Education and human capital

Education shows great resilience to shocks—labor demand for highly skilled workers has remained high in all kinds of economic conditions. Public policy for education and human capital includes increasing the economic and social returns on education, fostering greater educational attainment, encouraging social and economic mobility, and providing vocational education, training, and lifelong learning.

  • The boom in university graduates and the risk of underemployment

    Better information on university quality may reduce underemployment and overeducation in developing countries

    Gustavo A. Yamada, July 2015
    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.
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  • Do higher levels of education and skills in an area benefit wider society?

    Education benefits individuals, but the societal benefits are likely 
even greater

    John V. Winters, March 2015
    Formal schooling increases earnings and provides other individual benefits. However, societal benefits of education may exceed individual benefits. Research finds that increased average education levels in an area are correlated with higher earnings, even for locals with relatively little education. Science, technology, engineering, and mathematics (STEM) graduates appear to have 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.
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  • Does homeownership affect education outcomes?

    Homeownership facilitates investment in human capital, though direct effects on education outcomes are unclear

    Stephen Whelan, April 2017
    Homeownership has important economic implications for society and individuals. At the social level is the greater civic engagement that homeowners tend to exhibit, while at the individual level an important outcome associated with housing tenure is better education outcomes, especially for children. The causal impact of tenure, in particular of homeownership, on education is mediated through a range of mechanisms. Evidence for the direct benefit of homeownership itself is less clear, though positive impacts associated with homeownership are stronger for low-income households.
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  • Is the return to education the same for everybody?

    While a four-year college degree is financially beneficial for most people, it is not necessarily the best option for everyone

    Douglas Webber, October 2014
    A postsecondary degree is often held up as the one sure path to financial success. But is that true regardless of institutional quality, discipline studied, or individual characteristics? Is a college degree always worth the cost? Students deciding whether to invest in college and what field to study may be making the most important financial decision of their lives. The return to education varies greatly by institutional quality, discipline, and individual characteristics. Estimating the returns for as many options as possible, and making that information as transparent as possible, are paramount in helping prospective students make the best decision.
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  • The role of preschool in reducing inequality

    Preschool improves child outcomes, especially for disadvantaged children

    Jane Waldfogel, December 2015
    Children from disadvantaged families have lower levels of school readiness when they enter school than do children from more advantaged families. Many countries have tried to reduce this inequality through publicly provided preschool. Evidence on the potential of these programs to reduce inequality in child development is now quite strong. Long-term studies of large publicly funded programs in Europe and Latin America, and newer studies on state and local prekindergarten programs implemented more recently in the US, find that the programs do improve outcomes for young children, particularly for those from disadvantaged families.
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  • What is the economic value of literacy and numeracy?

    Basic skills in literacy and numeracy are essential for success in the labor market

    Anna Vignoles, January 2016
    Even in OECD countries, where an increasing proportion of the workforce has a university degree, the value of basic skills in literacy and numeracy remains high. Indeed, in some countries the return for such skills, in the form of higher wages, is sufficiently large to suggest that they are in high demand and that there is a relative scarcity. Policymakers need robust evidence in order to devise interventions that genuinely improve basic skills, not just of new school leavers entering the market, but also of the existing workforce. This would lead to significant improvements in the population that achieves a minimum level of literacy and numeracy.
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  • The impacts of shortening secondary school duration

    Shortening secondary school duration may increase the skilled workforce in aging societies

    Stephan L. Thomsen, July 2015
    The main goal of secondary school education in developed countries is to prepare students for higher education and the labor market. That demands high investments in study duration and specialized fields to meet rising skill requirements. However, these demands for more education are in opposition to calls for early entry to the labor market, to lengthen working lives to meet the rising costs associated with an aging population and to enable the intergenerational transfer of skills. One way to lengthen working lives is to shorten the duration of secondary school, an option recently implemented in Canada and Germany. The empirical evidence shows mixed effects.
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  • How do adult returns to schooling affect children’s enrollment?

    Raising future expected monetary gains to schooling and poor families’ current incomes promotes school enrollment in developing countries

    Kenneth A. Swinnerton, October 2016
    Universal completion of secondary education by 2030 is among the targets set by the United Nations’ Sustainable Development Goals. Higher expected adult wages traced to schooling may play a major role in reaching this target as they are predicted to induce increased school enrollment for children whose families wish to optimally invest in their children’s future. However, low incomes and the obligation to meet immediate needs may forestall such investment. Studies suggest that school enrollment in developing countries is positively correlated with higher expected future wages, but poor families continue to under-enroll their children.
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  • What effect do vocational training vouchers have on the unemployed?

    Vouchers can create a market for training but may lengthen participants’ unemployment duration

    Anthony Strittmatter, November 2016
    The objective of providing vocational training for the unemployed is to increase their chances of re-employment and human capital accumulation. In comparison to mandatory course assignment by case workers, the awarding of vouchers increases recipients’ freedom to choose between different courses and makes non-redemption a possibility. In addition, vouchers may introduce market mechanisms between training providers. However, empirical evidence suggests that voucher allocation mechanisms prolong the unemployment duration of training participants. But, after an initial period of deterioration, better long-term employment opportunities are possible.
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  • How can temporary work agencies provide more training?

    Staffing agencies could play a more prominent role in the provision of training for the low qualified and previously unemployed

    Alexander Spermann, April 2016
    Temporary work agencies use training as a recruitment and retention argument when qualified labor is scarce. However, short job assignments present a major obstacle for employers and employees to increase investment in training. As temporary agency workers are mainly low-qualified and often previously unemployed, paid work in combination with training should lead to more sustainable employment. Adjustments in labor market institutions could make the provision of training more attractive for both staffing agencies and temporary agency workers.
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