# Education as a Market

Sometimes the data just shows what everyone expects it to show. I don’t expect many people will be surprised by much in this post, which is on education.

55.5 percent of the US population aged 3 to 34 was enrolled in school in 1965; that figure was 56.2% in 2004, and it reached a low (for the sample) of 47.9% in 1984.

We often hear that enrollment (especially in college and MBA programs) rises when the job market sucks. An economist would say this because in a poor job market, the costs (in terms of foregone opportunity) of attending school drop. Similarly, when the job market is poor, the benefits of attending school may also rise; the added degree may increase one’s likelihood of getting a job more when competition for jobs is extremely fierce than at other times.

But are there other instances in which the benefits of getting more education increase? Well… yes. For example, presumably the fewer the numbers of students per teacher, the better the education, on the average. The table below shows the correlation between the percentage of the population (3 to 34) in school in any given year, and the ratio of students to teachers X years before

Ratio, X years before________correlation
1 year___________________-0.07
2 years__________________-0.19
3 years__________________-0.28
4 years__________________-0.34
5 years__________________-0.43

The more students per teacher, the lower the enrollment in later years. (I probably should have gone back a few more years to see when the correlation stops mattering, but I got tired. Sorry.)

Another measure of the quality of education might be teacher’s pay. The next table shows the correlation between the percentage of the population (3 to 34) in school in any given year, and the ratio of students to teachers X years before

Ratio, X years before________correlation
1 year____________________0.56
2 years___________________0.65
3 years___________________0.75
4 years___________________0.81
5 years___________________0.84

The higher the teacher pay, the higher the enrollment in later years.

Conclusion… on the average, students (or potential students) are rational. When there are more signs that some of the proxies for education quality are increasing, it leads to greater enrollment in school, all else being equal.