What drives the Education Industry

Drivers of the Education Industry

Just like any other industry, the Education industry is also dependent on the forces of demand and supply. These two forces drive the growth of the education industry. There are different drivers under both the forces which drive the industry. Let us understand these business drivers in detail. Business drivers are influences, both internal and external, that significantly impact the direction of an industry. The education industry has the following key business drivers:

Household Disposable Income/ Cost of Education:

Household disposable income is the amount of income left to an individual household after taxes have been paid, available for spending and saving. People with higher disposable income opt for expensive educational institutions like international schools, world schools, etc. It’s a well-researched conclusion that cost is a big constraint associated with school attendance, thus lower the cost of education, the higher is the literacy rate. If the cost of education is high in a country, fewer people can afford it, if the cost is average more people enroll in the system.

Increased Disposable Income:

It has been established by way of various research studies conducted in the past that people with higher education levels have an improved chance of earning a high income and resulting in labor market success. If for a given country we are successful in significantly increasing the quantity of schooling, then individuals’ earnings rise as a result. Typically, rates of return to education are higher in lower-income countries and thus, increasing schooling attainment should increase labor market earnings in the future. Those who have completed a professional program are more desirable to many employers, and fewer educated people are unemployed. Generally speaking, the higher your level of education, the higher your earnings will typically be. The rate of return year to an additional year of schooling is significant in many developing countries, especially low-income countries.

Opportunity Cost of Education:

In economics, "opportunity cost" refers to the next best use of a resource. We think about opportunity costs every day as we decide how to spend our time or money. This is the cost of education measured in terms of value to the next best alternative forgone like employment. This is a key concept in economics and generally comes into the picture at professional levels. The opportunity cost of education could comprise of foregone wages, tuition, textbooks, and additional living expenses and may include the additional cost associated with a reduction in years of future labor force participation. If the value derived from pursuing education by sacrificing one’s job is greater in terms then people opt for further studies. Similarly, when it comes to government spending on educational reforms, the opportunity cost is the other ways that government could use the taxpayers' spend on the educational program, as well as the time teachers and administrators spend implementing it.

Cultural Mindset:

Since the demand for schooling is often influenced by economic, political, social, and cultural factors, in many cases it is not sufficient merely for a school to exist in order for parents to enroll children in schools. Even free education may not entice poor families. Cultural mindset plays an important role here and refers to the awareness amongst people for the need of education. For example, female education is not given due importance in remote areas. Even the level of parental education is a key determinant of their children’s educational attainment.

Government Boost:

This refers to the role played by the government to boost education amongst masses by offering incentives, awareness programs, free female education, education grants, education loans at minimal interest rates, etc. Governments around the world spend significant resources on education. While such outlays have led to a tremendous expansion of schooling, to further ensure macro-economic stability, as well as to promote equitable economic growth and literacy rates, countries need to maintain public spending at a level consistent with their long-run financing ability while, at the same time, establishing transparent budget mechanisms that allocate and manage public resources equitably for education reforms. Education expenditure by governments should pay considerable attention to the productivity and efficiency of the education sector. Determining how governments and families can best finance and allocate scarce resources to produce quality education and the skills that individuals need for success, is an integral task that impacts and drives this sector. There is a need for governments to integrate education into a country-wide perspective focusing on how education ties into the macro-economic context.

Some of the factors that drive the education industry with respect to government boost are; how much is spent on education and what is the share of the government's expenditure, how governments finance the education sector and what do they finance, and if the spending is adequate and sustainable.

Demand Side Financing:

Demand-side financing is the principle of channeling education resources through students and their parents or basing school funding on enrolments or attendance has been proposed for a number of reasons in different countries. Supply-side financing usually refers to funding inputs such as human and material resources based on formal sector planning by technical planners and managers. However, ensuring the supply side is, in many cases, not enough. Thus, there may be good equity and access reasons to consider demand-side financing. The focus is on putting the resources in the hands of those who demand education and not those who supply it. The goal is to bring down the barriers that prevent children from continuing their education. Some examples of demand-side financing programs are scholarships, targeted vouchers, and conditional cash transfers.