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University educated workers and their ability to deal with Covid-19 and future shocks

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Covid-19 has disrupted the lives of workers around the world: layoffs, reduced hours (furloughs), and lower wage rates. The writings of the late Nobel Laureate, Theodore Schultz, offer insight into how workers’ educational attainment may determine their fate. In agricultural communities and post-World War II economies undergoing technological change, Schultz observed that educated workers were better at learning new skills and adapting to different work conditions. 

Research from the financial crises of the 1990s and the late 2000s global recession provide support for Schultz’s thesis. Notably, rates of return to university education (versus secondary education) increased in Argentina, Indonesia, Pakistan, and South Africa during the crises years. In particular, workers without university degrees suffered larger earnings losses relative to workers with university degrees. 

The emerging data from the US and Europe during Covid-19 provides further support for Schultz’s thesis: the unemployment rate for those with university degrees rose less than the unemployment rate for those without university degrees. These patterns are likely to be even stronger in low- and middle-income countries because of the larger differences in technology education provided in schools versus universities. As a result, university educated workers in low- and middle-income countries are far better at adapting to work-from-home technologies, or shifting to jobs that require technological skills.  

Such differences in the abilities of workers to adjust to Covid-19 disequilibria have implications for income inequality: the incomes of university educated workers will drop modestly while the incomes of less educated workers will drop substantially. Research suggests that these widened income gaps persist and have intergenerational consequences on educational attainment and income. 

A key lesson from Covid-19 is that governments must do more to prepare workers for future shocks. The Covid-19 experience reinforces the case for continued government support for colleges and universities; indeed, short-term strategies of cutting higher education budgets will result in large long-term costs of supporting workers unable to deal with future crises. At the same time, governments have to promote critical thinking skills (instilled through a liberal arts education) and technology education that better prepares workers for the shocks that we are likely to experience in the coming years.

© Tazeen Fasih, Harry Patrinos, and Najeeb Shafiq  

Tazeen Fasih is Lead Economist, and Harry Patrinos is Practice Manager, at the World Bank, USA.
Najeeb Shafiq is Professor of Education, Economics, and International Affairs at the University of Pittsburgh, USA.

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