Why do most employees with university 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 employees, businesses and economies flourish, while others falter.
The education benefits a nation: Globalisation and international trade require countries and their economies to compete with each other. A country’s economy is made up of various industries that have different advantages and disadvantages in the global marketplace. The level of education and training of a country’s workers is a major factor in determining just how well the country’s economy will do.
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 such as geography and available resources also play a role.
For the economy
Many countries have placed greater emphasis on developing an education system that can produce workers able to function in new industries, such as those in the fields of technology and science. This is partly because older industries in developed economies were becoming less competitive, and thus were less likely to continue dominating the industrial landscape.
A country’s economy becomes more productive as the proportion of educated workers increases since educated workers are able to carry out tasks more efficiently that require literacy and critical thinking. As stated earlier, better-educated workers tend to be more productive than less educated ones. However, obtaining a higher level of education also carries a cost. A country doesn’t have to provide an extensive network of colleges or universities in order to benefit from education, it can provide basic literacy programmes and still see economic improvements.
Countries with a greater portion of their population attending and graduating from schools see faster economic growth than countries with less-educated workers.
For businesses, an employee’s intellectual ability can be treated as an asset. This asset can be used to create products and services which can then be sold. The more well-trained workers employed by a firm, the more that firm can theoretically produce.
The bottom line
The knowledge and skills of workers available in the labour supply is a key factor in determining both business and economic growth. Economies with a significant supply of skilled labour, brought on through school education as well as training, are often able to capitalise on this through the development of more value-added industries, such as high-tech manufacturing.
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Adapted from: Investopedia.com