam assessment

Students are assessed on the extent to which they master the learning outcome for the course.

To receive the top grade, the student must be able to demonstrate in an excellent manner that he or she has acquired and can make use of the knowledge, skills and competencies listed in the learning outcomes.

As a very basic requirement for passing the course, students must demonstrate sufficient understanding of the human capital models, correctly recall their goals, assumptions, and predictions (knowledge of theory), and recall the purpose, econometric approach, and findings of empirical papers we read (knowledge of empirics).

In order to pass, students must also demonstrate the skill of linking their passive knowledge of models and empirical papers to a given (hypothetical) real-world situation. This means they must be able to select the models or papers that are appropriate and relevant to the case at hand, and then evaluate their different predictions or arguments, and for example point to the instances where a model's assumption diverges from a real-life scenario (skill).

In order to receive full credit, students must demonstrate a well-developed competency to construct arguments on complex education issues that utilize the best available resources from economics of education – be they theoretical or empirical.

Single subject courses (day)

  • Category
  • Hours
  • Lectures
  • 42
  • Class Instruction
  • 28
  • Exam
  • 3
  • Preparation
  • 133
  • English
  • 206