Education = Economic Growth

There is one surefire way to boost growth and improve equity: improve the quality of K-12 education, says Robert Lithan in a recent Wall Street Journal article. He cites evidence that a nation’s future economic growth can be predicted by student performance. Research shows that relatively small improvements in the skills of a nation’s labor force can impact future well-being in a big way. However, because returns on educational investments are often seen only in the future, it is possible to underestimate the value and importance of improvement and allow education to slip down on the policy agenda.

Targeted investments that lead to real reforms and improvement in the quality of institutions of public education, if sustained, can lead to yield large positive effects on economic development. In fact, at some point the returns on education investment exceed any conceivable costs of improvement.

Researchers led by Eric Hanushek at Stanford University concluded, that “across 50 countries, each additional year of schooling in a country increased the average 40-year growth rate in GDP by about 0.37 percentage points.”[1] Hanushek points out: “That may not seem like much, but consider the fact that since World War II, the world economic growth rate has been around 2 to 3 percent of GDP annually. Lifting it by 0.37 percentage points is a boost to annual growth rates of more than 10 percent of what would have otherwise occurred, a significant amount.”[2]

Faster reforms will have larger impacts on the economy, simply because the better workers become a dominant part of the workforce sooner. However, even a 20- or 30-year reform plan begun in 2005 has a powerful impact. For example, a 20-year plan would yield a GDP 5% greater in 2037 (compared with an economy with no increase in educational quality). The figure also plots 3.5% of GDP, an aggressive spending level for education in many countries of the world. A growth dividend of 5% of GDP would more than cover all primary and secondary school spending. But even a 30-year reform program (not fully accomplished until 2035) would still yield more than 5% higher real GDP by 2041.[3]

In short, “the quality of education—measured on an outcome basis of cognitive skills—has powerful economic effects. Economic growth is strongly affected by the skills of workers. What people know matters.”[4]

This research is also found in Prosperity through Education: The Innovation, Accountability, and Investment Plan for Utah’s Future. Read the plan to learn more about how educational attainment levels impact Utah’s. See Eric Hanushek presentation “Improving Schools: National Lesson that Might Work for Utah,” at the plan’s launch on 10/28/2014. Read more from the Wall Street Journal here:  “How Improving Education Could Pay Off in Economic Growth”

[1] Hanushek, E.A., Jamison, D.T., Jamison, E.A., & Woessmann, L. (2008). Education and economic growth. Education Next, Spring, 66. Retrieved from http://educationnext.org/files/ednext_20082_62.pdf

[2] Ibid., 66.

[3] Ibid., 251.

[4] Ibid.