Low skills: why worry?

Robert Peston says that the OECD's report on the low level of young English adults' numeracy and literacy skills has "worrying implications about the long-term potential of the British economy."  This skates over an awkward fact - that, in international data, it's difficult to find a strong link between human capital and economic growth.

As Bryan Caplan says, most coefficients of the impact of education on GDP are "very low." He's not the only sceptic. So is Alison Wolf. So is Torge Middendorf, who says the link between human capital and GDP is "fragile". And a survey by Krueger and Lindahl's found (pdf) that:

Education was statistically significantly and positively associated with subsequent growth only for the countries with the lowest level of education...
For countries with a high level of education growth was typically inversely related to the level of education.

Why might this be? One possibility is measurement error; measures of national educational attainment are unreliable, and in  richer countries, there just isn't much cross-country variation in long-run growth. But there are other possibilities:

1. Signalling. My education has made me richer. But it's done so by getting me well-paid jobs at others' expense. This hasn't obviously raised national income. As Bryan says, there's a rat-race element to education.

2. Institutions matter more. Years ago, P.J O'Rourke wrote: 

Why do some places prosper and thrive while others just suck? It's not a matter of brains. No part of the earth (with the possible exception of Brentwood) is dumber than Beverly Hills, and the residents are wading in gravy. In Russia, meanwhile, where chess is a spectator sport, they're boiling stones for soup.

Why, then, is Beverly Hills richer than Russia? It's because the US has had insitutions favourable to growth - freeish markets and a nodding acquaintance with the rule of law - whilst Russia hasn't.

3.Mismatch. More education can lead to over-education, to graduates being baristas.

4. Deterring investment. A large pool of workers with basic skills would bid down wages of low-skilled jobs - which is why the CBI is so keen on improving literacy and numeracy. But low wages might deter firms from investing in labour-saving equipment and techniques, which might reduce long-run growth.

Now, I don't say all this to advocate less education, but simply to question the instinctive belief that relatively low skills will consign the UK economy to weak growth; it's probably other things that'll do that.

Instead, we should perhaps worry for another reason - that learning is a good thing in itself, regardless of its economic impact. But such a view is far outside the Overton window. 

Comments

[Anonymous]

Yes, closely related to this is the spurious thesis that unemployment, particularly youth unemployment, is due to a lack of qualifications and skills. Or, in the words of economists, unemployment is a supply problem. Such a thesis leads to the blaming of the unemployed for their unemployment.

Even if all the kids leaving school had a GCSE in Maths and English (ie workforce entry requirements) there would still be mass youth unemployment. This very simple thought experiment demonstrates that unemployment is a demand problem - there are simply too few jobs for everyone, despite the "lump of labour fallacy"

[Luis Enrique]

I think it's better to think of human capital as a determinant of the level of output, not the growth rate.

this is also how (much misunderstood) growth regressions work. If you re-arrange one, you get

y_t = gamma*L.y+ beta*education

this system has a steady-state level of y = beta*education/(1-lambda)

if you raise education you will kick of transition dynamics to a new higher level of output, but there's absolutely no reason to think countries with high levels of education will be growing quickly, because they may have long since attained their steady-state.

this is actually also a potential explanation for the worrying sounding finding that our retirees are smarter than our yoof - it may just reflect the fact we developed sooner and have hit steady-state whilst other countries are still improving.

[Luis Enrique]

and why does PJ expect his readers to know Brentwood? How does he know it?

[Anonymous]

@Luis

I presumed PJ to be referring to Brentwood in California, not to our very own Brentwood in Essex.

[Jim M.]

@ Luis and Anon:

PJ may indeed have been referring to Brentwood Ca. but his words certainly resonate clearly with this old Essex boy!

TOWIE is only part-fiction, as a night out in Romford will confirm!

[Sam King-Walters]

Um. The report indicates that the educational system isn't imparting basic skills. You're trying to debunk this by referring to the weak link between educational investment and growth. You see the problem here, yes?

[FromArseToElbow]

I wouldn't say that the idea that education is a good in itself is wholly outside the Overton window - as most politicians do pay lip-service to it - but the false dichotomy is clearly between an instrumental view (we will win that global race) and a positional view (my kids will be advantaged in the national race).

The problem is that even if you manage to show the instrumental view up as wrong, counter-productive and self-interested, you are still left with the immovable object of the undoubted truth of the positional view: that education does secure social advantage.

You can be sure there are many in the private education sector, not to mention Whitehall, rubbing their hands in glee at this news (which is not really news, of course, given we've had poor levels of literacy and numeracy since 1870).

[Zorblog]

Maybe it depends the level of education you're talking about.
Maybe more education is not much helpful above some elevated threshold. But not enough education is certainly harmful when a minimum threshold is not met.
The OECD report found that one young adult out of five (or even four) could not understand the meaning of a basic text in Spain, Italy and France. It's difficult not to make a connection with the low employment of young people in those countries.

(By the way, Luis Enrique's comment looks sensible)

[rogerh]

I find it hard to believe young people have become anatomically thick. Something else then, the nice middle class kids I see are frightfully earnest - worryingly so - and their (state) schools seem much better than when I were a lad. I doubt this lot are depressing the numbers. But lower down the pile I suspect a sense of hoplessness may be dampening enthusiasm for more education. For education is slow and boring and there has to be some light at the end of the tunnel.

Possibly more kids are 'middle class' but no brighter than before and push down into the traditional working class job sector - posh(ish) plumbers and bricklayers. I do suspect HMG has soft pedalled on education for the masses - seeing little profit in it. Mass education got going in the 19thC out of a fear the Germans would outdo us, that battle is long over and now lost.

Perhaps average humans are just too thick for the high-tech information age. The robots and the smart-arses are taking over. Scum and cream always rise - but on a global scale there will be an awful lot of skim milk left behind.

[chris]

@ Sam - you're right that educations doesn't automatically translate into skills. But the OECD report (p32) says the two are "closely correlated". This means that using past educational attainment/years of schooling (as researchers must, for want of direct measures of skills many years ago) mightn't be a terrible distortion.
Even if you're right, though, the implication is that the problem can't be solved by longer (or more expensive - see Hanushek) schooling, a view with which I agree.
@ Everyone - there might be an omitted variable problem here. If work ethics differ across countries, you might expect a link between GDP and education, simply because both reflect diligence etc, even if there isn't a causal link from one to the other.

[Luis Enrique]

I just noticed I muddled my gammas and lambdas. They should both of have been the same one.

[Anonymous]

@ Luis

I thought so! Thanks for confirming.

[fake]

What are the countries with low education, I hope we are not comparing developing economy's with established ones.

?

[Stanley T]

While the lump of labour is generally a fallacy, it becomes applicable if:
- there are other cultural and institutional constraints on company start ups or small company expansions, which provide most of the new jobs. Public sector make work jobs filled the gap until the GFC, indeed may have crowded out, but that is not feasible now;
- the wrong sort of skills e.g a degree in media studies or sociology instead of German style apprenticeships

In which case more education simply raises the bar for the pool of jobs (didn't go to Oxbridge? don't bother to apply...)

There is a pervasive and very English snobbery against practical education, at its worst on the metropolitan left, which thinks that everyone should go to "Uni".