Education as Production

Introduction

Johnson (1978) and Monk (1989) defined education production function as

maximizing outputs by utilizing the alternative combination of inputs. The current debate
topic is the role of money in education production function to improve productivity. To
understand the role of money in education production function, Hanushek (1989, 2003), and
Hedges, Laine and Greenwald (1994) introduce output approach and input approach,
respectively. This paper argues that although both input approach and output approach
answer if money matters in the education production function, they fail to answer the
question of how money should be efficiently spent in education production function.
The purposes of this paper are three fold. The first purpose is to present literature
review of the education production function, the input and the output approach. The second
purpose is to analyze the policy constraints and the different evidences supporting the two
policies. The third purpose is to address the issue of efficiency of schooling expenditure that
is missing from the two approaches.

Literature Review

Because the education production function studies the relationship between inputs and
outputs, both Johnson (1978) and Monk (1989) argued that education production function
should be studied based on economic theories. Monk (1989) presented two competing
approaches in education production function – the Estimation approach and the Gateway
approach. He criticized the first approach as high risk because inputs are hard to define and
there is no consistent result of the estimated inputs and outputs. Instead of estimating inputs,
the Gateway approach allows policy makers to use economic reasoning in resource allocation
to maximize educational outputs. Johnson (1978) also used economic theory to explain the
education production function by comparing it to production function at a microeconomic
level. She pointed out that there is no clear distinction between the definitions of inputs and
outputs in education production function and offered a paradigm of a student as an economic
entity. In other words, students should be categorized as “a firm” (p.174) both combining
inputs (tuition fees, books, and resources with their own time) and maximizing outputs
(future earnings).
Hanushek’s (1989) main argument was that there is no clear relationship between
inputs and outputs in education production function. He analyzed this relationship from 187
studies and found that when family background was controlled the strong positive correlation
between school expenditure and student achievement disappeared. He emphasized that it does
not mean that money “cannot” matter but money has not mattered as an input in education
production function. In his other article, Hanushek (2003) suggests policy makers to direct
their attention on providing performance incentives instead of increasing inputs if long-term
educational improvement is to be achieved.
Hedges et al. (1994) criticized Hanushek’s (1989) argument by claiming that money
does matter. They critiqued Hanushek’s conclusion on the inconsistent patterns of results
with the null hypothesis, and the ineffectiveness of vote-counting method in generalizing the
results to the population of interest. Using the same sample population, Hedges et al. (1994)
reanalyzed Hanushek’s data by employing combined significance tests and combined
estimation methods. They affirmed the positive relations between inputs and student outcome
and concluded that although the most efficient method in increasing the educational outcomes
is not simply throwing money in education, the fact that more resources are related to more
achievement should no longer be ignored.

Difference between input and output approaches

Although input approach in education production function was not directly defined in
Hedges et al.’s article, the approach suggests that money does matter and policy makers
should allocate more resources to gain more outcomes. The output approach, in contrast,
argues that money as an input does not seem to matter and asks policy makers to concentrate
more on what has been achieved and what incentives should be provided to intrigue more
achievement. Both approaches agree that money “can” matter but question if money “does”
matter and how it matters. The crucial difference between input and output approach is their
prediction about the students’ outcomes after an increase in expenditure. The input approach
predicts that when there is an increase in school expenditure on certain inputs including
reducing class sizes, and more qualified teachers in terms of education and years of teaching
experiences, there will be an increase in students’ outcome. The output approach predicts that
when there is an incentive to those who achieve more, the incentive encourages more
contribution from teachers to help students achieve more.

Critique and Policy Implication

There are two main constraints of the input and the output approach. The constraint of
the input approach is that inputs are hard to define. Although class size, books per students,
per pupil expenditure, teacher qualification, number of years of teaching experience have
been commonly known as inputs in education production function, there has not been any
significant evidence claiming that specific inputs have strong relationship to higher students’
achievement. Picus (1995) and Behrman (2010) have further extended the limitation of input
estimation by questioning (1) the selection of sample size for the estimation, (2) the type of
inputs – before schooling or during schooling, and (3) unobservable inputs outside
educational systems impacting the students’ outcomes. For example, if increasing input leads
to better achievement, when there is an increase in per pupil expenditure as an input, there
should be significant improvement in students’ outcomes. However, Picus (1995) claimed
“the real per pupil expenditure in the United States increased… over 48% in 1980s” (p. 19).
Surprisingly, the improvement of the students’ outcomes was insignificant. Taken together,
these questions show the complexity of the estimation, which is unrealistically achievable.
The constraint of the output policy is difficulties in reaching agreement on the
desirable outcomes. Using better students’ achievement as an indicator to reward teachers
seems to be effective in promoting more productivity and contribution from the teachers. This
might lead to a better quality of educational system at large. However, there are still some
questions unanswered: (1) what students’ achievement should be measured? (2) does this
measurement reflect the actual productivity of the students?, and (3) how should the students’
achievement be measured? For example, if a student’s test scores are considered to be the
achievement, the questions are: (1) whether this test score is an effective indicator of that
student’s productivity and (2) whether the test score should be measured as satisfactory by
looking at that student’s progress or by comparing the scores to other students’ in the class.
Although both input approach by Hedges et al (1994) and output approach by
Hanushek (2003) answer if money matters in the education production function, they fail to
answer the question of how money should be efficiently spent in education production
function. They both pay close attention to how much schools spend and predict the changes
of the outcomes when there is an increase in expenditure either in inputs or outputs.
However, they have not asked what patterns of school expenditure are and how money has
been spent at schools. As Picus (1995) pointed out that the inefficient spending methods
could lead to the absence of a strong correlation between an increase in expenditure and
improvement in outcomes, given that money really matters in education production function.
The policy implication that can be drawn from this discussion is that to be able to answer the
question “does money matter?”, policy makers need first understand the efficiency of school
expenditure.

Conclusion

The understanding of education production function, as well as the input and output
approach, is crucial in helping policy makers to discuss education as production. However,
the debate shall no longer be about whether there should be an increase of school funding and
which educational inputs deserve more funding. Instead, the attention should be about the
efficiency of school spending. Policy makers should pay more particular attention to the
pattern of expenditure of high performing schools and use the understanding of the pattern to
effectively and efficiently allocate the resources in education production function.
 References

Behrman, J. R. (2010). Investment in Education” Inputs and Incentives. Handbook of

Development Economics, 5, 4883-4975.

Hanushek, E. A. (1989). The impact of differential expenditures on school performance.

Educational Research, 18(4), 45-51+62.

Hanushek, E. A. (2003). The failure of input-based schooling policies. Economic Journal,

113(485), F64-F98.

Hedges, L. V., Laine, R. D., & Greenwald, R. (1994). An exchange: Par I: Does money

matter? A meta-analysis of studies of the effects of differential school inputs on

student outcomes. Educational Research, 23(3), 5-14.

Johnson, J. L. (1978). The role of student in the higher education production function.

Research in Higher Education, 9(2), 169-179.

Monk, D. H. (1989). The education production function: Its evolving role in policy analysis.

Educational Evaluation and Policy Analysis, 11(1), 31-45.

Picus, L. O. (1995). Does money matter in education? A policymaker’s guide. Selected

papers in school finance, 19-35.