EKN 310
Chapter 10 – Social Services
Introduction
Previously, Chapter 9 dealt with social insurance and social assistance
Now, Chapter 10 focuses on social services.
• Social services included education and healthcare.
• These are classified as mixed goods meaning they display characteristics
of both private goods (excludable, rival) and public goods (non-excludable,
non-rival).
• There are various market failures with these goods so governments have to
intervene.
Education
Education markets are ineHicient/ experience market failure due to:
- Externalities
- Information problems
- Capital market failures
These lead to allocative eHiciency (market does not produce the socially optimal
level of education).
NB: This allocative eHiciency as well as equity considerations prompt
government intervention in such markets.
Externalities:
• Education provides various external benefits (benefits society, not just the
learner)
- Lower crime rates
- Higher overall productivity in economy
• Individuals only consider private benefits, not social benefits, so
education is under-consumed in the market and thus under-provided.
• Govt can correct this with subsidies -reduce private costs to incr consump
, Human Capital Theory:
• Education is viewed as an investment in human capital (skills, knowledge,
productivity)
• This theory focuses on the financial aspects of the decision to invest in
human capital.
• Individuals compare the costs of education vs the potential future benefits
of securing higher paying employment.
• Costs of education;
- Direct costs - tuition fees, books, transport, accommodation
- Indirect costs (opportunity costs) – income forgone while studying
instead of working.
• Benefits of education;
- Higher lifetime earnings
- Access to better paying jobs
- Faster wage growth over time
Illustration of costs and earnings for an educated vs uneducated worker:
- Person receives no schooling, start - Person with education goes to school at 6 and
enters job market at age of 22
working young (around 6)
- They incur direct and indirect costs of schooling
- Avoid all education costs (no tuition
- Earnings curve remains negative for entire school
or loss of income)
going age.
- Have a long working life - Once they enter job market after obtaining
- Pay stays relatively low due with slow tertiary education, their earnings exceed that of
wage growth to lack of qualifications uneducated person.
- Rate of wage growth faster
Chapter 10 – Social Services
Introduction
Previously, Chapter 9 dealt with social insurance and social assistance
Now, Chapter 10 focuses on social services.
• Social services included education and healthcare.
• These are classified as mixed goods meaning they display characteristics
of both private goods (excludable, rival) and public goods (non-excludable,
non-rival).
• There are various market failures with these goods so governments have to
intervene.
Education
Education markets are ineHicient/ experience market failure due to:
- Externalities
- Information problems
- Capital market failures
These lead to allocative eHiciency (market does not produce the socially optimal
level of education).
NB: This allocative eHiciency as well as equity considerations prompt
government intervention in such markets.
Externalities:
• Education provides various external benefits (benefits society, not just the
learner)
- Lower crime rates
- Higher overall productivity in economy
• Individuals only consider private benefits, not social benefits, so
education is under-consumed in the market and thus under-provided.
• Govt can correct this with subsidies -reduce private costs to incr consump
, Human Capital Theory:
• Education is viewed as an investment in human capital (skills, knowledge,
productivity)
• This theory focuses on the financial aspects of the decision to invest in
human capital.
• Individuals compare the costs of education vs the potential future benefits
of securing higher paying employment.
• Costs of education;
- Direct costs - tuition fees, books, transport, accommodation
- Indirect costs (opportunity costs) – income forgone while studying
instead of working.
• Benefits of education;
- Higher lifetime earnings
- Access to better paying jobs
- Faster wage growth over time
Illustration of costs and earnings for an educated vs uneducated worker:
- Person receives no schooling, start - Person with education goes to school at 6 and
enters job market at age of 22
working young (around 6)
- They incur direct and indirect costs of schooling
- Avoid all education costs (no tuition
- Earnings curve remains negative for entire school
or loss of income)
going age.
- Have a long working life - Once they enter job market after obtaining
- Pay stays relatively low due with slow tertiary education, their earnings exceed that of
wage growth to lack of qualifications uneducated person.
- Rate of wage growth faster
