The aspect of education is very important for individuals as well as the entire society. Education involves the gain of knowledge and skills necessary for life and development. The knowledge and skills gained are very significant for the understanding of various aspects around people such as culture, law, history, economic gains and also helps people in the process of decision making. Education has also been seen to contribute much to the economic growth of countries. Another important factor to note is that education also contributes to human capital and most especially their earnings. For an individual, it is important to assess and evaluate the costs associated with education as well as the benefits that will be associated with it in the long run as far as earnings are concerned. This essay is therefore important because it will assess and explain the factor of returns to an individual’s education.
An individual’s private returns to education are an important because it provides a good basis for benefit- costs analysis. This aspect is also important because of the fact that it provides empirical data that could be used for the analysis. Education is usually considered a form of investment requiring funds to support the whole program throughout an individual’s life in return for a better future in terms of good earnings. It is assisted with various other aspects such as experience gained, the years of the particular individuals’ education as well as the individual’s attributes in terms of characteristics. Another thing to note is the rate of the private returns in relation to the investment in the education. According to Harmon et al. (2003) investment in education has been found to be associated with more returns than other forms of investment despite the fact that education has many risks, however, the returns are usually heterogeneous in nature whereby the differ greatly, depending on individuals. This difference is attributed to the fact that different people have different efficiencies when it comes to the process of raising their productivity using education as an investment opportunity (Diagne and Diene, 2011).
The need for human capital among individual is what gives rise to the demand for education. This is because human capital gains returns through earnings and these earnings are important for the economic development of individuals which helps improve their lives. Education is viewed as a means to raise a person’s value presently in terms of human capital, because of the need for future gains and this must be done through investment education (Mcewan, 1999, p.159).
Education is considered a very good and viable investment option. However, it also has its own implications that hinder its effectiveness as an investment option. The rate of return in terms of earnings against the costs is usually not established and so increasing the rate involves investing more through having more education. However, if the value of the benefits that an individual gains as a result of education is higher than the projected future benefits, then the individual can be reluctant in investing more in education and finds other better investment options. Another implication is that sometimes education is usually involved with lots of direct costs and this factor greatly affects the future benefits because of the fact that these direct costs have an effect in lowering individuals’ effectiveness in increasing their productivity through the use of education (Ashworth, 1997, p. 170).
References
Ashworth, J. (1997). A Waste of Time? (Private Rates of Return to Higher Education in the 1990s). Higher Education Quarterly, 51(2), 164-188.
Diagne, A., & Diene, B. (2011). Estimating Returns to Higher Education: A Survey of Models, Methods and Empirical Evidence. Journal of African Economies, 20(Supplement 3), iii80-iii132.
Harmon, C., Oosterbeek, H., & Walker, I. (2003). The Returns to Education: Microeconomics. Journal of Economic Surveys, 17(2), 115-156.
Mcewan, P. J. (1999). Private costs and the rate of return to primary education. Applied Economics Letters, 6(11), 759-760.
Strauss, H., & Boarini, R. (2011). What is the private return to tertiary education?. OECD Journal: Economic Studies, 2010(1), 1-25.
Wößmann, L. (2003). Returns to education in Europe. Review of World Economics, 139(2), 348-376.
