Introduction
Education is widely acknowledged to facilitate improvements in health outcomes, family planning, gender equality, and political empowerment. And since employers usually reward education well, access to decent education is also critical for ensuring equality of opportunity.
Rather than revisiting these issues (World Bank 2006 surveys them well), this chapter of Asian Development Outlook 2007 (ADO 2007) examines the role of education as a contributor to change in the structure of the macroeconomy. Education can facilitate economic transformation in at least two ways. First, education can be an important input into production, raising worker productivity in any given activity. Thus, higher levels of education should make it easier for an economy to engage in new activities. Second, it can act as a catalyst to change-empowering entrepreneurs to develop or adopt new technologies, or to introduce new economic activities.
This chapter looks at the first of these two roles of education in facilitating change. It uses large microeconomic datasets (see Bibliography and References) designed to capture the aggregate employment structure from four countries-India, Indonesia, Philippines, and Thailand. It documents what workers of different education levels do for a living, what they are paid for doing it, and how these have changed over the past decade or so. One object of the enquiry is to establish whether the numbers of workers recently trained in each country's schools and colleges are adequate to meet the demands of a changing economy. Another objective is to see whether rising education levels in these countries can be linked to the changing structure of employment, trade liberalization, and technological changes. A third is to see whether the more educated countries transformed their employment structures faster.
The results show that the four countries are creating educated workers faster than they are creating jobs in the sectors that historically hired them. This may be a positive development if countries have managed with too little educated labor in the past. But, as an empirical fact, it is leading to rising education levels across the board, including in some sectors and jobs that do not pay a premium for education, that cannot be required to compete with foreign workers, or that have not seen big changes in technology. As a consequence of this (and of historical conditions), in every job examined, education levels rank the same way across the four countries: Filipino workers are always the most educated, followed by Indonesians, Thais, and then Indians. These results suggest that in many situations, education is being acquired for reasons independent of the "requirements" of the jobs currently available.
Generalizing a little across the four countries, the economywide wage returns to basic education (the percentage increase in wages associated with completing an extra year of schooling) have fallen in every country at almost every level of the primary and secondary school system. This is, of course, consistent with the increase in enrollment and graduation rates over time. In contrast, and despite a growing supply of college-educated workers, the returns to tertiary education are rising. This implies a polarizing wage distribution. Worryingly, with the returns to basic education falling, the power of existing basic education systems to combat wage inequality has been reduced.
The results suggest that these shifts in returns are rooted in the emerging pattern of employment-a point reinforced by the analysis in the chapter Growth amid change, in Part 3 of ADO 2007. While the output of the much vaunted "knowledge economy" steams ahead (particularly in India), the employment shares of these nontraditional services are growing slowly, if at all, and from a low base. Thus the bulk of newly educated workers continue to find employment in traditional services, agriculture, construction, and where possible, manufacturing. Such workers are increasingly unemployed as well, and with greater frequency at higher education levels.
Unfortunately, the returns to basic education in agriculture (which outside the Philippines employs the majority of workers) and industry are generally only modest. In fact the returns to education in industry have fallen in all four countries, in some cases to very low levels. Growth amid change argues that industrialization is a prerequisite for growth that cannot be bypassed. The results from the current chapter suggest that industrial expansion is not being held back by a limited supply of basic education. On a more positive note, the returns to education in the aggregate services sector remain high.
Generalization, however, is fraught with difficulty, as some trends vary by country. The supply of secondary-educated workers is increasing very slowly in India, but racing ahead in the other three countries. Industry's employment share has grown recently in India and Thailand, but fallen in Indonesia and the Philippines. Manufacturing labor productivity has been stagnant since the 1970s in the Philippines (see Part 3), but only stalled in the aftermath of the Asian crisis in Indonesia. In India and Thailand, industrial labor productivity has been rising. With so many important differences, it is not obvious that returns are falling for the same reason in each country. Rigorously explaining trends and drawing general lessons is therefore very difficult. Furthermore, India and Thailand, where more jobs are being created that pay a high premium for education, will secure greater benefits from additional educated workers than will the Philippines.
Regardless of what may (or may not) be driving them, the trends themselves have implications. Falling returns to education indicate that if a lack of educated workers constrained productivity initially, then this constraint has loosened. And it has loosened most obviously in agriculture, industry, and lower-status services. Also, the results show quite clearly that as the supply of basic education expanded, jobs did not grow organically to absorb the educated. Moreover, employment structures have clearly transformed fastest in the less-educated countries - India and Thailand. Of course the reasons for this could be legion, and cannot be ascertained with a sample of only four countries. But whatever the reasons, there is little evidence from these four examples that higher basic education levels bring structural change in their wake.
The leap from these results to policy is a long one. For one thing, education is obviously intended to do much more than raise wages and facilitate new economic activities. The results of this chapter also show that the wage premiums are sensitive to a wide variety of conditions that can change rapidly for reasons independent of the school system, so long-term state and individual education investment decisions should not be based entirely on current economic conditions. Nevertheless, a realistic sense of what the current employment structure is, and how it has been changing, are important for grounding education policy planning empirically.
Conclusive empirical research in education economics is always difficult, principally because crucial variables are always unmeasured, and some may be unmeasurable. The data used in this chapter do not capture school quality or skills. Datasets measuring skills and school quality exist, but were not designed to capture employment structure, and so cannot be used in a study of structural change. Therefore, while better education probably has a major role to play in facilitating change, the issue cannot be analyzed using the data available.
Given that increasing the quantity of educated workers is not a priority for facilitating transformation, but that improving the quality of education might be, it is vital that governments and development agencies working in the field focus on systematically measuring education quality to work out whether interventions have the desired results. Similarly, labor force surveys need to collect data on school attributes so that the labor market outcomes of differently educated workers can be more fully analyzed. |
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