Executive summary
Archived Content
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please "contact us" to request a format other than those available.
Education is an important economic activity in Canada. However, little is known about the productivity performance of the education sector, as the output of the education sector has been measured largely by inputs in Canada.
In the System of National Accounts of Canada and those of most other countries, the volume of output of the education sector has been measured in the past by the volume of inputs, where total inputs include labour costs for teachers and administrative staff, capital input, and intermediate inputs. Since the volume of output is measured by the volume of inputs, the ratio of output to inputs does not measure productivity performance for that sector. The objective of this paper is to develop experimental measures of the output of the education sector for Canada that can be used to examine the productivity performance of this sector, based on the ongoing development of output-based measure in other Organization for Economic Cooperation and Development (OECD) countries (Schreyer 2009b, Fraumeni et al. 2008).
This research paper focuses on four questions.
- 1. What are the approaches used by national statistical agencies to measure the economic output of the education sector?
The approaches used by national statistical agencies to measure the economic output of the education sector can be classified into two groups . The first is the income-based approach, or human capital approach, developed in a series of papers by Jorgenson and Fraumeni (1989, 1992, 1996). The second approach is the cost-based approach, which can be traced back to the estimates of investment in education based on expenditures that was developed by Kendrick (1976).
Both approaches start with the number of student enrolments or the number of graduates, disaggregated by education level, type of education program, age, and gender, as the quantity measure of education output. The two approaches differ in the weights assigned to, or the unit prices used to weigh, the different types of enrolments or graduates in order to derive a volume index of education output.
For the income-based approach, the volume index of education output is calculated as a weighted sum of student enrolments using weights based on the value of education. The other is measured by its effect on students' lifetime labour incomes. The value of education, measured in terms of its effect on lifetime income, is calculated as the difference between the lifetime income of an individual enrolled in that education level and the lifetime income of an individual with a lower education level. For the cost-based approach, the volume index of education output is calculated as a weighted sum of student enrolments using weights based on total expenditures per student as the unit price of education. Total expenditures include teacher salaries, intermediate inputs, and a capital consumption allowance.
- 2. What are the estimated growth rates of the output of the Canadian education sector that are derived from the two approaches?
The income-based approach and the cost-based approach are used to estimate the output of the education sector, which includes primary and secondary education, colleges, and universities.
The income-based measure of education output is estimated to have increased by 0.8% per year over the period from 1976 to 2005, while the cost-based estimate increased by 0.6% during the same period. The difference in the rate of growth between the two estimates can be attributed to the differences in the level of aggregation for enrolments and the weights used to aggregate enrolments between the two approaches. For the income-based approach, enrolments are disaggregated by gender, education level (one of five levels), and age (age 6 to 74). The five education levels are defined as: 0-8 years of schooling; some or completed high school; some or completed postsecondary school below bachelor's degree; bachelor's degree; and master's degree or above. For the cost-based approach, enrolments are disaggregated by three education levels (primary and secondary, college, and university). This disaggregation is determined by the availability of data on education expenditures.
- 3. What are the estimates of the nominal value of the output of the Canadian education sector from the two approaches?
The nominal value of education output from the income-based approach is set equal to the value of education as measured by its effect on students' lifetime income. The nominal value of education output from the cost-based approach is derived from total education expenditures, which include the labour costs of teachers and administrative staff, capital costs, and intermediate inputs.
The income-based estimate of the nominal value of education services is found to be much higher than the cost-based estimate. In 2005, the income-based measure was estimated at about 6.8 times as large as the cost-based estimate.
There are a number of potential explanations for this difference. First, the coverage of the education sector differs between the two approaches. The education services sector in the income-based approach includes the inputs of non-market activities (the opportunity cost of students' time), while the cost-based approach does not. Second, the income-based approach attributes the earnings differentials among individuals to the effect of investment in formal education (Rosen 1989). To the extent that the earning differential also captures the effect of on-the-job training, gender discrimination, and individuals' ability, the income-based approach overestimates the level of education output.
Despite these differences, the two estimates generate quite similar rates of growth of real or volume measures.
- 4. What are the main challenges for measuring the output and the productivity performance of the education sector?
The measures of the output of the education sector developed in this paper represent an important first step towards understanding the productivity performance of the education sector. However, significant challenges remain. Chief among them are the changes in education quality that must be taken into account in order to accurately estimate the productivity performance of the education sector. While the hedonic method can be applied in order to take into account the quality changes in education output as shown in the paper, the data for implementing quality adjustments are often not available or incomplete. The challenge facing statistical agencies is to collect time-consistent data on the various indicators of education quality (such as class size, test scores, and teacher quality) and to conduct surveys that can be used to estimate hedonic regressions that link the indicators of education quality to the unit price of education output in terms of the value of education or expenditures of education.
- Date modified: