Foundations of Education


Provides an overview of the discipline of educational economics.

Key Concepts

  • educational economics
  • rationality
  • optimization
  • human capital theory
  • supply and demand

Graded Tasks

  • prepare for your seminar this week

The Economics of Education

The economics of education - also referred to as educational economics - is an interdisciplinary field which crosses educational studies and economics. Economists study:

"how individuals, organizations, and societies employ time, money, and effort. In the case of education, economists are interested in how society organizes and uses scarce resources to produce various types of knowledge and skills through formal schooling, and how these types of knowledge and skills are distributed to various groups in society. This broad definition means that many social and political issues and topics can fall under the purview of economics." (Brewer et al, 2010, p. 193)

The use of the phrase "scarce resources" in the above definition is purposeful as education is generally speaking a resource intensive pursuit which requires considerable investments in person power (e.g., students, teachers, and administrators), capital (e.g., school buildings, curriculum supplies, and textbooks), planning, and student assessment, among other requirements.

As a university student, you have a personal insight into the costs of education, both in terms of money (i.e., tuition fees) and time (i.e., the multiple years you are devoting to earning a university degree).

Formal education - including both K-12 and higher education - also rely on considerable public funding. (The public financing of elementary and secondary education was briefly overviewed in Week 4 of the course.) Therefore, both governments (in investing in public education on behalf of its citizenry) and individuals (in investing in education in support of one's personal goals) are understandably concerned with how best to manage formal education in order to maximize its economic benefits.

As a university student, you exercised this judgement in choosing which university program(s) to apply to and which university to attend. Perhaps you made your choice to pursue teaching on the basis of a passion for teaching kindergarten or high school physics. Maybe you considered the future employment prospects for new teachers in Ontario, recognizing that many older teachers are likely to retire in the coming years. Perhaps you chose the university you are attending based on a recommendation from a friend or for financial reasons (e.g., to avoid the expenses associated with moving away from home). Or perhaps you have a passion for your subject area and teaching is a 'back up' profession (in case you don't secure direct employment in your discipline). All are valid goal-driven reasons for making economic investment choices in your education.

Generally speaking, economics presumes that governments, individuals, and other education-related stakeholders (including school boards and universities), make decisions based on rationality that are purpose-driven, systematically thought out, and goal-oriented. From an economic point of view, the overriding goal is to maximize the benefits derived from economic investments in education - in other words, to get the most 'bang' for the 'buck'.

An example of this rational decision-making process can be found on the "20th Century Developments in Ontario Secondary Education" topic page for this week, in terms of the decisions successive Ontario governments have made to reorganize secondary schools and proscribe the required number of core credits high school students must obtain in order to graduate. It is no coincidence that during a time of fiscal restraint, beginning in the 1970s, the Ontario government reduced the number of elective courses in high schools, a decision which resulted in significant budgetary savings. In making this decision, the Ontario government optimized its educational investments in its striving for educational efficiency.

Human Capital Theory

The term human capital is one of the most important concepts in the study of educational economics. Brewer et al (2010) summarize:

"Knowledge and skills acquired through educational investments increase human productivity. With each investment, one may incur costs in the form of out-of-pocket expenses, foregone earnings, and psychic costs associated with the pressure of studying and examinations. Benefits accrue later in life through enhanced earnings in the labor market, access to better jobs, a higher likelihood of being employed, and better health. There are also psychic benefits from enhanced social status and the prestige associated with higher levels of education…[The] evidence for human capital theory is to be found in the strong positive relationship between education levels and earnings that exist in almost every developed country." (p. 194)
Similar to the specialists in other disciplinary fields, economists are interested in specific (and very often perennial) questions which inform much of the research in the discipline. For educational economists, some of the most pressing questions include:

1. How best to assess the effectiveness (e.g., quality outcomes) and efficiencies (e.g., optimized outcomes) of economic investments in education, including both K-12 and post-secondary education? ()

2. How much education is sufficient for an individual to secure lasting, gainful, and lifelong employment? A high school diploma? A college diploma? A university undergraduate degree? A university graduate degree?

3. To what degree should governments proscribe what schools, colleges, and universities do in order to align the 'outputs' of such institutions with the economic needs of society?

4. How do countries (and other jurisdictions, such as provinces) compare in the effectiveness and efficiencies of their respective economic investments in education?

5. Are schools, colleges, universities, and other educational/training institutions producing an appropriate number of graduates for specific fields of work? (For example, Ontario switched from a one-year to a two-year teacher education program in 2014. As the same time, the Ontario government reduced the number of provincially funded enrolments in teacher education programs as it concluded the supply of teachers in the province vastly exceeded the demand for teachers by school boards.)
📌 Most of the students in this course will graduate as Ontario certified teachers in a few years time. What might be the prospects of securing permanent, full-time K-12 teaching jobs in Ontario when you graduate? Review this University Affairs article which provides some insight as to the outlook for teaching employment in 2019. One important caveat: The article was written before the 2020 pandemic which has impacted the teaching profession in many unforeseen ways. ()
In preparation for your seminar this week, write out an answer to the following question. Your TA may call on you to share your answer in the seminar:
Q8.3: Imagine you are an educational economist. Write out one additional question that you would wish to pose in order to extend the list of five questions on the "The Economics of Education" topic page. (Answer Length: 75 - 125 words | Format: Sentences)
Potential Seminar Question


Brewer, D. et al. (2010). Theoretical concepts in the economics of education. In P. Peterson et al. (Editors). International Encyclopedia of Education. Elsevier Science. URL: