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.

Links:
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.

Links:
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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