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Why education economics?

With a view to bringing our distinctive perspective on the education policy debate into sharper focus and improving public understanding of the importance of economics in education policy, CMRE re-launches this week under a new name, the Centre for Education Economics.

Education is crucially important for many of the policy outcomes that citizens and politicians care about. At an individual level, your education affects your earnings, your employability, and your chance of succeeding in life. It also affects your health, future family structure, intellectual fulfilment and many other aspects of what we consider to be a good life. At a national level, a country’s stock of skills matters hugely for its prosperity and growth rate. The distribution of skills is a big determinant of inequality, and the relationship of a person’s skills to their background is central to determining the degree of social or intergenerational mobility.

Unsurprisingly then, there has been a lot of research on education. Unfortunately, as we’ve been made increasingly aware in recent years, an awful lot of that research is of very poor quality, which over the years has created not a little confusion about what works and what doesn’t in education.

While many disciplines contribute to our understanding of education, economic analysis can offer key insights for policy-makers. It has a strongly quantitative approach, and a clear framework for understanding the decisions and actions of all the relevant actors. Most importantly, it brings a relentless focus on trying to establish causal links between policy variables and outcomes. While descriptive studies can be invaluable for improving our understanding, policy decisions can only be securely made on the basis of causal relationships. At the Centre for Education Economics, we labour this point, as indeed we do in relation to analysis of methodology and research design generally, but that’s only because it’s important. It’s for this reason that going forward we will be investing in developing a seminar offering in this area to improve politicians’, policymakers’ and practitioners’ understanding of what constitutes good research, how to weight different studies, and of the issues relating to applying the insights.

Of course, other disciplines bring insights to education also. In recent years, economists have started to combine effectively with psychologists and neuroscientists in the study of the development of cognitive and non-cognitive abilities and traits, with geneticists in studying the origins of traits and abilities, and also with behavioural scientists in trying to understand motivations and the best way to design incentives. Accordingly, CfEE will be looking to broaden out from its base in economics to draw on insights from robust studies arising from other disciplinary contexts as well.

But the decisions by families and individuals about how much to invest in human capital are particularly well-suited to economic analysis. These involve trade-offs between current costs and future benefits, inter-related dynamic decisions and risk. The education system, whether it is set up like a market or not, nevertheless has actors who have goals and constraints and who interact in one form or another of supply and demand relationship. Understanding the incentives and constraints of all the different players in the market, and to their interactions is therefore especially useful in policy design. Typically in Europe and the US, education does not function as a straightforward marketplace, and the extent to which it should be reformed in this direction has been disputed, so there has been interest in other forms of accountability to replace pure market discipline. The ways accountability features interact with the market-like conditions upon which our arrangements in England are based is an ongoing area of exploration for us in the new CfEE framework.

In general, the most crucial and basic economic ideas rarely make it into the education policy discussion at all however. One example concerns trade-offs in terms of educational goals. Interventions that promote learning may for example have costs in terms of lower non-cognitive skills or wellbeing. If this is the case, one must use cost-benefit analyses to establish whether or not the intervention is worth pursuing. Yet education policy discussions rarely acknowledge that an intervention that is good for X may also be bad for Y, let alone back up their arguments with cost-benefit analyses. In this way,  

Perhaps most importantly, education economics provides an empirical lens through which we can assess what actually works in education. Historically, educational research has been overwhelmingly qualitative and exploratory. While such research is important for developing theory, it cannot establish whether or not an intervention works in the sense of raising performance (or whatever the goal was of the intervention). And while observational quantitative studies are an improvement, they are not sufficient. To establish causality, it is necessary to obtain some form of random variation in the intervention or factor we are interested in studying.

The traditional ‘gold-standard way’ of obtaining random variation has been through randomised-control trials. Yet not everything can be randomised in an experimental fashion – and empirical economics provides an especially good solution here. In the past decades, the discipline has gone through a credibility revolution with methodological innovations that allow researchers to separate causality from correlation, despite not having experimental data at hand. Employing the tools of education economics therefore enables us to say whether interventions work or factors contribute to learning – in a causal sense – which is absolutely crucial for understanding what we should focus on in order to raise performance and equality in educational outcomes.

Education economics is not a widely understood discipline, but it is increasingly, for good reason, the discourse of policymaking. There is therefore a great need to improve public understanding of its role, and to invest in efforts to better communicate the important and often exciting emerging findings from this field. If this can be done, education economics holds great potential as a tool to improve both efficiency and equity in education in England and beyond.

With grateful thanks to Professor Simon Burgess for his lucid explanation and reflections on the subject in his state of the art review ‘Human Capital and Education: The State of the Art in the Economics of Education’, published last year (2016).