NOVEMBER 26, 2013
New estimates of R4D on the economic costs of out-of-school children
Would you rather gain $100 or avoid losing $100? Are these outcomes equivalent? Not according to advances in decision-making theory. In a landmark behavioral economics study, Tversky and Kahneman (2002 Nobel laureate in Economics) found empirical evidence of loss aversion – people’s tendency to have a strong preference for avoiding losses over acquiring equal-valued gains. Because of loss aversion, most people in experimental trials choose avoiding a loss of $100 over gaining $100.Is loss is a more powerful incentive than gain?
At the Results for Development Institute (R4D), we believe that even for old policy questions with established answers, there are new, compelling ways to present evidence and galvanize action on critical development issues. Psychologically, loss is a more powerful incentive than gain. This has implications for the effectiveness of advocacy messages. Framing a problem in terms of the costs of inaction, instead of in terms of the benefits of action, can provide a fresh perspective on an issue and serve as an innovative way to support a cause. The economic benefits of education are widely recognized, yet there are still 57 million children out of school worldwide. With funding from the Educate A Child initiative and data from the UNESCO Institute for Statistics, co-author Nicholas Burnett and I turn the question of universal primary education on its head in “Exclusion from Education: The Economic Cost of Out-of-School Children in 20 Countries.”
In this paper, we quantify and benchmark the cost of out-of-school children, which is the flip side of the coin of the benefits of primary education.
Estimates of economic costs of out-of-school children in 20 countries
Because they do not benefit from primary education, out-of-school children will earn significantly less over their lifetimes and contribute less to their economies. 57 million out-of-school children is a staggering waste of human potential. To assess the magnitude of that wastage, we used two methodologies to estimate the cost of out-of-school children. The first is an arithmetic exercise in which we summed the expected foregone earnings of out-of-school children using wage data on primary and secondary school graduates in these countries. In the second approach, we used cross-country estimates of the relationship between education attainment and national income to estimate how much higher per capita GDP would be if universal primary education were reached in these countries. We applied this methodology to 20 countries, which were selected on the basis of geographic diversity and data availability.
Our estimates of the cost of out-of-school children confirm the value of primary education, and are striking in their magnitude. For the 20 countries we analyzed, the average cost of out-of-school children is 2.74% of GDP (ranging from 0.04% in Vietnam to 10.32% in Gambia). By the first estimation method, the economic cost of out-of-school children is greater in value than a year of average economic growth for five countries in our sample (Cote d’Ivoire, Gambia, Mali, Senegal and Yemen). For all countries with available data on public expenditure for primary education, the increase in spending required to achieve universal primary education is dwarfed by the economic cost of out-of-school children (on average, by a factor of 5).
It costs more to not educate a child than it does to educate a child
Thus, from a macroeconomic perspective, it costs more to not educate a child than it does to educate a child. Furthermore, the poorest countries are the ones with the highest rates of out-of-school children, so reaching universal primary education will contribute to global economic convergence. These findings mean that enrolling out-of-school children promotes both economic equity and economic efficiency.
We arrive at the conclusion that reaching every child and opening opportunities to them through primary school is more than just a moral obligation. It is an economic priority, and until universal primary education is reached, out-of-school children will represent an unconscionable underinvestment in human capital.
Great strides have been made toward achieving universal primary education over the past two decades, but progress has stagnated since 2004. On top of this, development aid for primary education has dwindled in the aftermath of the financial crisis (falling by 7% in 2011). In the current challenging aid climate, there is a real danger that critical investments in basic education will be neglected, which is why I feel that this report is timely. Our findings should serve as a warning to international donors and domestic policymakers of the very real cost of failing to achieve universal primary education and unlock a significant, untapped source of economic growth – the world’s undereducated youth.
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