Economics of Education

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.

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.