Despite the evidence of a rough balance between graduate supply and demand, based on existing trends, there is a strong and widespread belief that an increasing number of graduates, and thereby an increase in the nation's human capital, will lead to increased productivity and therefore economic growth. New Growth Theories make the case that education policy can impact economic growth in a decisive way. The key contention of New Growth Theories is that a more highly skilled worker is a more productive worker. The logic of the argument is then very appealing. An increase in skills produces an increase in productivity, which in turn produces an increase in GDP per head, thereby achieving the ultimate aim - economic growth.
Apart from any economic considerations, there are very strong non-economic arguments for increasing both investment and participation rates in higher education. Firstly, as participation in higher education continues to increase, and the opportunities for non-graduates continue to decrease, the strength of the social case for widening participation becomes increasingly compelling. Otherwise, social inequalities are likely to remain, and be reinforced. Realistically, participation is likely to widen only in a period of expansion of participation.
Secondly, there is ample research evidence of wider benefits to society arising from higher education (such as health benefits and enhanced social cohesion through active citizenship) which provide good reasons for investing in higher education. If higher education is considered as a social as well as an economic good, then it is clear to see the benefits of further increasing participation in higher education.
Even putting on one side the difficult question of the extent to which higher education may increase the potential productivity of graduates - skills and knowledge do not, in themselves, necessarily add value, unless and until they are combined with a number of other critical factors which ensure that they are being utilised in such a way that impacts productivity. Increased high-level skills are a necessary but not a sufficient condition to increase productivity. And, to the extent that increased skills would contribute to an increase in productivity and economic performance in the UK, a convincing case has been made by many researchers that the deficit is less likely to be the availability of high-level skills but more likely their utilisation by employers.
"(Going to university) it's an investment that gets you better jobs, better prospects, much more exciting career opportunities and therefore we've got to persuade middle classes, working classes as well as the traditional elite that this is good for them as well as good for Britain." (Margaret Hodge speaking on BBC 1's "On The Record," 17 November 2002).
The theory behind high skill resulting in high productivity is that a highly educated worker will be more efficient, more flexible and more able to generate and apply new technology (Heijke and Muysken, 2000). Some New Growth Theories (Neo-classical Endogenous Growth Theories) would even go so far as to say that not only is a high-skilled person more productive, but he/she can also have a positive impact on the productivity of those people around him/her.
On the present pattern of activity, the economy will continue to need a gradual increase in the number of graduates. However, this increase is of the same order as has occurred over the past decade. The graduate supply projected recently by the Institute for Employment Research – based on population growth, and static participation rates leading to increased stock of graduates in the workforce of 2.3 million by 2010 - has suggested a continuing balance between supply and demand to 2010. The increase in participation now projected will increase graduate supply further, but only slightly: at most it may add a further 100,000 graduates or so to the 2.3 million already projected. Bearing in mind the inherent uncertainties in projecting demand, the best estimate remains for a broad balance between supply and demand by the end of the decade.
For businesses, there is no single route to competitive advantage, through "upskilling." A wide debate is required about how to encourage companies to choose a high-skill, high-reward strategy. Although this vision for our economy will require an increasing number of highly skilled workers if it is to succeed, it will not be driven just by increasing the number of graduates entering the labour market, in isolation of other factors. Recent research publications by the Treasury, and DTI show a welcome recognition of the factors that need to be brought into play in order to achieve the Government's economic strategy. Low levels of total factor productivity (reflecting low levels of innovation and less effective use of technology) and capital intensity have been identified as the key issues in this country - above labour force skills.
Technological changes and growing internationalisation over the past 20 years have brought about significant changes to the structure of employment in all advanced industrial economies. This has increased the demand for highly skilled labour while reducing the demand for less-skilled labour in this country
This discussion poses the question whether overall economic policy, and the associated transition to a high value-added economy throughout industry and commerce, is matching the Government’s commitment to the expansion of higher education. It seems clear that the availability of high level skills is a necessary but not a sufficient condition to improve our productivity and economic performance. What is also clear is that if the increasing graduate output sought by the Government and predicted in the most recent projections is not to lead to wasted resources and disappointed expectations, it is absolutely essential that low levels of total factor productivity and capital intensity are addressed, so that high level skills are utilised effectively in a way that impacts productivity.
Bibliography:
- Nicholas Barr, (1993), The Economics of the Welfare State, chapter 13, pages 320-358. ISBN 0-19-877581-4
- John Sloman, (1997), Economics, London: Prentice Hall Europe, chapter 17, pages 500-570. ISBN 0-13-568056-5
- Alison Wolf, (2002), Does Education Matter, London. ISBN 0-14-0228660-8
Journal References:
- Behrman, Jere R. and Nevzer Stacey. The Social Benefits of Education. Ann Arbor: The University of Michcigan Press, 1997.
- Wolfe, Barbara and Robet Haveman. “Accounting for the Social and Non-Market Benefits of Education” in the Contribution of Human and Social Capital to Sustained Economics Growth and Well-being. Vancouver: University of British Columbia Press, page 221-250.
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