In the 2000 Lisbon agenda, the European Council documented the needs for investments in education and training to close the skills gap as one of the leading challenges facing the European Union (European Commission 2000; European Council 2000). To address this challenge, it is crucial to deeply understand the processes which underlie the accumulation of human capital, both in the education system and in the process of lifelong learning. Despite the important role of knowledge in the economics of education and the growing awareness in Europe, the state of European research in the economics of education is quite dissatisfactory. Just in 2000, Psacharopoulos (2000, p. 92) observed that “European research on the economics of education lags considerably behind the US,” and he even ventured to say that due to the work of international organisations, “more research has been done on the economics of education in developing countries than in Europe.”
In recent years, the research situation on the economics of education in Europe has already slowly started to improve, not least due to support by the European Union. For example, the TSER research project PURE (“Public Funding and Private Returns to Education”), funded by the European Commission, has recently yielded empirical estimates of the effect of education on wages in the different European labour markets (cf. Harmon et al. 2001), and the follow-up TSER project EDWIN (“Education and Wage Inequality”) looks at the effect of education on wage inequality in Europe. Studies commissioned by the Commission’s Directorate-General for Employment and Social Affairs have analysed the relationship between human capital and economic growth in a global and knowledge-based economy (cf. de la Fuente and Ciccone 2002; de la Fuente 2003). And a paper written for a Visiting Fellowship at the Commission’s Directorate-General for Economic and Financial Affairs has investigated the determinants of students’ educational performance in European countries (cf. Wößmann 2003). The EENEE network comprises researchers from all these previous studies, and it will build on the knowledge and experience gained in these studies to further develop the economics of education in Europe. An additional sign of the improving condition of research on the economics of education in Europe is the fact that as many as 8 sessions and altogether at least 34 papers have been devoted to topics in the economics of education at the 2003 joint Annual Congress of the European Economic Association and European Meeting of the Econometric Society, particularly by young researchers. This is an enormous increase relative to previous years.
The results of the previous EU-supported projects, and some additional descriptive statistics, can highlight why education is so important to achieve the economic and social objectives set up in the Lisbon strategy, and what European research on the economics of education can contribute to improved decision-making in education in Europe. The labour-market returns to education estimated in the PURE project, depicted in Figure 1, show the microeconomic importance of education for productivity and wages:
Figure 1: Rates of return to education in Europe (Weighted average for men and women, year closest to 1995)
Source: Based on Harmon et al. (2001) and de la Fuente (2003).
These estimates show that each additional year of education goes hand in hand with, for example, a 10.9% increase in wages in Ireland, or of slightly more than an 8% wage increase averaged across the European countries. Furthermore, education pays not only from an individual perspective, but also for the economy as a whole. De la Fuente (2003) estimates that each additional year of average educational attainment raises macroeconomic productivity by a direct 6.2% in the average EU country and by a further 3.1% in the long run through its contribution to faster technological progress.
Not only is education related to higher wages, productivity and growth, but also to lower unemployment. Figure 2 depicts unemployment rates by level of education in the different European countries. It shows that in all countries with high unemployment, the rates differ strongly by education levels, and high unemployment is everywhere really only an issue of people without tertiary education. For example, 14.2% of Germans with less than an upper secondary education are unemployed, but only 2.6% of Germans with tertiary education.
Figure 2: Unemployment rates by level of education in Europe (30- to 44-year-old males, 2001)
Source: Based on OECD (2002).
Educational expenditures are also a large burden for public budgets. They make up at least 10% of all public spending in nearly all European countries, and as much as 15% in Norway and Denmark (OECD 2002). Relative to GDP per capita, educational expenditure per student roughly stands at between 20% and 35%.
While these indicators reflect quantitative education levels, in many respects the quality of education – how much students learn each year – is currently the more relevant margin for improvements of education in most European countries. Wößmann (2003) estimates how family background, school resources and institutional features of the school systems affect one qualitative measure of education, namely students’ performance on the cognitive achievement test TIMSS (Third International Mathematics and Science Study). As one example of the results he reports, Figure 3 plots European countries’ average educational performance against a measure of the size of the effect that family background has on students’ performance in each country. The size of the family-background effect can be viewed as a measure of the equality of educational opportunities for children from different backgrounds. As there does not seem to be a clear relationship between average performance and the size of the family-background effect across European countries, the cross-country pattern suggests that there is no apparent trade-off between achieving efficiency in educational production and equality of educational opportunity. This is good news for governments aiming to jointly achieve both economic efficiency and social cohesion.
Figure 3: Family-background effects and average student performance in Europe
Notes: a Mean performance on the TIMSS math test. – b Performance difference between students with more than two bookcases at home and students with less than one shelf of books at home, controlling for other influential variables. Source: Wößmann (2003).
All this is evidence for the potential of economics of education in Europe. It also makes clear that if the European Union wants to become “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion” (European Council 2000), it cannot afford to neglect the economics of education in Europe.
Author: Ludger Wößmann
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