Cost of schooling will keep increasing under current model

It’s no surprise to see another report on escalating private school fees (Queensland private schools announce fee hikes of up to 7 per cent for 2013), given that, under the traditional schooling model, the potential for productivity gains in schools is limited. Now, although schools can’t increase their productivity much, productivity is increasing in other sectors of the economy – e.g. manufacturing, agriculture and wholesale trade – and this drives up wages in other sectors, which schools will be forced to compete with. This phenomenon is known as Baumol’s cost disease, after the great US economist William Baumol. A very good explanation of the phenomenon was provided by Rumplestatskin at Macro Business last year (Australia has Baumol’s disease). Rumplestatskin noted:

Education is the other area where governments need to acknowledge that cost escalation is unavoidable.  While I don’t want to give governments an excuse to waste money operating schools inefficiently, but there are limits to productivity growth in this area.  Teachers will still teach classes of roughly the same size, irrespective of the computing and associated technology which supports them.

This is true if the existing model of schooling is retained, which I expect it will be in the short to medium-term. However, in the long-term, we may move away from bricks and mortar schools and embrace e-learning, which obviously would bring major productivity gains. The way forward just may be contained in a brilliant book by Salman Khan, The One World School House: Education Reimagined, which I recommend to readers.

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2 Responses to Cost of schooling will keep increasing under current model

  1. I will read that book. But on another note, something I didn’t express well about schooling and productivity, is that a major part of the ‘service’ of school is child-minding, and the discipline and guidance inherent in that function. A socially, we accept a certain ratio of teachers to children to perform that part of the service to a reasonable standard (our standards seem to always increase as well).

    Secondly, someone needs to teach kids how to learn for themselves. I guess that always been a big part of the philosophy of homework, and probably the philosophy of Montessori schooling.

    So I guess I am trying to say that out current model of schooling is fairly embedded and will take a long time to change. And it will need exemplars of private versions (locally or abroad) of a new model to promote change in the giant public schooling machine.

    As a side note, from an economic perspective, who cares about private school fees? It’s like saying that BMWs are getting more expensive, while other car brands are not. If people are still willing to pay, there is no welfare loss to anyone else.

    And lastly, we have to remember that private schooling is mostly about signalling status, and as such, existing schools gain a monopoly power due to their inherited social position – a bit like the value of signalling gained by publishing in the right academic journals, and the power that provides the journals with prestige.

    • Gene Tunny says:

      Thanks mate. That’s a great point about the child minding aspect of schooling. Interesting point about whether there is a welfare loss from higher private school fees. Obviously parents can mitigate the loss in part through changing the schools their children attend, but I think there would still be some loss in consumer surplus. They might still be willing to pay, but they’re not getting the same consumer surplus as before.

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