Do qualifications create wealth?

Does education make us richer? A ridiculous question perhaps, but the belief that educational achievement leads to economic growth is strongly held by many politicians despite all evidence to the contrary.

The recent Department for Education press release claiming that recent increases in the number of 16 year olds with 5 A*-C at GCSE including English and Maths will ‘add £1.3Billion  to the economy’ was a particularly egregious example of this.

As the research shows, people with the qualification earn more than those without. In this case the economic return is an average lifetime earnings boost of £60,000 per person. The methodology is flawless and the data indisputable. What seems shaky is to extrapolate economic growth forward from improved academic achievement. Just multiply £60,000 by the number of extra young people achieving the qualification and, hey presto: £1.3Billion! It is a big leap from a possible personal earning boost to a prediction of growth in collective wealth.

To see how ridiculous these claims are, imagine that nothing changes except that all of a sudden nearly everyone has the qualification in question, in this case 5 A*-C at GCSE including English and maths. Would the number of jobs or the resource available to pay people increase as a result? Clearly not. All that would happen is that employers would find new ways to establish which applicants might be the most skilled or competent employees and use different criteria to select people.

At one level, our economy obviously relies on potential employees or entrepreneurs having a good basic level of skills which should be taken for granted. If education was not guaranteeing these there would clearly be a problem. At the other end, it may also be true that better qualified workers are more likely to innovate and do more of the things which create economic growth. But at a time when many skilled people don’t even have the opportunity to get jobs it seems like a pretty tenuous proposition that simply having more qualified people will somehow galvanise a stagnant economy or create wealth. People are more likely to contribute to innovation or growth once they’ve got a job and acquired some job-specific experience and skills.

The economic return of a qualification for someone who has it compared to someone who doesn’t is only real in an equilibrium, stable state. If employers are using qualifications which are not universally held to select for a limited number of jobs then these qualifications become ‘positional goods’ amongst people competing for these jobs. But if a higher proportion of people have this qualification, it starts to lose its scarcity value and therefore its value as a sorting device. It may represent an excellent educational achievement but it has lost its usefulness as a tool for selection or promotion.

Alison Wolf analyses the returns to education arguments very effectively in chapter 2 of Does Education Matter? (2002):

“Should (governments) take the higher incomes of the more educated as a signal that education breeds wealth and so growth? Most policy-makers appear to believe precisely that. But in fact you can’t use the link between education and earning to predict anything about future growth. The higher incomes of the more educated don’t, in themselves, tell you anything except that the educated are doing better than if national income were shared out equally.”

More recently, Thing 17 in Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism (2010) is ‘More education in itself is not going to make a country richer’. The Cambridge professor of political economy says:

“There is remarkably little evidence showing that more education leads to greater national prosperity. Much of the knowledge gained in education is actually not relevant for productivity enhancement, even though it enables people to to lead a more fulfilling and independent life…What really matters in the determination of national prosperity is not the educational levels of individuals but the nations’s ability to organize individuals into enterprises with high productivity.”

As educators we are naturally well disposed to anything which makes the case for more education. We see the good that acquiring knowledge and skill can do and we want to advocate for more of a good thing. But we need to be careful about the evidence we use to make our case. There is a danger in arguing for education because it increases our job prospects or our incomes, makes us healthier or live longer.

The problem is that while these correlations may well be true, relying too heavily on them can undermine the case that education is self-evidently a good thing. It can lead us to rely on these instrumental justifications and then to have to quantify them to keep making our case.

It also encourages politicians to make claims about the economic benefits of education which can be turned against us. If education really is the engine of economic growth, it can also be blamed when the economy is failing and we get the phenomenon of vocational courses being scapegoated for both unemployment and skill shortages.

We shouldn’t fall for this abuse of statistics or the displacement activity which follows. Our unadorned case is that a good education is the bedrock of a civilised society. It is a good thing because it helps people to understand their world and their past, to live fulfilled and meaningful lives, to contribute to society and leave a positive legacy for the future.

And that should be enough.

See also:

Exam success boosts the economy by £1.3 Billion?

About Eddie Playfair

I am a Senior Policy Manager at the Association of Colleges (AoC) having previously been a college principal for 16 years and a teacher before that. I live in East London and I blog in a personal capacity about education and culture. I also tweet at @eddieplayfair
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2 Responses to Do qualifications create wealth?

  1. Ian Ashman says:

    Whilst I agree with Eddie about the importance of recognition of the value of education for itself. I believe there is a strong case showing the positive correlation between investment in a skilled workforce and economic growth. In particular, this is shown in the work of the Centre for Cities in their annual City Outlooks (latest published today).

    I quote: ‘UK cities are the primary generators of jobs in the UK economy. Yet the number and types of jobs on offer varies significantly between UK cities, reflecting in part huge differences in skills profiles and levels of educational attainment between different places. To attract business investment in the future and support further job creation, UK cities must focus on improving the skills of their residents.’

    In my view, this focus is all the harder, given a 30%+ cut in the funding of classroom based education for adults by BIS during the current, with the next 11%+ cut for 2015/16 coming down the tracks.

    It may be the case ‘that a good education is the bedrock of a civilised society’ but I believe that strong investment in education leaves the economy, as well as wider society in better shape.


    • Thanks for the comment Ian. The City Outlook seems to say that having a more skilled workforce can help to attract new jobs and I’m sure this is the case when investors are considering where to locate jobs. I also agree that we need to invest more in the education and training of young people and adults generally. My point was that we can’t assume that a more qualified workforce automatically generates wealth, all other things being equal.


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