056

CHAPTER I I I

DEMAND FOR EDUCATION: CONCEPT AND DETERMINANTS

This chapter defines the concept of demand for education

with special reference to socio-economic factors. The various

ways of measuring the demand for education have been discussed.

The concept of supply price and demand price are being explained.

Different costs component of education are discussed. The

important role of cost factors in children's demand for education

is emphasised. In regard to this, some empirical evidences are

given both at the national and international levels. Consumption

and investment dimensions of education are defined. Private

demand means the enrolment of individuals in an educational

system. Social demand refers to the total number of persons

enrolled in an educational system. B’urther the concept of demand

for education with that of text-book definition of demand has

been compared. The criterion for investing in education is that

when marginal cost of education equals the marginal benefit

obtained from education.

There is a separate section on "Determinants of demand for

education". This is being discussed from four different angles,

namely individual, family, society and the school. These four

units are insisting that, demand for education decided by the

forces operated by these units in the decision-making process of

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house-hold demand for education. An exclusive attempt has been

made in this chapter to define the concept of demand for

education with a special focus to socio-economic factors.

Conclusion suggests that, more research studies should be made in

this direction.

There are quite a few studies have attempted to estimate

demand for education. They defined the concept of demand for

education at different angles. But none of the study has tried

to explain the various other dimensions associated with the

concept of demand for education. These studies have not discussed

the determinants of demand for education in a nutshell of

different socio-economic factors.

Among the researchers, still there is considerable

disagreement with the concept of demand for education. We would

like to pose a series of questions here. What are the conceptual

problems related with the definition of demand for education ?

What are the socio-economic factors decide the demand for

education ? How far effective their role in assessing the demand

for education ? In order to draw the attention for the answers

to the above questions, in this chapter an attempt has been made

to define the concept of demand for education, and the factors

influencing the demand for education in the contexts of an

individual, family, society and the school.

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3.2 Concept of Demand for Education A Socio-economic Approach

In demand analysis we investigate the choices that

individuals make between the goods and services that are

available to them in the market at a given price level, (Simmons,

1974). The term demand refers to the quantity or the amount of a

particular commodity purchased at a given price level. The term

"demand" is associated with the price of the commodity in

question.' The Quantity demanded in the context of education has

been explained in the following views.

a) The number of Years of education an individual has acquired.

This can be measured in terms number of years of schooling.

b) Whether the child is enrolled in the school or not. This

aspect is known as the enrolment Index. A variant of this

measure is the enrolment ratio, where it is measured as the

percentage of children enrolled.

c) School expenditure on children is calculated as the

expenditure on education such as school fees, transportation

cost, etc.

As far as the price of education is concerned there are two

kinds of price. 1) Supply price and 2) demand price. The supply

price is the price at which the supply of education can be

offered to the public which includes government and n on­

government outlays on educational institutions. The demand price

 im

is the price at which the ooiisuniers are willing to obtain

education. If supply price and demand price converge in this

case, it is named as the equilibrium price.

The demand price is the costs of education borne by

households. Here let us discuss about the various cost factors

which are operating on the demand side of education. The

following diagrammatic representation gives a clear idea

regarding the costs of education.

Chart Showing the Cost of Education

Total Costs

Direct Indirect
Costs Costs

Opportunity cost of
Education or real cost of
Education

Other School F e e s , Tution Costs

Expenses Exam Fees
Non-tution Costs or
Out of Pocket Expenses

Travel Private Boarding, For Students who are away

Cost Tution Lodging from their residence
Cost Expenses

figure 1
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The total costs of education comprise of the direct costs

and indirect costs. Direct costs are further subdivided into two

components viz., expenditure on books, uniforms, papers, pen,

pencil etc., and expenditure on school fees, examinations fees

etc. The other expenses block also includes three more

components such as travel cost, private tution cost, boarding and

lodging expenses (for the students who are staying outside home).

The opportunity cost of education of children or the

earnings foregone by the students is the indirect cost of

education. This cost is the amount of earnings foregone by the

students while they are at school. Sheehan (1973) in his book on

"Economics of Education" has said that there are two kinds of

costs of education (measured by the expenses on fees, books and

other items) as well as the indirect costs of education (the

earnings foregone amount) which are a real cost to him.

Similarly Hansen (1971) has viewed the private resource costs as

a combination of opportunity costs incurred by the individuals

1
and incidental school related costs incurred by individuals. In

his work the author has concluded that perhaps cost is one of the

many determinants of the quality of education, (C l a r k ,1963).

While assessing the individual demand for education,

Harnqvist (1978) has found that the direct costs of education and

the opportunity costs of education would decide a rational

decision to pursue in a certain kind of education. Me Donald

(1988) has been considered the same point of view in his review
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on "Demand for Education". In another work, Parsons (1974) has

shown that students are not only sacrificing their foregone

earnings but also their leisure time period. These studies have

explained the vital role of direct costs and indirect costs in

children's demand for education.

3 .3 Some Empirical Evidences

3.3.1 Abroad Studies :

Edwards (1975) observed that the school expenditure per

pupil are having a tremendous positive effect on the level of

teenage enrolment rates in 1960, by using the U.S. census data.

After reviewing the studies of responses to tution fees in U.S.

Freeman (1986) arrived at the conclusion that a $100 change in

tution cost would negatively alter the proportionenrolled by

2
0.8 % points. In a recent study Long and Toma (1988) have found

found out that the tution variable was negatively related to

private school demand in 1980, but not in the case for 1970 by

employing the U.S. data. In Australia the choice between

government and private schooling was estimated to be quite

responsive to the private price of private schooling, (Williaras,

3
1985) .

3.3.2 Ijndiajl Studie^.;

Psacharopoulos and Woodhall (1985) found that many poor

parents in India do not send their children to school mainly

because they cannot affoi’d to pay the direct costs of education.

While analysing the private costs of education in Baroda city of

Gujarat state, Shah (1968) has shown that the non-tution costs

(e.g., costs of education other than f e e s )incurred by the

students are more significant than the fees. In a pioneer study,

Panchamukhi (1967) observed that for the Indian context there is

a complementary effect operating between public and private

education expenditures. In his study on cost and demand

relationship for secondary education in Coimbatore district of

Tamil Nadu state, Arumugam (1984) identified that the cost

factors are important in deciding the demand for education.

There is a negative association between indirect costs

(i.e., the earnings foregone amount) and demand for education.

4a
For example Crean (1973) has demonstrated that there is a

negative relationship between foregone earnings and the demand

for education in Canada. Goel (1975) emphasized that the

opportunity costs of education should be taken into consideration

4b
in any analysis of costs and benefits of education. The

important component of the costs of education is the opportunity

costs of education. If the children have worked they could have

earned from their employment. Especially in less income rural

areas, where children are highly employed in agricultural works,

foregone earnings are high and hence the opportunity costs. In a

recent article Tilak (1989) has developed a theoretical framework

for analysing the costs of education. But his paper does not
 r\ n

explicitly explain anything about the cost factors which are

operating on the demand side of education. In their survey

Kothari and Panchamukhi (1975) have opined that the indirect cost

of education can be captured in terras of the foregone work

opportunity of the individuals. Rate of return studies in India

have estimated the foregone earnings on the basis of age-earnings

profiles based upon various surveys, (Harberger, 19B5);

Nallagounden (1965, 1967); Panchamukhi and Panchamukhi, (1969);

Goel (1975): Blaug Layard and Woodhall, (1969), Tilak, (1980).

So on this basis of above discussion, we would like to

conclude that especially in a country like India, the cost

factors are playing a crucial role in deciding the educational

attainment of people. Hence while analysing the demand aspect of

education cost factors ought to be taken into consideration.

Thus on the whole demand for education can be considered as

a functional relationship in which price of education, family

income and socio-economic factors are as its e l e m e n t s . We can

expect a negative price effect and a positive income effect. On

the average there is some possibilities that as the family income

goes up, people will also spend more on education of their

children.

3 ■4 Education as an Investment Good i.

Education has both consumption benefits and investment

benefits. It is very difficult to differentiate these two types

 or>4

of benefits: But most of the economists have argued that

Government is subsidising education heavily it should be treated

asan investment good. Investment in education are the current

investments for future earnings. If the future earnings are

expected to be higher than the current alternative activity (e.g.

Work) then it is more beneficial to invest in education.

Moreover parents are sending their children to school because

they expect better employment and earnings for their children in

future which can off-set the expenses incurred by parents for

children's education. This study treats education as an

investment good. Hence the demand concept has a direct relevance

to the analysis.

3 .5 Different Types of Demand :

Demand for education can be classified in to two types.

They are :

i) Individual demand or private demand.

ii) Social demand. For instance Psacharopoulos and Woodhall

(1985) have defined the individual demand as the enrolment

of individuals in an educational system. On the other hand,

if we aggregate the individual demand, we get the social

demand. Thus the social demand is the total number of

persons enrolled in an educational system.

Actual demand for education by which we mean that the total

 0R5

number of persons actually enrolled in the educational system.

The potential demand for education may be defined as the total

number of individuals who are willing to pay for their education.

There are three kinds of private demand for education. These can

be explained as described here.

i) Satisfied Demand for Education :

We call the satisfied private demand for education as one

when an individual enrolled in a school and he stays for

throughout his course time with more probability of

completing the course.

ii) Unsatisfied Demand for Education

Unsatisfied private demand for education may be defined as

the situation while an individual not at all enrolled in a

school, during his voluntary school-age period. Here the

individual's demand for education is said to be an

unsatisfied demand.

iii) Partially Satisfied Demand for Education ;

The partially satisfied demand for education can be viewed

as the case, where an individual enrolled in a school after

some days or months might have dropped out from the school,

due to any family problem. Therefore we can call this

demand as the partially satisfied demand for education.

We can compare the concept of demand for education with

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that of the text book definition of demand as follows. At a

given price level, the quantity of commodity demanded by an

individual, while he was backed by the purchasing power. In the

context of education the ability to pay for the school expenses

(i.e., the direct and indirect costs of education) depends on the

purchasing power. Therefore the purchasing power for education

can be decided by student's family income.

The equilibrium condition for investing in education is

that the marginal cost of education must be equal to the marginal

benefit obtained from education. The marginal concepts explain

regarding the last unit of money that was spent on education and

the last unit of rewards received from education. In the

following section we discuss the determinants of the demand for

education from the individual as well as society point of view.

3 .6 Determinants of Demand for Education :

This section attempts to identify crucial determinants of

demand for education. We discuss these determinants from the

point of view of the individual family, society, and the school.

.3 . 6. 1

As far as an individual is concerned he will invest in

education so long as the present value of the expected stream of

benefits arising from education exceeds or equals the present

cost of education. This is known as the rate of return

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criterion, (Becker, 1964); Campbell and Seigel (1967). The

internal rate of return can. be defined as the rate of discount

which makes the present value of the costs equal to the present

value of benefits. The demand for education can also be

considered as a functional relationship between the willingness

to purchase education and the price of education. Here the term

"willingness" refers to the preference towards education. In

short individual's perception about education plays a vital role

in deciding his demand for education (Blaug, 1966). We may argue

that, even if the individual has willingness to obtain education,

if his family background does not allow him to do so, then his

demand will be unsatisfied.

Further, more often an individual chooses to invest in an

additional period of full time education if the expected net

benefits of doing so are positive (Rice, 1987). This implies

that in deciding the individual demand for education the future

benefits rather than the present benefits play a crucial role.

Freeman (1986) asserted that individuals demand education

by investing their current time and money for future pay. We can

think of a trade-off between the present consumption and future

consumption. The occupational motive factors play a predominant

role in individual's demand for education, (Harnqvist, 1978).

Freeman (1979) found that the individual's childhood ambition or

aim influences the demand for education.

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The equilibrium condition for the case of individual demand

for education would be the equality between the marginal

interest rates and the marginal rate of returns. The marginal

interest rate is that rate of interest rate prevailing in the

market for educational funds, (Becker and Chiswick, 1966; Becker,

1967).

An individual's demand curve for education can be drawn by

using the marginal rate of return on investment in education. It

is drawn downward sloping with the assumption that beyond a

certain point additional investments would yield a lower return,

(Ben-Porath, 1967).

The sex of the individual plays an important role in

determining the demand for education. There is a general opinion

that if the person is a boy, parents would educate him well than

in the case of a girl.

Thus, we strongly feel that the individual's decision is

more important in deciding the demand for education.

3.6.2 Fam.llz factors j_

We shall explain the determinants of the demand foi-

education in the context of family. In his work Becker (1976)

pointed out that economic approach can be applied to analyse any

issue that is pertaining to family's matter. Primarily the family

income decides the demand for education of their children. The

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parents ability to pay for their children's school fees would

decide the demand for education of their children, (Hight,1975;

Me Donald, 1988; Kodde and K o d d e , 1987; Robert, 1980; Jamison and

Lockheed, 1987; Joshi, 1983; OECD, 1976; Arumugam, 1984;

Duraisamy, 1984). In U.K., Rice (1975), arrived at a striking

conclusion that family income is more important for girl's

education but not for boys.

Parental educational levels influence the demand for

education of their children. We can expect a direct relationship

between the parent's education and their children's demand for

education. Research studies by Marsden and Harvey (1971) ;

Brazer and David (1962) ; Birdshall (1985) shown that father's

education has much influence over their children's demand for

education. On the other hand Leibovits (1974); Wolfe and Behrman

(1986) Behrman and Wolfe (1987); have found that the influence of

mother's education was more than that of father's education in

determining their children's demand for education. Further the

results of these studies have confirmed the effect of mother's

education on their girl's education was very high compared to

boy's education.

Moreover. educo-genic factors decide the demand for

education of their children among families. The term educo-genic

factor refers to strong motivation for schooling. This strong

motivation arises as a result of educated elder's presence in the

families. These factors may help in providing an educational

environment for their children. Floud (1961) has argued that

children from those families perform comparatively better than

other children. In a similar manner Anderson (1 9 83 )has examined

the role of 'educo-genic factors" among families. Don

C he rn ich ovs ky 's (1985) study supported this line of reasoning.

However members of the family demand education only after

calculating their i.rivate returns such as securing a good

occupation, more salary and more facilities. Based upon these

expectations they will enroll in that particular programme. In

the existing literature some of the research studies had pointed

this. These studies were Gary, (1974); Psacharopoulos and

Hinchliffe (1973); Mattila, (1982); and Miller. (1983).

Father's occupation is one of the determinants of demand

for education of their children. Bowles (1972) has shown that

in U.S., the position of father in the hierarchy of work

relations is an important variable in explaining the demand for

education of their children. After reviewing the studies of

private demand for education, Psacharopoulos and Woodhall (1985)

emphasised the role of father's occupation in determining their

children's education. Father's occupation can also decide the

choice of subjects for their children. As an illustration

Vaughan (1971) observed that children of peasants are likely to

enter a college of agriculture and the children of industrial

workers are likely to enter a technological university. In the

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case of Indian context, we feel that social mobility factor is

iTiore important than social reproduction phenomenon.

The family size factor also plays a crucial role in the

educational attainment of children. That is families with less

number of children gets more opportunities for education than

those families with more number of children. Thus the demand for

education would be decided by the family size, (Eyken, 1973).

Variables like demand for child labour, urban living

standards and the role of child in the economic well being of the

family would influence the demand for education of children,

(Shrestha, 1984; Anderson. 1985). Hence the children's

activities should also be taken into account atleast in urban and

rural low income setting for an analysis of the demand for

education.

While assessing the black economic progress after 1964 in

U.S., Freeman (1981) found that the reading facilities at home,

the reading habit of newspapers and magsines, parental support

are significantly influencing the demand for education.

Hence, we infer that the family factors are the major

influences in deciding the demand for education of children. We

can expect a favourable demand for education, if the family has

the following characteristics :

i) well planned family.

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ii) family with parents and eiders who are highly educated.

iii)family with reasonable economic status.

iv) family with respectable occupation.

3.6.3 Social Context :

This section provides the determinants of the demand for

education at the society level. The social status and demand for

education are positively related (Safilios and Rothschild 1980;

Rao, 1985; Bowman and Anderson, 1980; O.E.C.D., 1983; Coleman,

1971).

As far as the society is concerned demand for education

depends on good social status, social mobility and social

prestige. Among the social factors, variables such as community,

religion and the social value attached to education play a

crucial role in determining the educational attainment of the

members. A recent study by Srinivasan, (1987) in Madras city has

shown that Caste Variable plays a vital role in utilising the

educational opportunities of different socio-economic groups.

Studies by Tilak, (1980); Neelson, (1983) have shown that the

inequality of educational distribution persists among various

socio-economic strata by using the data obtained from West-

Godavari district of Andhra Pradesh and Dhanbad district of Bihar

state res pec ti v el y.

Demand for education can also be determined by the conveyance

facilities available for going to educational institutions in

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that particular area of the society. Hence the transportation

facilities should be considered in deciding the demand for

education of individuals.

There are several important school factors, that determine

the demand for education. These are :

- the distance from home to school,

- availability of schools (especially in rural areas),

- medium of instruction,

- school fees,

- the infra-structure facilities available at schools, and

-- subjects offered for the students.

For instance, Psacharopoulos and Woodhall (1985) identified that

medium of instruction would affect the demand for education.

Shrestha, (1984) and Lane (1982) observed that distance factor

greatly influences the demand for education.

3 .7 Conclusion j.

In this chapter, we attempt to present a conceptual

framework for the analysis of dearaand for education. As noted

earlier, various studies have used different concepts for

measuring the demand for education. But none of the studies

attempted to define the concept of demand for education with a

special reference to socio-economic factors. Hence we have

 073

discussed the socio-economic determinants of demand for

education. The evidence shows that, mere provision of

educational facilities alone would not create the quest for

demand for education. Special research studies should be

undertaken in order to know the various difficulties that are

faced bj'- the divergent socio-economic groups in utilizing the

existing educational opportunities available to them.

References :

For a similar kind of di s cu ss io n, see Schultz (197.3), p. S-6

and Fields (1974), p. 907.

2. Long and Toma (1988), have used the population census data
for the years 1970 and 1980. They applied the n-chotomous
probit analysis for the estimation p u r p o s e .School choice has
been treated as a dependent variable.

3. Williams (1985) has applied the logit method for the

estimation procedure. The choice of school was considered as
a dependent variable. The R-squared value was 0.8.33 and all
co-efficients had the expected sign and were significant at
5% level of confidence intervals.

4 . (a) Crean (1973) has employed the informations like school

retention rates by age, retirements from school life for
various years. He has taken the unemployment rates as a
proxy for foregone earnings amount. The R-Squared Values
were ranging from 0.90 to 0.97. The private demand for
school places has been taken as a dependent variable and it
was measured by the retention rate 'R t '.

4.(b)Schultz (1963) has mentioned that, according to Conroy, the

total costs in 1957 for secondary schooling in Mexico was
1,240 million, out of which 760 million were earnings
foregone amount.