Education and Economic Growth

Education and Economic Growth


What exactly are
the benefits of education? This might seem like an obvious
question or a trivial topic, but, in fact, it involves some very deep
economic and even philosophical issues. First of all, education increases
human capital in the labor force and that raises wages. Workers who can read and write
very well are more productive than workers who cannot. Workers who have a master’s degree or
PhD degree in electrical engineering are also more productive. Furthermore, these workers
may be more innovative and innovation is one of the major
drivers of economic growth. An educated workforce is also
more able to accept and use the innovations generated by others. Imagine, for instance, education helping
a worker work with computers. Many of the most important benefits of
education are often quite intangible. For instance, education seems to develop
a greater sense of conscientiousness both in the school, but also
ultimately, later, in the workplace and also in individuals’
roles as citizens. If you look at our video
units on corruption, there it was found that societies
which have greater degrees of trust and greater degrees of cooperativeness
can also be less corrupt. So, through these indirect channels, a well-educated society may become
a less corrupt society and thus a society better able
to enjoy the fruits of economic growth. Education may also make for
better voters, better informed voters, and a more involved citizenry. Work by economist Bryan Kaplan has shown
that if individuals are educated, they are more likely to understand
the perspectives of economists on economic growth and act accordingly
when they get involved in politics. That may sound pretty obvious, but part of the puzzle is that
when we look at the numbers, it’s surprisingly difficult to discover
what exactly is the causal connection between education and economic growth. There are at least two major problems. The first is trying to figure out
cause and effect. It’s obvious that wealthier nations
have more education. But did they become wealthier nations
because they’re more educated or are people simply more educated
because they live in a wealthier nation? The second problem arises
once we consider that it’s the quality of education
which matters and not just the number of years
that a person has gone to school for. So, if it’s quality of
education that matters, the problem, then, is the quality of
educational institutions tends to be correlated with the quality of
a lot of other institutions in a given country. So, it’s difficult to figure out whether
it’s the quality of education that’s contributing to economic growth or the quality of institutions
in the country more generally. Pretty much everyone agrees
that education yields substantial private returns for
people who undergo the education. That is, if you graduate from a good
degree from a good university or college, you will earn considerably more money. But that’s quite different from thinking
that getting more educated for yourself is going to benefit a lot
of other people in society, and when it comes to estimating
that social return from education, we are still somewhat in the dark. Sometimes, I think about
the social returns to education in Michael Kremer’s O-ring model. And, by the way, see Alex’s video unit
on the O-ring model of economic growth. Here’s a way to think about how this works. That education matters, but for education to really push
a developing economy into take off, that economy has to get
a lot of other things right also. So, if that economy has improved
its system of education and done everything else wrong, well, that additional quality
education doesn’t really matter much. Think of take-off economic growth
as a process requiring a developing nation to get 10, 20, or 30 different things
right including education. So, education does really matter, it’s one
of the things you have to get right. But, getting education right alone might
in fact yield quite small social returns. There are many different sources
you can read on this topic, stretching all the way back to
the classic writings on education, from the Ancient Greeks. But, nonetheless, for a start
on some contemporary sources using economic reasoning,
I would point you to these articles.

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