Education is a high yield investment

March 1, 1999

In these days of bloated stock prices and low bond yields, it can be tough to find a good investment. Speculating on the wild ups and downs of the financial markets may beat a path to paper wealth for some, but for the average person (and for society in general), there is no better payback than a good education.

The correlation between educational attainment and employment income is well known. The benefit of more education for an individual lies in getting a good job at a higher income. For society, the payback comes in higher tax revenues collected from that income, which go into funding essential public services like health care, law enforcement, and yes, more education.

But what is the real payback to individuals and society for a diploma at various educational levels? A look at "social rates of return" -- the profits of education investment to individuals and the treasury -- is instructive.

The biggest payback comes from completing high school in some fashion, either with a traditional grade 12 diploma or a trade certificate. Those completing high school get a return of between 20% and 40% in increased income over those that do not. The rate of return for completing high school is so high that thousands of dollars could be profitably spent on each drop-out to help them complete school or get a trade certificate.

After secondary school, college and university degrees provide additional strong returns. Holders of college diplomas benefit from a premium of 8% to 16% in terms of income over that of a high school graduate. University graduates get a return in the 9% to 15% range, and tend to earn higher incomes later on in life than do those with college degrees. For men, the biggest gains for university grads are in the fields of engineering, social science and commerce. For women, all fields -- even the humanites and fine arts -- are profitable.

These are all vastly superior returns than the cost to government of providing education. Even if the government has to go into debt by borrowing on the capital markets, education is still a lock. Because government can borrow money cheaply at about 5%, and can make a 10% to 20% profit, education spending is simply good business.

BC also needs to spend more to strengthen its education system. Post-secondary participation rates in the province are below average for Canada, and are particularly poor for universities. Large class sizes are an issue for both K-12 and post-secondary, one that affects the quality of education.

To be fair, the BC government has increased educational funding in the 1990's far more than any other province. The tuition freeze and enhanced diversity and choice through the post-secondary system are important achievements. But BC started the decade woefully behind other provinces, so some of this is just catching up. And much of the funding increases have been necessary to service BC's rapidly expanding population.

BC is still not graduating enough people to meet the demand in the labour market for university and college graduates. BC has a high proportion of workers with a university degree, but only because people from other parts of Canada and abroad have migrated here to fill the gap. From 1990 to 1996, less than 40% of new employed people with university degrees came from BC universities.

As we move to what many are calling the "knowledge-based economy", where the ability to add value based on the use of information and knowledge is critical, the call for a better educated workforce is not a luxury but a necessity. In addition to literacy, numeracy and specific job skills, today's job market demands skilled communicators, with computer skills and the capacity to negotiate different cultures and economic systems.

With the new provincial budget being tabled later this month, it is imperative that education at all levels be a priority area of new investment in the people of the province. This could help to address BC's poor record on inequality, while meeting the challenges of the new economy. And it is not just the right thing to do, but profitable for the province as well.