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Public Policy in Education – Where to spend the money?

Education is a pillar of a country’s development. It reflects knowledge and human capital formation necessary for innovation and progress of both the society and the economy.

James Heckman and his co-authors investigated education and training policies over the life cycle of a person, and Ludger Wößmann and Gabriela Schütz, from the European Expert Network on Economics of Education, wrote in accordance that “the formation of skills is a life cycle process that exhibits both recursive productivity and complementarity.” The first concept means that what we learn at one period is an input for the learning process of the next period, while the second means that the productivity of the learning process at a given stage is positively affected by skills acquired in previous stages. Furthermore, they tell us that the returns to a Euro spent on education decline as we consider higher levels of education.

As a result, to get the highest return on these investments, that is, to pursue efficiency, public intervention must be done at early stages, particularly due to its dynamic effects in terms of improving later learning.

Nevertheless, public policies are also concerned with an equitable society. In addressing this issue, the authors depicted figure 1, reproduced below, showing the different patterns of returns on investment for children coming from low-income and high-income families.


From the figure, one can conclude that interventions at early ages are more beneficial for all, but especially for children from poorer backgrounds as they result in a compensation for the lack of home stimulation and skills foundations that may hamper the probability of succeeding in later levels of education. Thus, without that investment, it would be particularly costly for them, in terms of effort, to engage in higher levels of education as their learning process is less productive when compared to students who acquired more skills during childhood.

As so, even though children from a higher socio-economic background wouldn’t benefit as much from investments at early stages, they will be the main beneficiaries of investments at later stages. And this is so because their stimulating background helped them develop the necessary skills to increase the productivity of their learning function.

All in all, investment at early stages targeted at children from a disadvantageous background is the most equitable as well as the most efficient policy. Meaning that, it is simultaneously directed to those with a deficitary level of skills formation (equity concern) and those with a higher rate of return from the investment (efficiency concern). On the contrary, public interventions at later stages of education and adulthood face a trade-off between equity and efficiency: in equity terms it should target children from poorer families, but from an efficiency perspective it should address students from high socio-economic backgrounds. Therefore, the decision on where and with whom to spend the money will depend on the positioning of society’s preferences in terms of this trade-off.


Reference: Wößmann, L. and Schütz, G. (2006) “Efficiency and Equity in European Education and Training Systems”, European Expert Network on Economics of Education, Working Paper


Sofia Oliveira

Author: studentnovasbe

Master student in Nova Sbe

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