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Chapter 1: Educational Choice
Using Economics to Explain Educational Choice and Economic Growth
More education raises economic growth—the outward shift of the production possibilities curve over time. Why? Because job skills obtained in elementary school, high school, or college enable workers to produce more goods and services. Economists consider education a type of human capital.
What type of education—elementary school, high school, or college—has contributed most to the shift in the production possibilities curve in the twentieth century? You might guess that the answer is college, but according to Claudia Goldin, an economic historian at Harvard University: "Increased high school attendance, not that of college nor elementary school, was responsible for the enormous increase in the human capital stock during this century."*
High school graduation rates rose dramatically from only 5 percent in 1910 to 65 percent in 1960, and the high school curriculum changed radically. In 1910, the typical high school focused on Latin and Greek, preparing most students for college. By the 1930s, high schools were teaching courses more useful for getting a job. The English curriculum was expanded. Vocational courses were introduced.
But why did so many more teenagers go to high school? Child labor laws and compulsory schooling laws might seem to be the obvious answer, but "evidence is mounting that legal change was not the spur it appears to be," according to Goldin’s research, because most of these laws were passed or strictly enforced only after high school enrollment rates rose. Similarly, it appears that advertising campaigns including The More You Learn the More You Earn posters did not have much impact, according to Professor Goldin.
Changes in opportunity cost provide a better explanation. During the 1920s, the wages of those with a high school degree rose sharply compared to those without a high school degree. Increased mechanization and foreign immigrants reduced the demand for child and teenage labor, lowering the wage for those teenagers who dropped out of school. In other words, the opportunity cost of staying in school fell: A teenager would earn much less by dropping out of school and working than by graduating from high school. Thus, it is not surprising that many more teenagers chose to stay in high school, fueling economic growth for much of the century.
*Claudia Goldin, "How America Graduated from High School: 1910 to 1960," National Bureau of Economic Research, Working Paper No. 4762, June 1994.