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Chapter 10 summary
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Summary of 10 pages for the course EKN 310 at UP (Chapter 10 summary)
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Chapter 10Social services
Arguments for government intervention in education and healthcare:
-
Healthcare and education → mixed goods and services (display both
characteristics of private and public goods) → can be supplied by private or
public sector.
o Explains public and private schools and hospitals in SA.
o Private firms → can be profitable and provide education ad healthcare →
is it necessary for the public provision of these services to be financed?
- Both services → characterized by market failures → prompts government
intervention
o Take into considerations → SA constitution → education and healthcare
services are inextricably linked to guaranteed basic human rights.
Education:
- Externalities, information problems, capital market failures → cause allocative
inefficiencies.
- Equity considerations → prompt government intervention.
- Provides external benefits → free dissemination of valuable information and
decreased birth rates and crime levels (reduce pressure on government
spending)
o Societal benefits to others are not considered when deciding to invest in
human capital (education services)
o Failure to consider societal benefits → leads to market failure (underproving
and under-pricing education services)
o Demonstrated how policymakers use Pigouvian subsides → internalise
externalities and increase allocative efficiency.
- Human capital theory: spending on education and training by individuals =
investments in human capital (characteristics that determine productivity of
workers – knowledge and skills)
o Focuses on → financial aspects of the decision to invest in human capital →
based on the direct costs and indirect against potential future benefits of
securing higher paying future employment.
▪ Direct costs → tuition fees, books, transport, accommodation.
▪ Indirect costs (opportunity costs) → earnings foregone while
accumulating the human capital.
NOTE! The green line can
be either straight or
Cost (-) and savings (+)
Graph 1 Graph 2
Cost (-) and savings (+)
curved (see textbook)
thereafter plateaus
after mid-career and
increasing rate until shortly
individual earnings rise at an
accurate → assumed
The curved line → more
0
0
6 62
6 62 Age
Age
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, - Graph analysis:
o Graph 1 → represents the private costs and benefits of investing in
education for an uneducated worker.
▪ Received no schooling and started working at age 6 and retired at
62.
▪ Avoided direct and opportunity costs of education.
▪ Have a long career in paid employment → starting ages are
relatively low and earning grow at a slow rate.
• Progression to higher-paying jobs often depends on
academic qualifications.
o Graph 2 → represents the private costs and benefits of investing in
education for an educated worker.
▪ Attended school from age 6 and began working at age 22 →
obtained tertiary academic qualification.
▪ Negative curve throughout schooling = incurring costs.
• Direct and indirect costs are incurred while studying and have
fewer year in paid employment compared to those in graph.
▪ Have higher starting ages and steeper growth of earnings.
- Young people, parents, and guardians → do not have sufficient information to
conduct a proper cost-benefit analysis of the benefits of education → especially
when critical career choices ought to be made.
o Information constraints → provide ample basis for education being
considered a merit good → governments step in to correct for bad
decisions that the general population may make.
o Incentives tilted against human capital accumulation in some households
→ due to economic or other factors.
▪ Government provision of merit goods → combats information
constraints and disincentives → education subsidies and regulation
(making child labour illegal and specifying minimum ages where
children can leave school).
- Capital market structures → often provide inadequate education financing →
human capital cannot serve as collateral for a loan.
o Barrier to human capital accumulation → distort resource allocation →
strengthen case for government intervention in education market.
- Equity argument for education → human capital has a strong influence on labour
market earning and distribution of income → better trained society contributes
more to tax revenue pool → better achievement potential of income
redistribution.
o SA has high income equality → attempts to improve this fail unless they
empower the poor to obtain jobs and earn higher incomes.
▪ Education is a powerful tool for enabling the poor to obtain higher-
paying jobs.
o High direct and indirect costs → prevent poor from accessing education
and training programmes → education system perpetuate poverty and
inequality.
▪ Exasperate issue of poor not being able to invest in human capital
accumulation → rich households have assets that can be offered as
loan collateral.
▪ Subsidies and other measures to enable poor to accumulate human
capital → cornerstones of government effort to reduce income
inequality.
Notes can only be purchased through the following details:
gorgataylor@gmail.com or 0829369077 2
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