How much do out-of-school children cost countries?

[Editor’s Note: This blog post by Milan Thomas explores the methodology and results of analysis he produced in a new paper co-authored by R4D Managing Director Nicholas Burnett and Anne Guison-Dowdy.]

“You’re due for a dental check-up. Let’s brighten that smile! Give us a call to schedule an appointment.”

I receive this notice in the mail every six months. We all know the benefits of dental check-ups. We all want to brighten that smile. Yet many of us (myself included) procrastinate in scheduling the next visit to the dentist’s office.

Sometimes, it is not enough to be reminded of the benefits of a course of action. The strongest motivation often comes from a reminder that there are costs associated with not acting in a timely manner. A competing dentist sends a slightly menacing note to my father twice a year. It reads:

“We don’t need to check all your teeth, just the ones you want to keep. Schedule your check-up now.”

Which type of reminder is more effective? Despite being the busiest and least dentally vain of my family members, my father is the most consistent when it comes to dental check-ups.

This line of thinking extends from trivial, day-to-day activities to pressing challenges of global importance. We all know the benefits of education for development. Studies attesting to the positive impacts of primary education have accumulated rapidly over the years. Primary education completion is associated with better health, gender equality, higher income, safer societies, and stronger democracies. On top of this, the U.N. has declared primary education a basic human right, making the achievement of universal primary education an end in itself.

Yet, despite overwhelming evidence that investment in primary education generates large private and public returns, out-of-school children (OOSC) remain a persistent problem in some South Asian and Sub-Saharan African countries. In Nigeria, home to over 10 million out-of-school children, the rate of OOSC has actually increased from approximately 36 percent in 1999 to 42 precent in 2010. The UNESCO Institute for Statistics estimates that 61 million children are out of school.

In a study commissioned by Educate A Child, R4D highlights the urgency of addressing primary education by calculating the economic cost of OOSC for a sample of countries with significant OOSC populations. Six countries were chosen based on data availability and geographic variety—Cote d’Ivoire, the Democratic Republic of Congo (using Education Policy Data Center data), India, Mali, Pakistan, and Yemen.

Based on estimates of the average income gain associated with primary school completion in each country (“wage premia”, compiled by Colclough et al. 2009), we project the foregone earnings of OOSC as a percentage of GDP. To account for the value of primary schooling as a gateway to higher education, we add the secondary school wage premium, weighted by the probability of a primary school leaver moving on to complete secondary education. This exercise answers the question: How much higher would GDP be in ten years if today’s OOSC expected not to finish primary school do complete basic education?

The results confirm that the economic loss due to out-of-school children is significant on a macroeconomic scale—from 1.3 percent of GDP for Pakistan to 6.8 percent for Cote d’Ivoire. On average, low-income economies have grown by 2.95 percent annually since 2000, so the cost of OOSC exceeds the value of two years of GDP growth in some countries. This approach assumes that formal sector wage increases represent what individuals in the informal and household sectors would gain from primary education. Given emerging evidence on the positive effects of education on informal sector earnings and on quality of domestic care, the formal sector wage premium may be a fair proxy for productivity gains to groups not engaged in formal sector work.

Taking the analysis a step further, we considered a different but related question: How much higher would GDP be today if a country had achieved universal primary school completion for its working population? Based on cross-country estimates of the relationship between income and education attainment, we estimate how much higher per capita income in the six countries would be if the average working citizen had completed primary education. The loss estimates here are even more dramatic. In Yemen, where the typical worker completes less than four years of education, a 38.4 percent income gap is attributable to the out-of-school children of past generations. This second exercise underscores the huge economic returns that could be accrued by investing in remedial education for illiterate adults.

The estimates produced in R4D’s study are a stark reminder of the vast, untapped potential of out-of-school children. Until universal primary education is achieved in countries where progress has stalled, out-of-school children will continue to represent an unconscionable underinvestment in human capital—a costly barrier preventing nations from reaching their full economic and social potential.