1CEPS, 1 Place du Congrès, 1000 Brussels, +32 2 229 3911, http://www.ceps.eu

The Key Role of Education in Employment and Competitiveness

THE LISBON STRATEGY AND THE TRADE UNIONS ROLE PARTNERSHIP FOR BETTER JOBS

Lisbon, 7th March 2008

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Structure of Presentation:

1. Background2. Levels of Education—A Comparison of Countries3. Education and Employment 4. Education and Competitiveness5. Education and Social Cohesion6. How to achieve higher quality of education? 7. Conclusion

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1. Background

• With only two more years left it is clear that the European Union has missed the goal to become the most competitive Economy by 2010.

• All three Lisbon goals will not be achieved: i) Employment rate is less than 70%, ii) Growth rates have decreased, iii) no significant increases in social cohesion due to growing income inequalities

• Education plays a key role in all three objectives

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2. Levels of Education—A Comparison of Countries

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Figure 1Average Years of Schooling (25+)

4

5

6

7

8

9

10

11

12

13

Source: Barro and Lee data (2000) – Authors Estimations

6

Figure 2Average Years of Schooling (25+) – Regime Typologies

6

7

8

9

10

11

12

Mediterrannean Coordinated Transition Scandinnavian Liberal

Source: Barro and Lee data (2000) – Authors Estimations

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Figure 3Mean Score in “Science” in 2007 PISA Test

440

460

480

500

520

540

560

580

Portugal Spain USA Germany Finland

Source: OECD data – Authors Estimations

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Figure 4Average Years of Schooling (15+)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1960 1965 1970 1975 1980 1985 1990 1995 2000

spain

Germ any

France

Portugal

USA

Source: Barro and Lee data (2000) – Authors Estimations

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Figure 5Achievement in Education (Post Secondary, 15+)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1960 1965 1970 1975 1980 1985 1990 1995 2000

Perc

ent o

f pop

ulat

ion

with

com

plet

ed p

ost-

seco

ndar

y le

vel

Germany

Portugal

Spain

Source: Barro and Lee data (2000) – Authors Estimations

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Figure 6Achievement in Education (Post Secondary, 15+) –

Inclusion of USA

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1960 1965 1970 1975 1980 1985 1990 1995 2000

Per

cent

of p

opul

atio

n w

ith c

ompl

eted

pos

t-se

cond

ary

leve

l

GermanyUSAPortugalSpain

Source: Barro and Lee data (2000) – Authors Estimations

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3. Education and Employment

• The most visible Lisbon target, and in principle the one most susceptible to be influenced by policy remains the goal to reach an employment rate of 70 % (by the year 2010). In 2000 the implicit benchmark for the EU in setting the goal of an employment rate of 70 % was the US, which had attained this value at that time.

• Over the last years the employment rate (those employed as a percentage of the working age population) has indeed increased, by almost about 4 percentage points, from around 62 to 66%, (for the EU-15).

• However progress has been too slow to put the Lisbon target within reach by the end of the decade. Another 20 millions jobs would have to be created to reach the goal.

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Table 1 A rough Trans-Atlantic comparison

Share of population Typical

employment rates

EU-15 US EU-15 = US

Below secondary 35 15 50

Secondary 45 55 70

Tertiary 20 30 80

Source: Eurostat and OECD Labour force survey – CEPS Estimations

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Table 2What has improved since Lisbon?

Share of Population Share of Employment1999 2004 Change 1999 2004 Change

Below 39.4 35.6 -3.8 49.6 49.2 -0.4Secondary

Secondary 42.3 43.8 +1.5 69.0 70.1 +1.1

Tertiary 18.3 20.6 +2.3 81.8 82.5 +0.7

Overall NA NA NA 62.0 64.5 +2.5

Source: Eurostat and OECDLabour force survey – CEPS Estimations

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Figure 7 Employment rate with respect to Levels of Education in EU15

40

45

50

55

60

65

70

75

80

85

90

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Total

PrimaryLevel

SecondaryLevel

TertiaryLevel

Source: Eurostat - Authors Estimations

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Key Findings• The tables show that the key problem of Europe in terms of

employment is not so much the regulation of its labour markets, but the insufficient skill levels of its population.

• The small improvement in the overall employment ratio that has taken place since Lisbon can mostly be explained by an ongoing change in the skill composition of Europe’s labour force. Labour market reform does not seem to have had any impact on employment ratios. Since the Lisbon reform the levels of education have stagnated.

• If the European work force had the same skill composition as the US (or some more advanced member countries) the employment rate in Europe could easily reach the Lisbon goal even without any labour market reforms. Even with rather rigid labour markets it leads to higher employment.

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4. Education and Competitiveness

• Societies are more and more knowledge driven

• Especially tertiary education is the key to R&D and overall technological progress, more engineers and natural scientist have to be trained for future economic prosperity. A degree of 30% of the population having tertiary education is necessary to successfully increase the R&D budget to 3%

• Education plays a key role in explaining the international variation of economic growth rates, in a global perspective but especially in the highly developed countries (OECD and EU)

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Figure 8Partial Regression Plot – Human Capital and Economic Growth

ItalyPortugal

FranceSpain

Turkey

Austria

Japan

Netherlands

Switzerland

Belgium

Australia

Mexico

Canada

Finland

Norway

Sweden

United Kingdom

Greece

Germany

Denmark

United States

Ireland

Korea, Rep.

New Zealand

-10

12

3e(

gro

wth

_15_

jahr

esdu

rchs

chni

tt | X

)

-2 -1 0 1 2 3e( education | X )

coef = .40405585, (robust) se = .1838258, t = 2.2

Source: OECD - Authors Estimations

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5. Education and Social Cohesion

• Besides associational density and income inequality, education plays an important role in explaining levels of interpersonal trust in a cross-section of countries

• Interpersonal trust can be regarded as a good proxy for the Lisbon goal of social cohesion

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Figure 9Scatter Plot between Education and Social Cohesion

Source: WVS - Authors Estimations

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6. How to achieve higher quality of education?

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UK

SF

PTIT

ES

DE

IE

SWE

DKAUFR

BE

R2 = 0.31

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

3.5 4 4.5 5 5.5 6 6.5 7

Total expenditure on education as % of GDP

Rel

ativ

e sc

ore

on P

ISA

test

(mat

hem

atic

s)

EL

Figure 10Total Expenditure on Education and Student

Achievement

Source: OECD - CEPS Estimations

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BEFR

AU DKSWE

IE

DE

ES

ITPT

SF

UK

R2 = 0.89

-80

-60

-40

-20

0

20

40

60

0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3

Index of effectiveness of government (WB)

Rel

ativ

e sc

ore

on P

ISA

test

(mat

hem

atic

s)

EL

Figure 11Government Effectiveness and Student Achievement

Source: OECD - CEPS Estimations

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7. CONCLUSION

• Stocks and quality of human capital varies substantially in the European Union. Especially the Mediterranean countries have low levels education and are achieving only low results in the PISA tests.

• Education plays a key role in increasing the Employment rate in the European Union. Labour market reforms are important but further investment in human capital is more important

• Education plays a key role in explaining long-term economic growth. Countries with higher stocks and quality of education are growing faster and are more competitive, with respect to the process of globalization

• Education is important for fostering social cohesion• Government efficiency is an important factor for the quality of

the education

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