Education and human capital

As the number of secondary school graduates rises, many developing countries expand the supply of public and private universities or face pressure to do so. However, several factors point to the need for caution, including weak job markets, low-quality university programs, and job–education mismatches. More university graduates in this context could exacerbate unemployment, underemployment, and overeducation of professionals. Whether governments should regulate the quantity or quality of university programs, however, depends on the specific combination of factors in each country.

The goal of school tracking (assigning students to different types of school by ability) is to increase educational efficiency by creating more homogeneous groups of students that are easier to teach. However, there are concerns that, if begun too early in the schooling process, tracking may improve educational attainment at the cost of reduced intergenerational social mobility. Recent empirical evidence finds no evidence of an efficiency–equality trade-off when tracking is postponed.

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.

New Zealand is a small open economy, with large international labor flows and skilled immigrants. Since 2000, employment growth has kept pace with strong migration-related population growth. While overall employment rates have remained relatively stable, they have increased substantially for older workers. In contrast, younger workers as well as the Maori and Pasifika ethnic groups experienced a sharp decline in employment rates and a rise in unemployment around the time of the global financial crisis. Wage gains have been modest and there has been a compression of earnings differentials by gender as well as by skill.

Experiences during the Great Recession support the view that the UK labor market is relatively flexible. Unemployment rose less and recovered faster than in most other European economies. However, this success has been accompanied by a stagnation of productivity and wages; an open question is whether this represents a cyclical phenomenon or a structural problem. In addition the planned exit of the UK from the EU (Brexit), which is quite possibly the greatest current threat to the stability of the UK labor market, is not yet visible in labor market statistics.

In Germany, young people are no worse off than adults in the labor market, while in southern and eastern European countries, they fare three to four times worse. In Anglo-Saxon countries, both youth and adults fare better than elsewhere, but their unemployment rates fluctuate more over the business cycle. The arrangements developed in each country to help young people gain work experience explain the striking differences in their outcomes. A better understanding of what drives these differences in labor market performance of young workers is essential for policies to be effective

Reaching the policy goal of improving student achieve­ment by adding resources to the school system has often proven elusive. By contrast, ample evidence indicates that central exit exams constitute an important feature of a school system’s institutional framework, which can hold students, teachers, schools, and administrators accountable for student outcomes. While critics point to issues such as teaching test-only skills, which may leave students ill-prepared for the real world, the evidence does not bear this out. Overall, central exams are related to better student achievement, favorable labor market outcomes, and higher economic growth.

In many transition countries, the collapse of communism ushered in language reforms to adapt to the newfound independence from the Soviet Union and openness to the rest of the world. Such reforms may have implications for individuals’ economic opportunities, since foreign language proficiency may enhance or signal productivity in the labor market. Recent empirical evidence documents positive labor market returns to English language skills in transition countries. However, Russian language proficiency also remains economically valuable, and nationalist language policies may lead to future loss of economic opportunities.