The economic importance of education

Nothing is more important for the long-term prosperity of individuals and entire societies

than a good education, both for the broader population and for the most capable.

Education imparts the skills and knowledge which allow people to apply and develop new concepts, which in turn produce innovation and technological progress. To the extent that competencies, skills, and knowledge increase individual production, the better educated individuals will have higher earnings. In addition, education can fuel long-term economic growth by helping and by increasing macroeconomic productivity.

What is education economics?

Education is about how it affects economic prosperity not only of individuals but society as a whole. For instance, industries such as can help society by creating jobs related to the services they’re offering.

Education and macroeconomic prosperity

Educational performance of the people, as measured as competencies in international student tests, for example, is truly the most significant factor of lasting economic development.

The influence of educational services on economic growth is extremely robust; it persists even if other factors that are important for economic growth are also added, such as openness to international trade, property security, the location in the tropics, fertility, or capital.

Furthermore, once the educational performance is taken into account in the growth model, the mere number of years of education turns out to be meaningless. In other words: education only has an economic impact to the extent that it actually imparts higher skills. It is not enough just to hit the school or university bench; what matters is what you have learned.

The relationship could in principle also be the other way round: countries with strong economic growth can equip their schools better and therefore achieve higher educational performance. Or third factors not considered, such as cultural differences or economic framework conditions, could be responsible for the connection by improving both economic growth and educational performance.

Education and Individual Wealth

Better education pays off not only for society as a whole but also for everyone. From an individual perspective, the higher the educational level, the lower the risk of unemployment, and the higher the earned income. A good education can be the best solution to unemployment.