The return to investment in education


Remarks by Angel Gurría, OECD Secretary-General, for the launch of Education at a Glance 2009

OECD Conference Centre, Paris, 8 September 2009

Every year, Education at a Glance takes stock of where countries stand with their education systems and of the progress they have made towards raising educational performance.

This year’s edition comes at a time when all eyes are focused on addressing the financial crisis and its human and social consequences. It comes at a time when countries are working to boost their innovative capacity. And at a time when we are facing the most important global challenge of our lifetimes: the fight against climate change.

Education is part of the solution to all of these challenges. And this report confirms the importance of investing in human capital, both for individuals and for society as a whole.

Let me share with you very briefly some interesting reflections and conclusions from this report, before passing the word to Bernard and Eric, who will provide you with more detailed analysis. The first result of this study is the link between education and pay. Men with degrees earn on average USD 186 000 more over their working lives. This “degree premium” exceeds USD 300 000 in countries such as Italy and the United States.

Of course, you need to offset this extra earning against the cost of education to both society and individuals, including the “opportunity cost”, or the lost income while people study. But even taking that into account, the net public return from an investment in tertiary education averages USD 52 000 for men and USD 27 000 for women.

The incentives for people to stay on in education are likely to rise over the next few years given the economic environment. That is because the opportunity costs for education decline as the difficulties of finding employment increase. Lost earnings while studying, not tuition, tend to be the largest of all cost component for students. Also, graduating and entering the labour market in an economic downturn is more difficult, as employers cut jobs and young graduates compete with more experienced workers.

In fact, we have experienced a large jump in youth unemployment in most OECD countries. In some countries, young workers have unemployment rates 3 or 4 times higher than the average. Young people entering the labour force face increasing difficulties finding a job, even when they have attained higher levels of education.

This, together with tight budgets, means that public and private investment in education is being increasingly scrutinised. That is inevitable, and healthy. OECD countries spend more than 6% of GDP in education. About a seventh of total public expenditures goes to education. Maintaining that level of spending will require a demonstration that education systems provide good value for money. And that there is a good balance between the cost and benefits to education for both the government and individuals.

This sustained spending has meant that the volume of educational activity has expanded at an unprecedented pace. On average, university graduation rates have virtually doubled from 20% in 1995 to 39% in 2007. And because the pace of change has been so different across countries, the composition of the global talent pool has changed too: At one end of the spectrum, Finland improved its relative performance from Rank 10 in 1995 to Rank 3 in 2007. Conversely, the United States dropped from Rank 2 in 1995 to Rank 14 in 2007, not because its graduate output declined, but because it rose so much faster in so many other countries.

For a long time, we have been asking ourselves how long can this continue without leading to an “inflation” of qualifications in the labour-market? Will one day everybody have a PhD and work for the minimum wage? Well, one of the interesting findings is that, despite the significant rise in educational levels, most countries are still seeing rising earnings advantages for university graduates. This suggests that knowledge still conveys an important advantage in labour markets.

Conversely, the less-well qualified are facing deteriorating job prospects. Across OECD countries, 42% of those without an upper secondary qualification are not employed. Young people with lower qualifications who become unemployed are also more likely to spend a long time out of work: in most countries, over half of low-qualified unemployed 25-34 year-olds are long-term unemployed.

Furthermore, if the demand for education and qualifications continues to rise as labour market prospects weaken, the vulnerability of older, often less qualified, adults to chronic long-term economic inactivity may also become more acute.

With lifelong learning more essential than ever, public policy needs to ask how adequately education and training systems are also addressing the learning needs of older adults who are in need of new skills.
Our data also show that, while opportunities for continuing education and training are often designed to make up for deficiencies in initial education, the reality is that participation among people with strong initial qualifications is significantly higher than among the least qualified, such that these opportunities often do not reach those who need them most.

Last but not least, as far-reaching as the labour market impacts of the crisis are, the potential social consequences may last even longer. For the first time, we have been looking at the social outcomes of education, where the focus on three aspects that reflect the health and cohesiveness of societies: self-assessed health, political interest and interpersonal trust. The data show that all of these social outcomes have a positive and close relationship to educational attainment. People who complete upper secondary education are much more likely to report good health than those who do not. Increase in political interest and the belief that most people try to be fair are in contrast more related to the attainment of a tertiary level of education.

The lesson from all this is clear. Governments will not address these challenges with more of the same education, but education systems need to do a much better job in providing more equitable educational opportunities.

Of course, Education at a Glance is not just about the outcomes of education. This year’s edition therefore provides a more comprehensive picture of spending on education than ever before. One thing we have tried to add this year, is to not just compare how much governments spend on education, but also how they make trade-offs between, for example, better pay for their teachers, smaller class sizes, longer school days, and longer working days for teachers. Korea, for example, invests in high salaries to attract the brightest into the teaching profession and gives its teachers ample time for other things than teaching. It pays for this with very large class sizes. France, in contrast, puts its priority on long school days and saves on teacher salaries.

These are important policy issues. And we hope the wealth of information provided by this report will help policy makers make the right choices. Education is an investment on the future of our societies. We need to get it right.

Thank you, ladies and gentlemen.