Higher education: a good long-term investment?

by J.D. LaRock
Senior Analyst, Innovation and Measuring Progress Division, Directorate for Education

As any student can attest, pursuing a higher education requires an investment in time, effort – and in a number of OECD countries, significant financial resources.  But the economic costs of higher education go beyond tuition fees.  Because people with higher education tend to have higher earnings, they’re likely to pay more in income taxes and social welfare contributions.  There’s also the “opportunity cost” of foregone earnings when people enter university instead of the labour market.

Given these long-term economic costs, do the long-term economic benefits of having a higher education make it worthwhile?  As the latest issue of the OECD’s brief series Education Indicators in Focus details, analyses based on the most recent year of available data – 2007 for most countries – suggest that the return on investment is very good.

For example, the long-term economic advantage of having a tertiary degree instead of an upper secondary degree, minus the associated costs, is over USD 175 000 for a man and just over USD 110 000 for a woman, on average across OECD countries. The payoff is particularly strong for men in Italy, Korea, Portugal and the United States, where obtaining a higher education degree generates a long-term benefit of more than  USD 300 000 for the average man, compared to a man with an upper secondary education only.

Meanwhile, the advantage for women is strongest in Ireland, Korea, Portugal, Slovenia, the United Kingdom, and the United States, where having a tertiary education yields an average long-term benefit of USD 150 000 or more, compared to a woman with an upper secondary education.

As the chart above shows, OECD analyses also find that the long-term payoff on the amount of taxpayer funds used to support people in higher education generates a strong return.  Taxpayer costs include funds used to lower the direct costs of higher education to individuals, as well as support for grant and loan programs.  They also include indirect costs, such as foregone tax revenues and social contributions to the government while people are in university.

On average, OECD countries directly invest more than USD 30 000 in public sector funds to support an individual pursuing higher education.  However, they’ll recoup this investment – and then some – through greater tax revenues from these higher-educated people, as well as savings from the lower level of social transfers these people typically receive.

On average, OECD countries will receive a net return of USD 91 000 on the public costs to support a man in tertiary education – more than three times the amount of the public investment. In Belgium, Germany, Hungary, Slovenia and the United States, this return is especially high, topping USD 150 000.  The net return on the public costs to support a woman in higher education is somewhat lower – USD 55 000, on average – but are still positive in almost every OECD country.

Of course, the fallout from the global economic crisis will likely change this cost-benefit equation – but whether it will make it better or worse overall is unclear. For example, the higher unemployment rates spurred by the crisis are likely to have reduced the opportunity cost of foregoing work in order to attend university.  However, they also may have reduced some of the benefits of having a higher education, because unemployment rates rose among tertiary-educated people during the crisis.

Likewise, the continued global expansion of higher education could have different effects.  As the supply of highly-educated individuals grows, the relative economic benefits of having a tertiary education may go down over time.  However, if economies continue to become more knowledge-based – increasing the demand for highly-educated people even more – the economic benefits of higher education could continue to expand.

For more information
On the OECD’s education indicators, visit:
Education at a Glance 2011: OECD Indicators www.oecd.org/edu/eag2011
On the OECD’s Indicators of Education Systems (INES) programme, visit:
INES Programme overview brochure
See also: IMHE General Conference 2012 "Attaining and Sustaining Mass Higher Education", Paris, 17-19 September 2012

Chart Source: Education at a Glance 2011: OECD Indicators, Indicator A9 (www.oecd.org/edu/eag2011).
Note: Data for Australia, Belgium and Turkey refer to 2005. Data for Italy, the Netherlands, Poland,
Portugal and the United Kingdom refer to 2006. All other data refer to 2007.
Countries are ranked in descending order of the net present value.

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Understanding youth, unemployment and skills in Africa

by Denielle Sachs
McKinsey Social Sector Office

For those working on employment issues, one thing is clear: the tense imbalance between the demands of the labor market and the supply of appropriately skilled workers is reaching its breaking point. Last week, the McKinsey Global Institute launched, The world at work: jobs and skills for 3.5 billion people. The report found that by 2020 there could be as many as 40 million too few high-skill workers and up to 95 million too many low-skill workers out in the job market.
Avoiding such massive imbalances will require a radical approach to accelerate education and skills building, and to boost job creation for less-skilled workers. Anything less and we will see a growing shortage of high-skill workers, persistent joblessness for many low- and middle-skill workers, rising income inequality, and distressingly high rates of youth unemployment. The numbers are clear: by 2030, the world will have as many as 1 billion workers without even secondary education, and most of them will be living in India, South Asia and Africa.

A lot of institutions are looking at these issues , including OECD and their recently launched Skills Strategy. As part of our ongoing research on youth unemployment and the skills-jobs mismatch, we asked a few experts what a solution might look like for young people in Africa where the under 25 represent three-fifths of sub-Saharan Africa’s unemployed population, and 72 percent of the youth population lives on less than $2 a day.

First, we have to understand who we mean when we talk about the young and out-of-work in Africa. Fred Swaniker, Founder and CEO of the African Leadership Academy, tells us that, on average, she is an 18-year-old girl, living in a rural area, literate but not attending school. To his mind, entrepreneurship – both the technical skills and the mindset — is the answer. It should be an integral part of every child’s education whether that schooling be formal or informal.

 For the Chief Economist for the World Bank’s Africa Region Shantayanan Devarajan, the answer lies in productivity. “The challenge of youth employment in Africa is not just to create more wage and salary jobs but to increase the productivity, and hence earnings, of the majority of young people.” This can only happen by “first, increasing their basic skills, which they can take with them when they move to new enterprises; and second, creating jobs in the formal sector by improving the economy’s competitiveness, so that this sector can absorb more qualified workers into a productive workforce.”

In South Africa, a very specific socio-political context post-apartheid, Thero Setiloane, CEO of the Business Leadership South Africa, explains that access to education and the quality of that education (“Only 35 percent of the children in third grade are able to pass the literacy and numeracy tests.”) are major stumbling blocks. His preference is for a joint government-business solution. “Business must work with government to adapt the school curriculum… so that young people leave school ready for work. Training programs must be tailored to demand…We also need to build in incentives for businesses to address the social-capital deficit in poor communities.”

Moataz Al Alfi, CEO of the Egypt Kuwait Holding Company could not agree more. Coming from the Middle East where the “paradox of the labour markets”, as he calls it, is perhaps at its worst, he calls for “a solution that requires a strong partnership between business, with its urgent need for skilled workers, and government, which is charged with educating young people.” The region currently has the highest youth unemployment rate in the world, at 25 percent. And, on the heels of the Arab Spring, and in the midst of the lingering economic crisis, it is only expected to rise.  He too returns to the issue of a failing education system that does not prepare young people for the jobs that the market desperately needs to fill.


Join the debate and register for our online panel event on June 26th at 8am EDT //2pm CEST , featuring experts from the OECD and IFC
See also: OECD Skills Strategy
Visit our interactive portal on skills: http://skills.oecd.org
OECD Development Centre
Photo credit: African youth / Shutterstock
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The role of unions in developing a skilled workforce

by Randi Weingarten
President, American Federation of Teachers

As we slowly recover from the worst economic recession since the 1920s, labour markets around the world remain turbulent. We are facing more social and economic inequality with wages stagnating and many people dropping out of the workforce entirely.

How can the American Federation of Teachers and other trade unions around the world help?

First, unions should be viewed as part of the solution, not as something to overcome. Labour-management collaboration is essential to developing skilled workers and, in turn, to creating better jobs and higher salaries. Workers need to be represented at the bargaining table and—regardless of the trade or profession—unions can be an important partner. That is the key to developing a flexible, smart workforce ready and equipped to be full partners with management.

If our workforce is going to thrive in the 21st century, we need to begin by changing much about our approach to education—from inside the classroom and larger school environment, to how we care for children, to how labour and management work together across the world.

In every country, a flourishing economy requires a strong education foundation as well as the ability to innovate and to communicate. It also requires teachers who are prepared and supported on every level and who are invested in helping students succeed in school and in life.

In Singapore, for example, where I spent time with teachers and students earlier this year, schools are focused on growth and achievement. However, as I observed numerous diverse groups of children deeply engaged in learning, I saw nothing that could be construed as “teaching to the test”—something that educators in the United States continue to contend with. In Singapore and in other countries with high-performing education systems, schools have listened to their teachers and collaborated with them to ensure the best education practices are implemented.

Additionally, the OECD can work with education unions to collaborate on important skills-developing issues, including:
  • Global teaching standards—These include guidelines to ensure high-functioning, well-prepared, continuously improving teachers in every classroom. However, teachers cannot do this alone. They should be given the continuous support and respect they deserve –which, in large part, means treating education as a shared responsibility.
  • Educational  equality—We can address issues of educational inequality worldwide through expanding and enhancing the successful efforts of countries in which every child receives a good education regardless of economic status. We also need to level the playing field for poor children by ensuring the availability of early childhood education and wrap-around services. We can address these issues before they become significant obstacles to learning.
  • Curriculum—Ensuring a well-rounded, robust curriculum that prepares students for the future is essential to advancing workforce preparation. A child’s studies should focus on accessing and sorting information to solve complex problems and develop higher-level thinking skills, as opposed to finding answers to simple questions learned by rote. Businesses can help prepare students through mentoring and internships, while at school we can offer more project-based learning to ensure the mastery of skills sets.
  • Models of collaboration—The OECD and unions can disseminate examples of labour and management working together to solve problems. Sharing best practices and successful partnerships can help lead to greater and more effective co-operation.
Education by itself will not address the jobs crisis, nor can education by itself address inequality. But without education, the fight for jobs and fair societies cannot be won. We’re excited to take part in the process.

Trade Union Advisory Committee to the OECD (TUAC)
American Federation of Teachers
See also: OECD Skills Strategy
Visit our interactive portal on skills: http://skills.oecd.org
More blogs with Randi Weingarten:
‘An obligation to systematise success’
‘Internationalist, not isolationist’
Photo credit: Child hands on top of each other / Shutterstock

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Urban studies

by Marilyn Achiron
Editor, Directorate for Education
To many people, the phrase “inner-city schools” is synonymous with crumbling buildings, frustrated teachers, disengaged students, truancy and violence. In some urban areas, though, city schools and the students who attend them flourish. In fact, three of the top five performers in reading in the PISA 2009 survey—Shanghai, Hong Kong and Singapore—are large cities. So are big cities a boon or a bane for education?

The latest edition of PISA in Focus presents new analyses suggesting that, in some countries, students in large cities—defined as those with over one million inhabitants—score on a par with their top-performing peers in PISA. For instance, students in urban areas in countries like Portugal and Israel, countries that tend to perform around the OECD average in PISA, compare favourably with students in Singapore; and the performance of students in Poland’s urban areas compares easily with that of students in Hong Kong.

But in Belgium, the United Kingdom and the United States, the performance of students in large urban areas drags down overall country scores in PISA. This might be because, in these countries, not all students can enjoy the advantages—including a rich cultural environment, more school choice and good job prospects after leaving school—that large urban centres offer. Some of these students may come from socio-economically disadvantaged backgrounds, speak a different language at home than the one spoken at school, or have only one parent to turn to for support and assistance.

However, these new analyses of PISA data also show that an urban environment’s impact on learning is not just related to socio-economic advantage or disadvantage. Even when comparing students of similar backgrounds in OECD countries, those attending schools in urban areas in Chile, the Czech Republic, Germany, Italy, Mexico and Turkey scored more than 45 points higher—the equivalent of more than one year of formal schooling—than their peers in rural schools. In Hungary, the performance gap between the two groups of students was more than 70 score points wide.

What these analyses tell us is that in order to join the ranks of PISA best-performers, countries may have to provide targeted support to isolated rural communities to ensure that students attending schools in these areas reach their full potential, while those countries whose city-based students underperform will have to figure out how to both embrace a heterogeneous student population and enable these students to tap into the cultural and social advantages that large urban areas offer.

For more information:
on PISA: www.pisa.oecd.org
PISA in Focus: Are large cities educational assets or liabilities?
Photo credit: City student / Shutterstock

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A Curriculum for the Next Billion

by Charles Leadbeater
Author of Learning from the Extremes and Innovation in Education: Lessons from Pioneers Around the World, published by Bloomsbury with the support of the The Qatar Foundation’s WISE initiative.
Today, global companies are fascinated by the prospect of what the World Economic Forum calls ‘the next billion’ – the future consumers of the developing world whose income is rising from around $2 a day to between $5 and $7 a day. Most of these people are recently arrived in rapidly expanding cities, often living in the poorest areas: every month about 5 million people in the developing world move to cities.

If we were to look at these families as parents and learners, what kind of education will they be looking for? Or to put it another way, if we were to design a curriculum with ‘the next billion’ what would they want?

Having spent much of the last three years visiting a wide variety of education projects in cities across the developing world, it strikes me that the first thing that people want is facility with a global language, usually English, but also in some places Spanish and, in others, Mandarin. They want a language that will give them access to people and jobs linked to global networks and trade – a business hotel, a job in retail, manning a phone in a call centre – rather than confining them to ply their trade in purely local markets.

Next they want a mastery of basic mathematics, the ability to understand numbers and do fairly basic sums, like working out discounts or more complex applications like planning a production schedule. Maths is foundational to much else that people need, and want. to learn.

The third ingredient is digital literacy. People need to be able to work competently and capably with computers, and not just the basics of the Microsoft world of Word and Excel, but increasingly the world of the web and social media, apps and programming. They need to be comfortable with having to learn, and learn again, as technology changes.

None of that, however, is worth very much unless they are skilled at working together with other people. So the fourth thing their education needs to give them is a well-grounded experience in social skills so they know how to respond to customers and work well with their colleagues, to find collaborative solutions to problems. Some of those skills are social and relational, based on empathy and sympathy. But others are more about collaborative self-government, which is why it is so important that education provides children with ample, structured, challenging opportunities to work together, in groups, on projects which they can make their own. As social media spreads so it will open up ever more opportunities for people to find one another and come together to achieve common goals. Citizens will need to learn how to make the most of these technologies, for better government, richer culture and more successful businesses.

All of this needs to be married to entrepreneurial and creative capacity, by which I mean the ability to spot an opportunity, mobilise support to take it, learn how to take risks and recover from setbacks. Most of the ‘next billion’ will find themselves working in small entrepreneurial companies. Studies of the urban poor show that many have to hold down two or three jobs to survive. Their education needs to help them become micro-entrepreneurs, adaptive and resilient, fleet of foot. Learning to juggle work if, not balls, is a key skill.

The slim core skills set out above might provide the starting point for thinking about the kinds of skills all young people might need in the years ahead, in the developed and the developing world.

Yet that is only at best half the story. Setting out what people should learn is just the starting point. How they learn is almost as important. Effective learning needs to be a structured, well-designed, highly engaging activity which challenges and stretches young people as well as supporting them and building their confidence. It needs to pull people to it, by the laws of attraction. Too much of the time at school it is the other way around: people are pushed into learning they do not really understand and cannot make meaningful.

To be motivating learning needs to be intrinsically satisfying and to offer at least the distant prospect of a pay-off: a better job; a practical skill; a useful way of thinking.

Achieving that will mean that learning will have to become more connected to, if not located in, the real world of work and production. The most impressive and attractive places to learn in future, in the developed and developing world, will give young people ample opportunities to design and make, produce and sell things, with their hands and their heads. They should go to school to learn by working and having fun. They should study by making and building rather than sitting and listening.

Too often education is seen as a pristine preparation for a later career. Work is held at bay for as long as possible. I doubt we can afford that distinction in the future in which education increasingly seems to be losing touch with the real world that young people live in – and the real world seems increasingly unwilling to give them the jobs they crave. We need learning to give young people a real sense of what creative, satisfying, productive work can be, so they can take those standards and expectations into their later working life.

All innovators succeed by challenging ingrained conventional wisdom. Breaking down the barriers between work and learning will be one of the chief opportunities for educational innovators in the decades to come, especially if they want to meet the needs of the next billion parents and children entering formal education.

Innovation in Education: Lessons from Pioneers around the World
See also: OECD Skills Strategy
Photo credit: Population of our World in Colour / Shutterstock

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Erasing the “bright red dividing line” between education and work

by Marilyn Achiron
Editor, Directorate for Education
Central to the OECD Skills Strategy, which was released last week, is the idea that developing people’s skills and ensuring that those skills are used effectively on the job is everybody’s business—governments, employers, employees, trade unions and students. So who better to discuss the business of skills development than a business leader? Phil O’Reilly, Chief Executive of Business NZ, New Zealand’s largest business advocacy group, was in Paris this week to attend the OECD Forum. Calling the Strategy “an immaculate document” that “points out the complexity of what we’re dealing with”, O’Reilly makes a strong case for the importance of developing “soft” skills in today’s global labour market. “We all obsess about mathematics and science skills,” he says, “but cultural skills do matter.”

What do today’s employers look for in prospective employees? According to O’Reilly, businesses want good citizens working for them. “People who can read and add and think critically—and who can also act accordingly, like by voting; or getting up to give a seat to an older woman: that shows courtesy and the ability to think of others. Even showing up at a demonstration: that shows passion.”

These “soft” skills, defined as emotional intelligence, the ability to work in a team, and to communicate effectively, are largely taught by parents and by communities. While O’Reilly calls “hard” skills—literacy, numeracy, skills in using information and communication technologies, and what are called STEM skills (those in science, technology, engineering and mathematics)—the “ticket to ride” for today’s employees, “those skills will only be considered as good as the ability of someone to use them effectively in a particular place at a particular time,” he says. “Employees with both hard and soft skills are highly valued.”

For many people right now—young people just starting out in the labour market, or older workers who, for one reason or another, have not participated in the workforce for a while—just getting that first—or new—job is a struggle. O’Reilly suggests that these transitions can be eased dramatically if employers, governments and education systems work together to “break down the bright red dividing line between compulsory education and work.“ That can be accomplished, he says, by creating “pathways” between the two worlds, in the form of internships and apprenticeships. “We need to get students and employers to rub up against each other intellectually,” he says. “We need to narrow the gap between the end of compulsory education and the next experience”, whether that is work or continuing education or training, “because skills will deteriorate if we don’t.”

Information is crucial. The idea is not to tell students what to do, but to “give them and their parents information about what they need to do to get to where they want to be,” whether that is becoming an architect or a plumber. “We need to make sure students have enough information so that they can make an informed choice.”

In short, he says, “policy makers and businesses need to be talking about skills needs so that employers and workers are at the centre of the system, rather than being victims of the system.”

Photo credit: Office corridor /Shutterstock

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