On the Role of Job Assignment in a Comparison of Education Systems

This paper reexamines how differences in systems for financing education influence GDP by highlighting a neglected function of education policy: it affects the magnitude of gains from job assignment. When more productive jobs demand more skill, privately financed education can increase productivity gains from matching between jobs and skill by increasing the availability of highly educated people. This differs from the standard argument that publicly financed education increases the total amount of human capital by equalizing educational opportunities. It is shown that if job opportunities have large variations in productivity, education policy may face a serious efficiency--equity trade-off.