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Effect of Education on Economy

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Text Preview How Education And Training Affect The Economy
February 25 2012| Filed Under » Economics, Post-Secondary Education, Young Investors Why do most workers with college degrees earn so much more than those without? How does a nation's education system relate to its economic performance? Knowing how education and training interact with the economy can help you better understand why some workers, businesses and economies flourish, while others falter.

See: Keeping Up With Your Continuing Education

As the labor supply increases, more pressure is placed on the wage rate. If the demand for labor by employers does not keep up with the supply of labor, then the wage rate will be depressed. This is particularly harmful for employees working in industries that have low barriers to entry for new employees, i.e. they do not have high education or training requirements. Industries with higher requirements tend to pay workers higher wages, both because there is a smaller labor supply capable of operating in those industries and because the required education and training carries significant costs.

The Advantages of Education to a Nation
Globalization and international trade requires countries and their economies to compete with each other. Economically successful countries will hold competitive and comparative advantages over other economies, though a single country rarely specializes in a particular industry. This means that the country's economy will be made of various industries that will have different advantages and disadvantages in the global marketplace. The education and training of a country's workers is a major factor in determining just how well the country's economy will do. The study of the economics of training and education involves an analysis of the economy as a whole, of employers and of workers. Two major concepts that influence the wage rate are training and education. In general, well-trained workers tend to be more productive and earn more money than workers with poorer training.

Training
A successful economy has a workforce capable of operating industries at a level where it holds a competitive advantage over the economies of other countries. To achieve this, nations may try incentivizing training through tax breaks and write offs, providing facilities to train workers, or a variety of other means designed to create a more skilled workforce. While it is unlikely that an economy will hold a competitive advantage in all industries, it can focus on a number of industries in which skilled professionals are more readily trained.

Differences in training levels have been cited as a significant factor that separates rich and poor countries. Although other factors are certainly in play, such as geography and available resources, having better-trained workers creates spillovers and externalities. For example, similar businesses may cluster in the same geographic region because of an availability of skilled workers (e.g. Silicon Valley).

For Employers
Employers want workers who are productive and require less management. Employers must consider a number of factors when deciding on whether to pay for employee training. * Will the training program increase the productivity of the workers? * Will the increase in productivity warrant the cost of paying for all or part of the training program? * If the employer pays for training, will the employee leave the company for a competitor after the training program is complete? * Will the newly trained worker be able to command a higher wage? Will the worker see an increase in his or her bargaining power? While employers should be wary about newly trained workers leaving, many employers require workers to continue with the firm for a certain amount of time in exchange for the company paying for training. Businesses may also face employees who are unwilling to accept training. This can happen in industries dominated by unions, since increased job... Show More

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