Economic Issues in Non-Public Schools: Scale and Demand

Introduction

This paper is a literature review of economic issues in non-public schools, drawing primarily on nine sources of economic literature listed in the Works Cited section. The review begins with a general overview of economics, followed by an overview of the non-public educational sector; together these provide the contextual depth needed to analyze the specific economic issues under discussion.

Overview of Economics

The economic issues examined include economies of scale and the dynamics of demand and supply in non-public schools. These issues are presented as they emerge from the reviewed literature.

Aristides (2002, 253–263) described economics as the study of how people attempt to utilize scarce resources in order to satisfy unlimited wants, thereby deriving the greatest possible benefit from limited means. "Resources" here refers to anything that can be used to satisfy human wants or desires — whether natural or artificial in origin.

Economists have described economization as making the best possible use of scarce resources. Under different economic systems, ownership and management of resources vary considerably. In the free market (capitalist) system, resources are privately owned by individuals or organizations and there is no government interference; decisions about how, when, what, for whom, and how much to produce are made by investors themselves. In the centrally planned (socialist) system, resources are owned and managed by the government to ensure that every citizen benefits; in practice, however, pure command economies are rare. The mixed economy combines elements of both, with some resources owned privately and others managed by the state.

The Non-Public School Sector

Research conducted by Lipsey and Courant (1996, 45–49) and Friedman (2002, 112–118) identifies two broad approaches to economics. Microeconomics addresses issues affecting individual actors — for example, the theory of the firm, price determination, and consumer behavior. Macroeconomics addresses economy-wide issues such as national income and unemployment. This review applies both approaches when examining economic issues in non-public schools.

Non-public schools — also known as private or independent schools — operate outside the direct control of local, state, or national governments, and are therefore not under direct supervision by state authorities. These schools retain the right to select their own students, and their funding derives from tuition fees rather than from public funds. Many non-public schools also admit students on a scholarship basis, depending on talent in academics, arts, or sports, with those students benefiting from reduced tuition.

A large proportion of non-public schools are religiously affiliated or denominational. Such schools incorporate religious doctrines into their educational curricula to serve both the faith commitments and cultural traditions of their communities. Examples include parochial and Roman Catholic schools, Anglican Church schools, Uniting Church schools, and Presbyterian Church schools.

According to the U.S. Department of Education, National Center for Education Statistics, the tuition fees charged by private schools depend on several factors: the location of the institution, fees charged by comparable schools, the income level of parents in the surrounding community, and the financial capacity of the institution itself. Higher tuition is generally reflected in higher teacher salaries, which is justified by the practice of hiring highly qualified staff and by the provision of enriched learning environments — including state-of-the-art computers, well-stocked libraries, and modern science laboratories — along with low student-to-teacher ratios.

Data from the Good Schools Guide indicate that only about seven percent of students in the United Kingdom attend private schools, raising the question of why parents choose this option when 93 percent of families remain in the public system. Reasons cited include higher educational standards, a broader curriculum, superior facilities, low student-to-teacher ratios, considerations of social class, and family tradition. Fees in UK private schools range from approximately £1,000 to £7,000 per term for day students, while boarding fees can exceed £9,000 per term.

The origins of non-public schools in the United States date to the nineteenth century, when the public school sector was perceived as aligned with Protestant religious ideologies and politics. In response, Roman Catholic parish churches established their own schools — government-independent institutions that would nurture Catholic doctrine among students from Catholic backgrounds. Protestants followed a similar path in the twentieth century, founding their own private learning institutions.

Economies of Scale in Non-Public Schools

Private schools in America draw funding from tuition fees, financial endowments, institutional loans, voucher and scholarship funds, and grants or donations from religious organizations or private entities. Notably, not all non-public schools in America are religiously affiliated; many are owned and operated by private individuals and secular organizations.

A survey conducted between 2007 and 2008 estimated that there were more than 33,000 private elementary and secondary schools in the United States, enrolling a total student population exceeding five million. These institutions employed nearly 456,000 full-time-equivalent teachers. A report from the Digest of Education Statistics (2008) showed that average private school tuition stood at $5,049 for elementary schools, $8,412 for secondary schools, and $8,302 for combined schools — figures weighted by the number of students enrolled in each category.

Scholarly authors including Blaug (2007, 347–349) and Lazear (2000, 99–146) have identified economies of scale as one of the first economic issues to arise when discussing non-public schools. In economics, economies of scale refer to the size of production that can result in either advantages or disadvantages. Given the large student populations in U.S. private schools relative to public schools, these institutions can experience either economies or diseconomies of scale (Hodge, 1995, 97–105).

Technical economies arise when a growing student population enables a school to adopt more efficient, technology-based teaching methods, thereby reducing the per-unit cost of instruction. Financial economies emerge as an expanding school gains easier and cheaper access to capital, lowering overall operating costs. Managerial economies result from the high performance rates that allow non-public schools to attract and retain qualified staff, leading to efficient management and quality outcomes. Purchasing economies arise because non-public schools, with their greater financial capacity, can buy learning materials in bulk and benefit from trade discounts, further reducing operating costs.

Because of their strong reputations, non-public schools typically do not need to spend heavily on advertising; word-of-mouth recommendations from satisfied parents and students serve as the primary marketing channel. This constitutes a marketing economy that reduces operational costs. Additionally, as noted by Blaug (2007, 347–349), non-public schools are well known for paying their teaching staff high salaries, which supports employee welfare, motivates staff, raises academic output, and keeps labor organization costs low — generating staff-welfare economies. Beyond these internal economies, external economies of scale also benefit non-public schools through job creation, improved local infrastructure, easier access to skilled labor, and a broad market for their services.

Conclusion

Demand functions can be illustrated graphically. An increase in favorable factors — such as rising incomes or lower fees — shifts the demand curve for non-public schools to the right, reflecting greater enrollment demand. Conversely, a decrease in favorable factors — such as economic downturns or rising tuition — shifts the curve to the left.

The supply of non-public schools is also an important economic issue, affected primarily by government policy. Policies that favor the establishment of private schools increase their supply in the education sector, while unfavorable policies cause supply to stagnate or decline. The broader economic climate also matters: during periods of financial hardship, such as the global financial crisis of 2007–2010, the number of private institutions tends to decline as well (Friedman, 1987, 144). Understanding these interlocking economic forces — economies of scale, cost structures, demand determinants, and supply conditions — is therefore essential to a full picture of how non-public schools operate within the wider educational and economic landscape.