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Does education still pay?

26 September 2012

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Today’s post is from Dr Neil Lee, senior economist at The Work Foundation.

Youth unemployment is reaching crisis point in many countries. The financial collapse of 2008/9 and the weakness of the subsequent recovery have made it harder for young people to make the first step into the labour market. Unemployment rates have risen across the OECD. Some in the media have claimed that there is a crisis in graduate unemployment, and that education may not be worth the cost. And a cursory glance at the statistics would seem to support this point of view: across the OECD, unemployment rates have increased for those with higher education from only 3.3% to 4.7% between 2008 and 2010.

Yet if the labour market is difficult for those with higher education, it is far worse for those without. As the OECD’s Education at a Glance report – released last week – makes clear, education is more valuable than ever. For those without an upper secondary education, unemployment across the OECD has increased from 8.8% to 12.5%. Education matters, and increasingly so.

Given that the supply of highly educated workers has increased hugely over the past 30 years, why hasn’t the demand for educated workers declined? One answer is structural change in the economy. As we move to an economy based on knowledge rather than physical production, the demand for workers who can create, use and disseminate knowledge has increased. The economic crisis accelerated structural change, with weak industries closing and marginal jobs reduced.

Alongside this is the related issue of technological change. Skilled workers who can use and – to a lesser extent – produce technology are increasingly in demand. And globalization, or the increase in trade between countries, is also a partial explanation, meaning that low-skilled workers in advanced economies have fewer job opportunities – but that workers in other parts of the world often have more.

Young people without education have been caught between these trends. And where low-skilled employment has increased, it has been in low-waged service work. While manufacturing has declined as a source of employment, services have become more important, with the result that even the skill requirements for entry level work has changed. Large plant manufacturing gave young people opportunities to ‘learn on the job’, meaning that it mattered less if young people lacked the soft skills to work – they could enter the labour market and develop them.

Yet in service based economies, young people without soft skills are caught in a “Catch 22”: it is hard to develop soft skills without experience of work, but they cannot find employment without soft skills. In many countries, including the UK, these two processes have led to long-term increases in youth unemployment, particularly for those with less education.

So what are the answers?

Firstly, the public debate needs to abandon the myth that there are too many graduates, or that education is not worth it. The facts directly contradict this and it is vital that neither policymakers nor young people themselves begin to believe it.

Secondly, it is important to provide young people with a ‘soft landing’ into the labour market – the opportunity to develop workplace skills alongside formal education. Countries with low levels of youth unemployment, such as Germany or the Netherlands, are often good at this. In the Netherlands, many young people work part-time whilst still in education. This allows them to develop workplace skills in the areas of teamwork, punctuality and customer service without getting caught in a ‘Catch-22’.

Thirdly, we need continued efforts to ensure young people from any background have the chance to gain higher education. The OECD’s Education at a Glance report contains some startling findings on differences in attainment for young people of different backgrounds. On average across the OECD, young people whose families have low levels of education are less than half as likely to be in higher education compared to the average.

However, some countries perform better on this measure than others – chances are better for a young person from Australia than the UK. And one of the key drivers of this is attainment while at school: countries that are better at educating children in school fare better when it comes to translating this into higher education.

Youth unemployment is a major challenge across the OECD, with rates especially high for those with fewer qualifications. Governments need to respond across a number of fronts, but at the heart of the problem is education. Increasing educational attainment, particularly amongst disadvantaged groups, will be the key to addressing the long-term challenge of youth unemployment.

Useful links

OECD work on employment

OECD work on education

 

 

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