The Impact Of Education On Economic Development – As the labor supply increases, the wage rate experiences downward pressure. If the demand for labor does not keep pace with the supply of labor, then wages usually fall. An oversupply of workers is particularly harmful to workers in industries with low barriers to entry for new workers—that is, those with jobs that do not require a degree or any special training.

Conversely, industries with higher education and training requirements tend to pay workers higher wages. The increased wages are due to a smaller labor supply able to operate in those industries, and the required education and training which carry significant costs.

The Impact Of Education On Economic Development

But how is a country’s education system related to its economic performance? Why do most workers with college degrees earn so much more than those without degrees? Understanding how education and training interact with the economy can help explain why some thrive while others falter.

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Globalization and international trade require countries and their economies to compete with each other. Economically successful countries will possess competitive and comparative advantages over other economies, although an individual country rarely specializes in a particular industry.

A typical developed economy will include different industries with different competitive advantages and disadvantages in the world market. The education and training of the country’s workforce is a major factor in determining the performance of the country’s economy.

A successful economy has a labor force capable of operating industries at a level where it has a competitive advantage over the economies of other countries. States may try to incentivize training through tax breaks, providing facilities for training workers, or a variety of other measures designed to create a more skilled workforce. Although an economy is unlikely to hold a competitive advantage in all industries, it can focus on a number of industries where skilled professionals are more easily trained.

Differences in training levels are a significant factor that separates developed and developing countries. Although other factors are certainly at work, such as geography and available resources, having better trained workers creates economy-wide spillovers and positive externalities.

How Education And Training Affect The Economy

An externality can have a positive effect on the economy thanks to a well-trained workforce. In other words, all companies benefit from the externality of a skilled labor pool from which to recruit. In some cases, the skilled workforce may be concentrated in a specific geographic area. As a result, similar businesses may cluster in the same geographic area because of the same skilled workers—an example is Silicon Valley.

Ideally, employers want productive employees and require less management. Employers must consider many factors when deciding whether or not to pay for employee training, such as:

Businesses may find employees unwilling to receive training. This can happen in union-dominated industries, as increased job security can make it harder to hire skilled professionals or fire less skilled workers. However, unions may also negotiate with employers to ensure that their members are better trained and thus more productive, reducing the likelihood of jobs being moved abroad.

Many employers require employees to stay in the office for a certain amount of time in exchange for paid training, eliminating the risk of newly trained employees leaving once their free course ends.

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Employees increase their earning potential by developing and perfecting their abilities and skills. The more they know about the role of a particular job and a particular industry, the more valuable they become to an employer.

Workers may want to learn advanced techniques or new skills to compete for higher wages. Generally, workers can expect their wages to rise, but by a smaller percentage than employers’ productivity increases. The employee must consider several factors when deciding whether to enter a training program, such as:

Employers may pay for all or some of the training expenses, but this is not always the case. Also, an employee may lose income if the program is not paid and he is unable to work as many hours as before.

In some states, an employer may not be responsible for covering the cost of job training. Employees must be paid for training time, unless the course takes place outside normal working hours, is unrelated to work, the employee is not performing other work at the same time, and attendance is voluntary.

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Many countries have placed greater emphasis on developing an education system that can produce workers capable of functioning in new industries, such as science and technology. This is partly because older industries in developed economies have become less competitive and are therefore less likely to continue to dominate the industrial landscape. Also, a movement has grown to improve the basic education of the population, based on a growing belief that all human beings have a right to education.

When economists talk about education, the focus is not solely on workers obtaining college degrees. Education is often divided into specific levels:

A country’s economy becomes more productive as the proportion of educated workers increases because educated workers can more efficiently perform tasks that require literacy and critical thinking. However, obtaining a higher level of education also comes at a price. A country does not have to provide an extensive network of colleges or universities to benefit from education; It can provide basic literacy programs and still see economic improvements.

Countries with a greater proportion of their population attending and graduating from school see faster economic growth than countries with less educated workers. As a result, many countries provide funding for primary and secondary education to improve economic performance. In this sense, education is an investment in human capital, similar to an investment in better equipment.

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The ratio between the number of children of formal high school age enrolled in school to the number of children of formal high school age in the population (known as the enrollment ratio) is higher in developed countries than in developing countries.

The enrollment ratio differs as a measure from the calculation of education expenditures as a percentage of gross domestic product (GDP), which does not always correlate strongly with the level of education in the country’s population. GDP represents the output of goods and services for a country. Therefore, spending a high percentage of the GDP on education does not necessarily guarantee that the country’s population is more educated.

For businesses, an employee’s intellectual capacity can be considered an asset. This property can be used to create products and services that can be sold. The more skilled workers employed by a firm, the more the firm can theoretically produce. An economy where employers treat education as an asset is often referred to as a knowledge-based economy.

Like any decision, investing in education involves an opportunity cost for the employee. The hours spent in the classroom mean less work time and income. Employers, on the other hand, pay higher wages when the tasks required to complete a job require a higher level of education. In other words, although the worker’s income may be lower in the short term, the salary is likely to be higher in the future after the training is completed.

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The cobweb model helps explain the effects of workers learning new skills. The model shows not only how wages change when workers learn a new skill, but also how the supply of workers is affected over time.

The model shows that as workers learn a new skill, higher wages occur in the short run. However, as more workers are trained over time and enter the workforce to chase the higher wages, the supply of trained workers increases. Ultimately, the result is lower wages due to an excess supply of workers. As wages fall, fewer workers are interested in these jobs, which leads to a reduction in the supply of workers. The cycle begins again with the training of additional workers and raising their wages in the short term.

Since training and education take time to complete, changes in demand for certain types of workers have different effects in the long and short run. Economists model this shift using a cobweb model of labor supply and labor demand. In the model below, labor supply is analyzed in the long run, but changes in demand and wages are seen in the short run as they move toward long-run equilibrium.

In the short term, the increase in demand for workers with better training leads to an increase in wages above the equilibrium level (Graph A). We can see the change in the increased demand (D2) and where it crosses W2 which represents the increased wage. However, L, which represents the short-run labor curve, also crosses W2 and D2.

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Instead of the wage increase being along the long-run labor supply curve (S), it is along the shorter-run labor supply curve (L). The short-run curve is more inelastic because there are a limited number of workers who have or are able to immediately train to the new skill set. As more and more skilled workers become available (Graph B), labor supply shifts to the right (L2) and moves along the long-run labor supply curve (S).

With the increase in the availability of new workers, there is downward pressure on the wage rate, which falls from W2 to W3 (Graph C).

Because of a decrease in the wage rate, fewer workers are interested in training for

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