Education and labor policy

In recent decades, the number of university students worldwide who have received some part of their education abroad has been rising rapidly. Despite the popularity of international student exchange programs, however, debate continues over what students actually gain from this experience. A major advantage claimed for study abroad programs is that they can enhance employability by providing graduates with the skills and experience employers look for. These programs are also expected to increase the probability that graduates will work abroad, and so may especially benefit students willing to pursue an international career. However, most of the evidence is qualitative and based on small samples.

Many countries around the world are making substantial and increasing public investments in children by providing resources for schooling from early years through to adolescence. Recent research has looked at how parents respond to children’s schooling opportunities, highlighting that public inputs can alternatively encourage or crowd out parental inputs. Most evidence finds that parents reduce their own efforts as schooling improves, dampening the efficiency of government expenditure. Policymakers may thus want to focus government provision on schooling inputs that are less easily substituted.

Formal schooling increases earnings and provides other individual benefits. However, societal benefits of education may exceed individual benefits. Research finds that higher average education levels in an area are correlated with higher earnings, even for local residents with minimal education. Science, technology, engineering, and mathematics (STEM) graduates appear to generate especially strong external effects, due to their role in stimulating innovation and economic growth. Several strategies to test for causality find human capital externalities do exist.

Common proxies, such as years of education, have been shown to be ineffective at capturing cross-country differences in skills acquisition, as well as the role they play in the labor market. A large body of research shows that direct measures of skills, in particular cognitive and socio-emotional ones, provide more adequate estimations of individuals’ differences in potential productive capacity than the quantity of education they receive. Evidence shows that cognitive skills in particular are quite relevant to explain wages, while socio-emotional skills are more associated with labor force and education participation decisions.

The role of social interactions in modifying individual behavior is central to many fields of social science. In education, one essential aspect is that “good” peers can potentially improve students’ academic achievement, career choices, or labor market outcomes later in life. Indeed, evidence suggests that good peers are important in raising student attainment, both in compulsory schooling and university. Interventions that change the ability group composition in ways that improve student educational outcomes without exacerbating inequality therefore offer a promising basis for education policies.

Teachers are perhaps the most important determinant of education quality. But what makes a teacher effective? Developing countries expend substantial resources on certifying teachers and retaining those who become certified; moreover, policymakers and aid donors prioritize increasing the prevalence of certified teachers. Yet there is little evidence that certification improves student outcomes. In fact, augmenting a school's teaching corps with contract teachers hired outside the civil service and without formal qualifications may be more effective in boosting student performance.