Journal Issue

Some Economic Aspects of Education Projects

International Monetary Fund. External Relations Dept.
Published Date:
March 1968
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When driving in the early morning through rural areas of northern Africa, the visitor is often surprised at the number of boys and girls of all ages walking with briefcase in hand to reach a school which he discovers miles further on. At the school the teachers are proud to tell visitors how eager students are to learn, and often add: “The more I think of it, the more I believe that educating these children is the best investment the country can make.” Similar views would be expressed in developing countries in many other parts of the world.

To view both capital and recurrent expenditures on education as an investment is almost a matter of course today, if one may judge from the many recent publications on the concept of human capital and on the relationships between education and economic growth. Private, national, and international organizations are becoming increasingly involved in the financing of capital or recurrent expenditures on education and training and the provision of teachers and administrators as a form of technical assistance, designed to meet the critical lack of manpower in developing countries.

But acclaiming the importance of education in the process of economic growth does not imply that any amount of funds spent on any kind of education serves the cause of economic development: usually scarce public resources available must be wisely allocated and efficiently managed in education as in any other sector of the economy. It is disturbing to note how few resources countries all over the world have spent in the past on the means to improve productivity in education, compared with such efforts in, say, the manufacturing sector. If we think it worthwhile to produce three equally good bicycles at the same cost that formerly produced only two, is it not worthwhile to try to educate three children at the same cost for which we formerly educated only two?

The Manpower Need

To use the economic rate of return over cost to evaluate the economic priority of projects is not as well-established a method in education as it is for directly productive projects. The problem of measuring present and projected benefits from education and training provides many difficulties, and the techniques now in use are not yet able to give a complete answer. Other methods for selecting economic priorities within the educational system of a country are therefore necessary and, although further refinement is still needed, an evaluation of estimated manpower requirements is one of the most widely used factors in determining the most effective directions for investments in education and training.

To begin with we take a familiar concept, that the number of workers with different skills needed for a particular production goal (say, in industry) is quantifiable, and extend this concept to education. Thus, we assume that the relationship between the output of the economy and manpower requirements at each level of occupation (professional, technical or subprofessional, skilled, and semiskilled) is, to a high degree, also quantifiable. The second assumption is that a quantifiable relationship also exists between levels of occupations and educational and training requirements. Hence, manpower needs can be stated in terms of graduates from the educational and training system—account being taken of the time lag involved and of the graduates’ participation rates in the projected labor force. These will depend on the demand for further education and the availability of accommodation; for those who do not study further, more than 90 per cent of the men and between 20 and 50 per cent of the women, according to country, level of education, and so on, can be expected to become part of the labor force.

Thus, one criterion of the economic justification of an education project would be to examine whether, in a given country, at present or in the near future, there are manpower needs that cannot be satisfied by the present output from the educational or training system and that require the creation of new facilities or the expansion, improvement, or a more intensive utilization of existing ones.

How can we measure manpower needs? Among other methods we can use the data obtained from the census, a manpower survey, employer surveys, discussions with personnel managers of large enterprises, with labor exchange officers, and with school administrators. Particularly useful is information about earning levels by occupation and by type of schooling or training, minimum hiring levels by type of occupation; unemployment by age, sex, and level of education; and vacancies for key skills. It is not uncommon to find, for instance, that a considerable number of highly paid foreigners are employed by private industry as engineering technicians: or that the extension services of the Ministry of Agriculture cannot fill their vacancies; or that a majority of the unemployed school-leavers attribute their difficulties to a lack of appropriate vocational training. From such types of information it will be possible to recognize whether any immediate action is required which would necessitate investments or improvements in the educational system of a country.

Another method used to evaluate manpower needs requires projections of economic output by sector and of productivity per capita. The resulting estimate of employment by sector can be converted into an occupational structure and a corresponding educational profile. The existing occupational and educational structure may be found to be adequate; or it may appear that an improvement is required either in the distribution of occupations or the educational profile, or both.

One of the most delicate tasks is that of converting occupational classifications into educational equivalents, i.e., levels of completed education or training. Except for the professions such as medicine and teaching—and even there opinions may differ—there is usually no direct relationship between occupational and educational levels. In many developing countries, for example, there is a scarcity of junior administrative and supervisory workers and technicians; scientific and engineering technicians; medical and dental technicians; draftsmen, surveyors, nurses, midwives, extension workers in agriculture, and people whose duties lie between managers and professional people on the one hand and the mass of employees on the other. As a result, managers have to perform operational tasks for which they have not been trained, and, not surprisingly, productivity is low. In some countries one may find university graduates employed as upper-level technicians, which is a costly and qualitatively unsuitable solution on which to rely to meet future needs.

It seems logical that, for the workers primarily concerned with supervisory duties, the emphasis should be placed on training and previous work experience, while for the technicians who utilize a particular category of knowledge in order to support senior professionals the requirement would be mainly formal education—typically two years’ post secondary technical education. However, before deciding upon the need to create a new type of full-time day training institution, one would normally examine the possibility of upgrading experienced lower-level technicians through part-time or short courses or by employing special instructors for in-plant training.

To take another example, where there is a large demand for skilled manual workers it may be that to increase the number of those attending technical schools will suffice. But an increase in numbers graduating from technical schools is of little help if, for instance, employers complain about the inadequacy of trainees’ skills and prefer to recruit people with an inferior education and train them on the job. Assuming that such complaints are not intended to mask a (perhaps misconceived) hope of lowering the wage bill, the problem could well be within the school system, requiring a reform of a too academic general education and the introduction of improved scientific teaching and practical work preparatory to technical as well as other types of education. Alternatively, the situation may require a better quality of technical education; better equipment and maintenance; more practical work (and material expenditure); better technical teachers (and/or higher salaries for teachers); and closer liaison with industry itself. Any development may require additional investments which could become part of a project.

If there is a regular flow of skilled workers graduating from the educational system, it is still possible that firms may complain about a shortage of skills. This will happen when they are looking only for already experienced and trained people who cannot be produced by the school system but whom industry itself should normally train on the job. In those circumstances it is possible that the manpower planner should recommend the creation of a trade training center to satisfy the manpower demand, thus directly involving industry. There should probably be an accompanying improvement in the laws related to the training of apprentices. Training centers for apprentices, skilled workers, and supervisors are now successfully run in many Latin American countries and are often cosponsored by the public authorities and an association of private industries.

The Demand for Education

If education, including the provision of textbooks, is free of charge, the costs borne by the student and his family are limited to the earnings forgone while he is at school. To the extent that governments in many countries subsidize private demand for education by not charging fees for some or for all types of education, it is very difficult indeed for planners to decide on purely economic grounds how far educational facilities should be provided to meet the projected demand.

But this does not mean that no account should be taken of the demand for education—in particular when it happens to be directed toward other fields than those for which economic priorities have been determined. The preference may be for general versus technical education, humanities versus sciences, full university versus diploma studies. And the result may be that, if the provision of jobs does not correspond well enough to the aspirations of the students, situations will be encountered where a large majority of those graduating from technical education prefer clerical work, that is, “white collar” jobs. Are such preferences based upon a desire for social status? Before making any assumption it is necessary to examine whether the lack of demand for a certain type of education can be related to unfavorable salary levels and scales and promotion possibilities. In some countries the same starting salary is given to clerks with only a secondary education as to those who acquire a diploma in agriculture after two years’ additional training. In many African countries skilled manual workers are paid less than clerical workers. In such circumstances a project may help indirectly to remedy salary imbalances or rigidities and to remove other possible obstacles to an efficient policy for manpower development.

Improving Productivity

An education project should not only meet manpower requirements expressed in terms of a given number of graduates from an education cycle but also aim at improving the productivity of the education system, i.e., its capacity to meet, with a given input, the objectives set for this system by society at large.

The shaping of an education project necessarily involves pedagogical considerations including the improvement of curricula; the setting up of mechanisms for the regular review of such curricula; the training of well-qualified teachers; possibly the provision of foreign teachers, tutors, or administrators as technical assistants; and the introduction of a scholarship program for the specialized training abroad of key personnel. Such steps should not only improve the quality of the education provided but also contribute to the efficiency of the educational system—that is, its internal capacity to raise the numbers and the quality of the graduates for a given level of inputs, or to reduce the capital, human, and recurrent costs for a given level and quality of output. Other ways to improve quality and efficiency are, for instance, the provision of books or the introduction of measures both to ensure their regular supply and to reduce their cost to the students; student guidance; and measures to control repeating by students in order to avoid class overcrowding. (In some countries every fourth student in a particular grade is a repeater.)

In many areas financial resources have been so limited in the past that almost all expenditure on education was devoted to recurrent costs. Classes had to be held in unsuitable buildings, which reduced teacher and student morale, the quality of education, and consequently the efficiency of the system, thus making imperative the improvement of existing or the construction of new buildings. In other countries standards of construction may have been too high, particularly if schools were built for prestige purposes. A project can therefore be useful in helping to improve standards while making them more economical.

In countries where the provision of educational facilities was initially meant for a small number of widely scattered beneficiaries, the justification for boarding schools at secondary level may have to be reconsidered on financial grounds. In many African countries the cost of school construction for each boarder may be twice that for each day student or even more, and may include a sizable foreign exchange component; the increase in recurrent costs may be even more serious. Hence, a project can help to determine objective criteria leading to a location of schools according to population densities and taking into account the need to reach an economic size of enrollment, the use of boarding facilities being justified only for those students living outside the catchment area. The catchment area itself will be determined in relation to the availability of buses and bicycles.

On the other hand, boarding in a few centralized institutions may be encouraged to reduce costs of tuition. It is appropriate when every secondary school provides several streams and a choice of specialized courses requiring a large amount of laboratory work and highly qualified teachers. In a small—or day—school, this situation would result in small numbers of students for each course with low student-teacher ratio and an uneconomic utilization of laboratories and classrooms. Such investment in boarding schools finds its logical application in countries where the educational system is based upon a British or French model, when the students reach sixth form level or the diversified baccalaureate classes.

In the past, instructional television and other audiovisual aids have been regarded merely as accessories to educational programs. Today, television is used as a teaching medium in many universities, teacher-training institutions, and school systems. In becoming an integral part of the educational system it opens a completely new field, allowing education to reach into areas outside the major economic centers of a country. Television can also provide higher standards of teaching by compensating for a shortage of specialized teachers or of laboratory facilities. Nor need costs be excessive; a program recently devised for 30,000 secondary school students in- a Latin American country will cost the equivalent of only US$8 for each student a year.


Major constraints will be found in the present and future availability of qualified teachers, particularly when current salaries and teaching loads are comparatively low. Increased incentives, the use of television, and better teacher-training methods might improve the situation. In technical education, even if formal teaching is well organized, its ultimate efficiency may depend on the existence of a complementary training scheme within industry plus adequate incentives.

From a financial veiwpoint, a government’s ability to support the recurrent costs generated by a project is a precondition of any investment, since education is likely to generate high annual recurrent costs which very rarely are offset by user charges. In El Salvador, every $100 spent on the construction of general secondary schools is expected to require an annual recurrent cost of $30; in Morocco, the relation is 100:60. It is not only a question of what share of the total budget is devoted to education (it may have already reached 25 per cent or more) but also of the magnitude of government revenues as a proportion of gross domestic product, and of what means, if any, are available to increase these revenues. If public funds are too scarce, the financing of private schools could be considered when it adds little burden to the budget. Even the government’s ability to raise counterpart funds for the capital costs of a project may have to be seriously considered, in particular, in countries where education used to be financed largely or entirely from abroad.

Finally, the capacity of the construction industry and the availability of construction skills have to be considered and may also influence the size and phasing of a project.

No Fundamental Difference

In sum, the concept of education projects is not fundamentally different from that of other projects; the assessment of the economic need for the project leads to an evaluation of the most efficient way to meet it. It is through the solution of a combination of problems of location, size, optimum mix of inputs—account being taken of the direct and indirect constraints—that the desired output will be obtained in the form of well-educated and well-trained manpower.

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