A degree of impact: measuring the true economic worth of higher level skills


Today is A-level results day in England, Wales and Northern Ireland, which follows on from earlier results in Scotland.

The UK Government has duly published a report showing that all those young people frantically applying for available university places, in what is called ‘Clearing’, are doing the right thing.

The report backs up comments often made by the Universities Minister, David Willetts, that lifetime earnings from gaining a degree are at a significant premium compared to lower level qualifications. A parallel paper published today by the Minister’s department (see same link) looks across a sample of 15 countries. Many of these happen to do well on their share of national universities in the top 100 world ranking.

Source: Times Higher Education Supplement and NiGEM database. BIS RESEARCH PAPER NO. 110. AUGUST 2013.

The above figure from the paper shows that the Netherlands comes out on top when compared by overall population – in contrast, Finland, often lauded as one of the best school systems in the world, has no universities in the top 100, though one of the highest rates of participation in tertiary education – the UK is on a par with the USA and Canada, and does better than Austria, Denmark, France, Germany, Italy and Spain within the EU. There are issues about the accuracy and worth of such world rankings, but the place of the Netherlands is of interest further down this post.

Of more interest, the paper itself goes on to look at econometric data showing the impact of tertiary education on GDP and labour productivity across these 15 countries over the period 1982-2005, all with reference to the UK. Conclusions? According to the paper:

“With the UK share of the workforce with a university education having increased by 57% between 1994 and 2005, our estimates suggest this will have raised UK long-run productivity by 11-28%. This means that at least one-third of the 34% increase in labour productivity between 1994 and 2005 can be attributed to the accumulation of graduate skills in the labour force. ”

You need to read the details to understand that there are many modelling assumptions behind this simplified statement. But the overall message is that producing more, better quality graduates can have an impact on UK economic growth. This will clearly vary according to the differing significance of industrial/service sectors at both national and local levels.

The same exercise now needs to be done for applied/vocational qualifications so that we can get a better idea of their potential contribution to UK productivity. The Minister wants to justify a degree to those A-level students who will be paying higher university tuition fees, but at the same time his department is promoting alternative routes into employment, such as higher level apprenticeships.

The paper puts the Netherlands in the lead again on another set of data: average labour productivity (ALP) over most of the period examined. It was only overtaken at the start of the new Millennium by the USA, with Germany and France catching up. By contrast, even though ALP has improved in the UK, it has continued to lag behind these 4 nations. One can’t help but speculate that this might relate to a more extreme academic vs vocational divide within UK society and its education system.

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