But education excellence is not just more schooling, more money spent.
The level of cognitive skills of a nation’s students has a large effect on its subsequent economic growth rate. Increasing the average number of years of schooling attained by the labor force boosts the economy only when increased levels of school attainment also boost cognitive skills. In other words, it is not enough simply to spend more time in school; something has to be learned there.
More schooling helps – each additional year adds 0.37% to economic growth rate.
First, we looked just at the impact of average school attainment on the economic growth rate. (An adjustment was made for the initial level of GDP because it is “easier” to grow if you are starting out at a lower level; that is, it is easier to copy more productive technologies than to initiate progress on your own.) When we performed this analysis, we found, as other economists before us, that when the average number of years of schooling in a country was higher, the economy grew at a higher annual rate over subsequent decades. Specifically, we found that, across the 50 countries, each additional year of average schooling in a country increased the average 40-year growth rate in GDP by about 0.37 percentage points.
Improvement in cognitive skills helps even more, about 1% increase for each half standard deviation in test scores (less than the difference between top-performing countries and the less-performing United States)
But the impact of improved cognitive skills, as measured by the performance of students on math and science tests, is considerably larger. When we performed the analysis again, this time also including the average test-score performance of a country in our model, we found that countries with higher test scores experienced far higher growth rates. If one country’s test-score performance was 0.5 standard deviations higher than another country during the 1960s-a little less than the current difference in the scores between such top-performing countries as Finland and Hong Kong and the United States-the first country’s growth rate was, on average, one full percentage point higher annually over the following 40-year period than the second country’s growth rate.
Although other factors must be considered.
Other economic research has identified two additional factors that affect a country’s economic growth rate: the security of its property rights and its openness to international trade. When those two factors are taken into account, the positive effect of cognitive skills on annual economic growth becomes somewhat smaller, but is still 0.63 percentage points per half of a standard deviation of test scores. This is the best available estimate of the size of the impact of cognitive skills on economic growth
Although the most highly skilled may dominate the innovation needed to grow, universal skills are needed to effectively carry them out.
The reasons that a substantial cadre of highly skilled citizens and near-universal basic skills matter are not difficult to imagine. Even if a country is simply making use of new technologies developed elsewhere, as is often the case in developing parts of the world, the more workers that have at least basic skills, the easier it will be for them to make use of those new technologies. Some workers need a high level of skill so they can help adapt the new technologies to their countries’ particular situation. In countries on the technological frontier, substantial numbers of scientists, engineers, and other innovators are obviously needed. But so is a labor force that has the basic skills needed to survive in a technologically driven economy.
So our education system is correctly a key component of the ARRA objectives, with some benefit short term, but the more important benefit long term. Don’t let the tax cut advocates derail one of the better investments in our economy, our human capital.