Working Smarter: Education and Productivity

Issues related to a “skills” strategy, or perhaps more accurately a “high skills” strategy, appear to be near the top of the public policy agenda. Internationally, for example, the United Kingdom’s Chancellor of the Exchequer, Gordon Brown, indicated recently that he was “very much focused on the problems that arise for productivity and social cohesion if there is not a sufficient opportunity for people to get the skills necessary” (Riddell and Webster 2002). This statement was followed a few days later by the largest real increase in educational spending to occur in the UK in a few decades together with programs to increase both quality and accessibility. In Canada a similar argument seems to be motivating several public initiatives. The skills and learning agenda of the federal government’s innovation strategy “rests on the principle that in the knowledge economy, prosperity depends on innovation which, in turn, depends on the investments that we make in the creativity and talents of our people.” Underpinning these policies is the idea that skills, produced in large part through formal education, are crucial to increasing productivity and economic competitiveness. Despite this clear policy direction, there are challenges to the value placed on education by both the individual and the country. After clarifying a few conceptual issues, I will evaluate these challenges and explore the evidence for them in relation to recent research on the link between education and productivity. I will address three sets of evidence. First, from a microeconomic perspective, I will consider the causal impact of education on individual-level earnings, which has long been considered a measure of at least marginal productivity. Then I will look at the impact of education on national productivity as reflected in economic growth per capita. Finally, I will turn to issues related to the Canadian education system (or systems, as there really are many). Since the education system generates the skills that are — barring the above-mentioned challenges — believed to be determinants of productivity, issues surrounding it are of direct relevance. Given that the focus of this paper is productivity, the discussion that follows will centre on economic/financial measures of the return T H E R E V IE W O F E C O N O M IC P E R F O R M A N C E A N D S O C IA L P R O G R E S S | 2 0 0 2 Working Smarter: Education and Productivity