What Do Out-of-School Children Cost a Country?

7/5/2013

© Colin Crowley/Save the Children

New estimates reveal the economic cost of keeping children in developing countries out of school

“Eat your vegetables!”
This was a common refrain of my parents as I was growing up, and I am sure it is familiar to you. Despite their constant reminders of how eating vegetables would make me grow smarter, taller, faster, stronger, I would seldom end up eating them all. Sometimes, it is not enough to be reminded of the benefits of a course of action, particularly if that course of action is not easy and requires sustained effort. What motivates us most is often information about the costs associated with not acting in a timely manner. I wonder if my childhood diet would have been richer in cabbage and spinach if my parents had told me of the serious health issues associated with deficiencies in the vitamins and minerals that vegetables provide.
This line of thinking about the power of the stick compared to that of the carrot in spurring action extends from trivial, day-to-day activities to pressing challenges of global importance. The benefits of education for development are well-established and well-known to policymakers. Studies attesting to the positive impacts of primary education have accumulated rapidly over the years. Primary education completion is associated with better health, gender equality, higher income, safer societies, and stronger democracies. On top of this, the United Nations (UN) have declared primary education a basic human right, making the achievement of universal primary education an end in itself.
Yet, despite overwhelming evidence that investment in primary education generates large private and public returns, there are still high numbers of out-of-school children in some South Asian and Sub-Saharan African countries. In Nigeria, home to over 10 million out-of-school children, the percentage has increased from approximately 36% in 1999 to 42% in 2010. The UNESCO Institute for Statistics (UIS)estimates that 61 million children are out of school.

New study calculates costs of out-of-school children

In a new study commissioned by Educate A Child, Results for Development highlights the urgency of addressing primary education by calculating the economic cost of out-of-school children for a sample of countries with significant numbers of children that are not in school. Six countries were chosen based on data availability and geographic variety – Cote d’Ivoire, the Democratic Republic of Congo (using data from the Education Policy Data Center), India, Mali, Pakistan, and Yemen.
Based on estimates of the average income gain associated with primary school completion in each country (“wage premia”, compiled by Colclough et al. 2009), we project the loss of potential earnings of out-of-school children as a percentage of GDP. To account for the value of primary schooling as a gateway to higher education, we add the secondary school wage premium. This is weighted by the probability of a child that completes primary school and moves on to complete secondary education. Simply put, the exercise answers the question:

How much higher would a country’s GDP be in 10 years if today’s out-of-school children completed basic education?

The economic loss of out-of-school children is significant

The results confirm that the economic loss due to out-of-school children is significant on a macroeconomic scale – from 1.3% of GDP for Pakistan to 6.8% for Cote d’Ivoire. On average, low-income economies have grown by almost 3% annually since 2000, so the cost of out-of-school children exceeds the value of two years of GDP growth in some countries. This approach assumes that formal sector wage increases represent what individuals in the informal and household sectors would gain from primary education. This methodology is necessary because data on economic activity in the informal and domestic sectors are not available. There is also growing evidence that education does increase informal sector earnings and the quality of domestic care.
Taking the analysis a step further, we considered a different but related question:

How much higher would GDP be today if a country had achieved universal primary school completion for its working population?

Based on cross-country estimates of the relationship between income and level of education, we estimated how much higher per capita income in the six countries would be if the average working citizen had completed primary education. The loss estimates here are even more dramatic. In Yemen, where the typical worker completes less than four years of education, a 38% income gap is attributable to the out-of-school children of past generations. This second exercise underscores the huge economic benefits of investing in education for illiterate adults.
The estimates produced in the Results for Development study are a stark reminder of the vast, untapped potential of out-of-school children. Until universal primary education is achieved in countries where progress has stalled, out-of-school children will continue to represent an unconscionable underinvestment in human capital – a costly barrier preventing nations from reaching their full economic and social potential.
By Milan Thomas