Today we publish the next article of a summer series in which Kimberley Botwright of the OECD Public Affairs and Communications Directorate looks at OECD work through a Shakespearean lens.
Last week, we spoke about the importance of skills and education for tackling youth unemployment. Love’s Labour’s Lost offers some useful pointers in this area too. The play begins with Ferdinand, the King of Navarre, encouraging his three companions to join his “little academe:”
“You three, Berowne, Dumaine and Longaville,
Have sworn for three years’ term to live with me,
My fellow-scholars, and to keep those statutes
That are recorded in this schedule here.”
Naturally, one of the companions, Berowne, protests. He wants to know what the point of all this fastidious studying is: “What is the end of study, let me know?” Doubtless, you may have felt the same way at some point in your educational career. So you’ll be pleased to know that the OECD Skills Strategy emphasises that all that effort wasn’t wasted and skills are the “global currency” of the 21st century.
But it is important to develop the right skills, least we cry out like the tiresome schoolmaster of the play, Holofernes, “O thou monster ignorance, how deformed does thou look!” He is speaking about a character named Dull, who “hath never fed of the dainties that are bred in a book. He hath not eat paper, as it were. He hath not drunk ink.”
The OECD’s Programme for International Student Assessment (PISA) can help us test the standard of reading, mathematical and scientific skills taught in schools around world by measuring the competencies of 15-year-olds. And when some 25% of firms in OECD countries are concerned about the availability of adequately trained workers, it is also important to establish an education system that gathers intelligence on the demand for future skills, so that what is taught is relevant.
Holofernes actually turns out to be the dullest person in the play, with his outdated expressions rendering him incomprehensible (and amusing). As Berowne says “So study ever more is overshot. / While it doth study to have what it would, / It doth forget to do the thing it should.”
Berowne also complains that the King is too old to pursue further learning, “So you, to study now is too late.” The double-irony of this line is that there is much the companions still need to learn, and not all of it is to be found in books – “learning that occurs outside the formal learning system” as the OECD’s Education Directorate says.
Understanding the level and distribution of skills in adult populations is the key to our modern economies, because as well as economic growth, skills affect social trust, political engagement, and health. The OECD’s Programme for the International Assessment of Adult Competencies (PIAAC) will publish data and analysis on adult learning in October 2013. The study will also highlight international patterns on adult learning, which can then be used to remove barriers to investing in further skills-development.
This is important when, depending on the country, between a third and two-thirds of the adult population lack the minimum core skills necessary to engage in further learning and function in modern economies. With rising long-term unemployment among migrants, particularly in the EU, policy measures such as language and professional training, as well as a focus on youth migrants, can make a real difference.
Once skills are developed, ensuring skills supply to the labour market is the next step. By Act II of the play, the Princess of France and her three ladies arrive in Navarre on a diplomatic mission. Instead of offering the appropriate welcome to his court, the King bids the Princess to camp in a field. We warned you that there was a lot he still needed to learn, although he may simply have forgotten courtly manners he learned as a boy but never practised. Unused skills atrophy over time, making it more difficult for people who have been out of the workforce to get back in.
Participation rates can be improved by providing affordable childcare services, as well as reforming tax systems that make work economically unattractive. Employers, trade unions, and government should work together to design more flexible working conditions, in order to make the most of a talent pool that includes people with care obligations or individuals with disabilities. A recent OECD paper notes that women’s average earnings from self-employment are up to 60% lower than men’s, citing obstacles such as cultural norms, stereotypes, time shortages and the composition of their professional network.
Finally, ensuring good skills use is also necessary, by supporting employers to make better use of employees’ skills, helping the young gain a foothold in the labour market and fostering entrepreneurship. As the Princess notes, “We are wise girls.” but the King and his companions, for all their love-sonnets and wit, fail to impress her and her ladies. Berowne comments, “Here stand I lady, dart thy skill at me” and concedes, “O, never will I trust to speeches penned, / Nor to the motion of a school boy’s tongue.”
This is ultimately a play that interrogates definitions of learning. The men eventually learn the importance of soft-skills. The Princess initially flatters the King; “I am too sudden-bold: / To teach a teacher ill beseemeth me,” but by the end, it is the King who begs the Princess, “Teach us, sweet madam, for our rude transgression some fair excuse.”
Interrogating what skills we want for today, for tomorrow, and how we are going to go about teaching and harnessing those skills also requires definition and redefinition, particularly in a fast-moving world; “Education is increasingly expected to develop new ways of thinking, involving creativity, critical thinking, problem-solving and decision-making; new ways of working, including communication and collaboration; new tools for working, including the capacity to recognise and exploit the potential of new technologies; and, the capacity to live in a complex world as active and responsible citizens.”
Alternatively, we could eat paper and drink ink.
OECD work on skills
OECD Insights Human Capital by Brian Keeley
The mathematician Stanislaw Ulam did not have a high opinion of the social sciences. He once challenged Paul Samuelson, Nobel laureate in economics, to name one social science proposition that was both true and non-trivial. Samuelson nominated comparative advantage: “That this idea is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.”
Samuelson was right. The absolute advantage Adam Smith talks about is simple and intuitive: it makes obvious sense for France to export wine to Scotland and import Scotch whisky. Comparative advantage is much more complicated. Ricardo introduced the notion in his 1817 book On the Principles of Political Economy and Taxation, using the example of England and Portugal and the production of cloth and wine. Portugal is more productive than England in both. Intuitively, you’d say that it makes sense for Portugal to export both, and that English industry would have little to gain from trade.
However, no country can develop a comparative advantage in everything because comparative advantage is a concept of the relative costs of doing things, so some things have to be comparatively more or less advantageous. Moreover all countries must have a comparative advantage in something. (You can find a good explanation of why this is the case here).
Ricardo demonstrated numerically that in fact if England specialised in one of the goods and Portugal in the other, total output of both goods would rise, allowing both countries to gain from trade.
Two centuries after Ricardo, can comparative advantage still provide useful guidance to policy makers? A new working paper from OECD’s Przemyslaw Kowalski argues that it can. Kowalski looks at what determines comparative advantage today, as part of the OECD project on The Effects of Globalisation: Openness and Changing patterns of Comparative Advantage. Kowalski analyses the bilateral trade of 55 OECD and selected emerging market economies and 44 manufacturing sectors covering the entirety of merchandise trade He examines physical capital, human capital, financial development, energy supply, business climate, and labour market institutions as well as import tariff policy.
Comparative advantage is still an important determinant of trade, but the OECD countries’ economies are more similar than they used to be, so the possibilities of trade driven by comparative advantage differences within the OECD grouping aren’t as great as they once were. However there are still marked differences between OECD and non-OECD countries, while the differences among non-OECD countries don’t seem to be diminishing much. That means that comparative advantage is more important for North-South and South-South trade than for North-North trade.
If you look at OECD and non-OECD countries as a whole, it’s interesting to see where differences have been decreasing and increasing. these differences decreased (although there are still big variations) as regards physical capital, average years of schooling, tertiary education, primary energy supply, and availability of credit. On the other hand, cross-country variation increases for regulatory quality, rule of law, control of corruption as well as import tariffs.
Most of these factors can be influenced significantly by policy. The trick is to make sure that trade and other policies don’t cancel each other out, but with so many factors interacting it’s not easy. Luckily for government policy makers, help is at hand from this year’s Nobel laureates in economics, Thomas J. Sargent and Christopher Sims.
Working separately, but in a complementary fashion, they’ ve developed methods for analysing causal relationships between economic policy and what happens in the economy. Sargent has mainly studied the effects of systematic policy shifts – such as attempts to reduce fiscal deficits – while Sims looks at how shocks spread through the economy.
Even if you’re one of those important and intelligent men who can’t grasp comparative advantage, you can probably see why the Sveriges Riksbank gave Sargent and Sims the prize this year.
Globalisation, Comparative Advantage and the Changing Dynamics of Trade collects OECD work that builds on recent contributions to the theory and empirics of comparative advantage, emphasising the role of policy in shaping trade. Click on the image to find out more and browse the book.
We all agree that Steve Jobs was a marketing genius, persuading the gullible to pay extravagant prices for bright, shiny things because they’re bright and shiny. But unlike Thomas Edison, the man Jobs is often compared to, he never electrocuted an elephant. In 1903 Edison fried Topsy from Coney Island’s Luna Park and captured the event on film.
Why? Topsy had killed three men, including her abusive trainer, and was going to be executed anyway, but Edison saw a chance to score points against his rival George Westinghouse. Edison’s company was producing electricity in over a hundred power stations by the end of the 19th century, but his DC system could only supply customers within a couple of kilometres from the plant. Westinghouse’s AC system, based on Nikola Tesla’s ideas, was capable of transmitting current over hundreds of kilometres. Edison started a “war of currents” to prove that AC was too dangerous to be allowed into homes, and killing Topsy using AC current was supposed to prove this.
Topsy died in vain of course, and elephanticide hasn’t been tried as a sales technique since, although Edison did develop the electric chair. Another Edison idea that proved successful was his Menlo Park laboratory, the first industrial research lab, working on everything from the phonograph to iron ore separators. Jobs’ genius is similar to Edison’s, if on a lesser scale, in that both men recognised then potential of improving existing products and making them widely available.
Apple actually spends less of its revenue on R&D than Microsoft or Sony (4% versus 17% and 8% respectively) but it spends far more than Sony on each individual product: $78.5 million versus 11.5 million, while Microsoft spends a lot of its $9 billion research budget on general research that may not lead to a specific product.
Jobs understood that success depends on innovation, and that doesn’t mean just invention. Innovation can mean changing a product’s composition, for example removing the cocaine from Coca Cola, or the way it’s sold – in cans or bottles from machines as well as over the counter at drugstores.
Another great American entrepreneur who understood this too was Clarence Birdseye. He didn’t just invent an industrial method of copying the Inuits’ way of fast freezing fish, he also invented much of the machinery that made mass marketing of frozen products feasible. In a stroke of marketing genius, the Birdseye company supplied shops with the open-top freezer units to display and sell their products. This has since been copied by firms the world over.
Edison, Birdseye, Jobs and the like are obviously important assets for their company. But can you measure their value in the way you measure non-human capital? An OECD project on “intangible assets”, also called intellectual capital or knowledge capital, sets out to answer that question, in order to “provide structured evidence of the economic value of intangible assets as a new source of growth”.
If you’re wondering what Topsy was worth, take a look here.
It’s September again, and in much of the world that means one thing – back to school. So, with that in mind, take a look at these three questions and see how much you know about education (answers below).
1. Generally in OECD countries, which age group is more likely to have a university-level qualification?
a. 25-34 year-olds b. 55-64 year-olds
2. Around the world, 3.3 million tertiary students study abroad. In which of these OECD countries do foreign and international students make up the biggest slice of the student population?
a. Australia b. Switzerland c. The United States
3. Between primary and tertiary education, how much do OECD countries spend per student each year (in U.S. dollars)?
a. $1,688 b. $5, 644 c. $9,195
All these questions are based on data in OECD Education at a Glance, a compendium of data and statistics on education released every September by the OECD. It covers an enormous amount of ground, including how far young people and adults have studied, the economic benefits of education, who pays for it and conditions in schools and universities, such as teaching hours and student numbers. The point of collecting the data is to give OECD countries a basis on which to make comparisons about their education systems. This is important as there can be big variations in how well students perform in individual countries, even with similar levels of investment. As OECD Secretary-General Angel Gurría said at the launch of Education at a Glance in Paris this morning, “In a global economy, it is no longer improvement by national standards alone. The best performing education systems internationally provide the benchmark for success.”
And the answers to those questions …
1 a: 25-34 year-olds ; younger people are much more likely to have been through tertiary education in OECD countries, a reflection of the expansion of university-level education in recent decades.
2 a: Australia ; more foreign students go to the United States in absolute terms, but they account for a bigger share of the tertiary student population in Australia, more than one in five.
3 c: $9,195 ; most of the money goes on salaries for teachers and other staff.
Useful Links :
Is a college degree good for your wallet? That question has been exercising minds at The New York Times.
On the one hand, as this article argues, plenty of students who start university never get a degree, which means much of their investment ends up down the drain. And, as it also points out, “college degrees are simply not necessary for many jobs”.
On the other hand, as the Times’ Economix blog points out, there’s a simple economic argument in favour of going to college: Graduates earn more. “The real pay of college graduates has risen over the past 25 years,” writes David Leonhardt. “The real pay of every other group has dropped.”
Indeed, as the chart shows, graduates enjoy a considerable “earnings premium” almost everywhere, not just in the U.S. In purely economic terms, such gaps reflect the supply and demand for education. Graduates are relatively scarce compared to non-graduates, and so can command higher wages. (Needless to say, some graduates are scarcer – and more in demand – than others.)
College graduates’ earnings premium: The chart from OECD Education at a Glance 2009 shows that college graduates consistently earn more than people who’ve only finished high school (“upper secondary education”), who are represented by the “100” line. Graduates’ earnings are shown on two bars – “Tertiary-type A” is essentially a traditional degree, taking about three or four years; “Type B” covers shorter term, more skills-based tertiary education. More data here.
So, the economic case for third-level education is strong – it’s good not only for individual prosperity but also economic growth. In recent decades, arguments like that have driven a huge expansion in university education around the world.
But there are limits to the benefits from such growth. University isn’t for everyone, and it’s perfectly possible to earn a good living without earning a degree. (If you want proof, try calling a plumber at 3a.m. and asking how much he’s charging.) And as the philosopher-cum-mechanic Matthew Crawford has written, even people who are well able for academia may find more satisfaction in labour that doesn’t require a degree: “Some people are hustled off to college, then to the cubicle, against their own inclinations and natural bents, when they would rather be learning to build things or fix things.”
Unfortunately, in recent decades the drive to add university places led some countries to reduce vocational training. That’s beginning to change, with an increasing awareness among education policymakers of the need to provide a mix of opportunities catering to both academically and vocationally minded students. Indeed, a team at the OECD has been reviewing policies on vocational training in a number of countries, and looking at their responsiveness to the changing needs of students and employers. To find out more, click here.
educationtoday – OECD’s social media site on education issues
Learning for Jobs – An OECD review of vocational education and training
Economies may be recovering, but one problem looks set to linger – unemployment . The situation is especially severe for young people (15-to-24-year-olds). Currently, there are nearly 15 million unemployed young people in OECD countries, about four million more than at the end of 2007. (Explore the numbers at the OECD Factblog.)
As the recovery gathers pace, unemployment should begin to ease. But there’s a real concern that this recession will still create a “lost generation” of young people who, as a result of being unemployed in their teens and early twenties, face a lifetime of diminished job prospects.
What’s to be done? A paper just released by the OECD explores some possible solutions. These could include providing young people with a wider range of training and education opportunities, both academic and vocational, as well as offering those who leave school early with a “second chance” to get some skills. It could also mean making changes to employment protection rules that can trap young people in short-term, dead-end jobs.
A report from High Fliers Research published in February found that half the UK final year college students they interviewed believe they’ll have to take any job they’re offered, and a quarter say they’ve been forced to apply to employers that they aren’t really interested in.
We hear stories from most countries of people taking jobs they’re over-qualified for in any recession. The Insights blog asked Glenda Quintini and Paul Swaim of the OECD’s Employment Division what the impacts were on firms, workers and the economy as a whole.
Insights: Do employment data confirm what the High Fliers report implies – graduates are taking jobs they’re over-qualified for?
Paul Swaim: There’s anecdotal evidence of course, but it’s actually quite tricky to measure the extent of over-qualification, or under-qualification or the wrong qualification, come to that. Researchers have used various proxy measures to estimate how many workers hold qualifications that appear to be a poor match for their jobs, but no real consensus view has emerged concerning how pervasive skills mismatch is in the economy as a whole. It is even harder to assess the extent to which the recession is increasing the number of graduates moving into jobs that don’t make full use of their qualifications, because detailed labour market data only become available with a considerable time lag.
Insights: How about for an individual employer – surely getting extra human capital on the cheap is a boost?
Glenda Quintini: That’s certainly what you might expect, but you have to ask what “human capital” actually means. Qualifications are one aspect, but that’s not the same as skills. A worker who’s learnt on the job, over the years, may have skills that aren’t reflected in any formal qualification. On the other hand, university graduates may vary in the skills they possess and some of them may be just as skillful as somebody who quit formal education after high school. Several studies argue that it is the less-skilled university graduates that end up in jobs that require a high school diploma.
Paul Swaim: You also have to look at the relation between earnings and productivity. If you assume that earnings do in fact reflect productivity on the current job, then there is some evidence that workers who are “over-educated” for their jobs earn somewhat more than “correctly-educated” workers in the same type of job. On the other hand, they’re probably earning less than if they were in a job normally associated with their level of education.
So employers who can hire workers who are satisfied to work in jobs they are over-qualified for may attain higher productivity than they would have got by recruiting less educated workers. While it seems likely that some employers profit from being able to hire over-qualified workers during a recession, it is hard to pick up that phenomenon in the labour market data available to us. In addition to the delay in the availability of data, which I mentioned earlier, there is also the complication that recessions tend to reduce labour productivity and profitability through a number of channels that could easily swamp any gains from an increase in over-qualification.
Glenda Quintini: Another thing you have to remember is that graduates might be happy to take any job when they’re unemployed and there aren’t so many jobs going, but once they actually start working, their attitudes can change, especially if the labour market picks up. Many studies have shown that qualification mismatch affects job satisfaction and whether people intend to stay with the firm. You could argue that mismatch damages productivity through lower job satisfaction and higher turnover.
Insights: Could productivity in the economy as a whole be affected?
Paul Swaim: Yes, but in several different ways making it hard to predict the overall effect. In the short run, it certainly is more productive for graduates take jobs they are over-qualified for rather than remaining idle. However, we should not lose sight of the fact that most of these workers would be even more productive in jobs that made full use of their qualifications and thus provide a better return on the money spent on educating them. Productivity is thus likely to suffer over a longer time horizon unless these workers move into jobs that better match their qualifications. Unfortunately, the evidence is quite mixed about how often this sort of “catching-up” occurs, once the economy begins to recover.
Insights: Any final thoughts?
Glenda Quintini: Going back to Paul’s point on wage effects, a study that derives the productivity loss economy-wide in Australia from the wage penalties experienced by mismatched workers estimates a cost of mismatch of up to 2.6% of GDP in 2005 (the paper by Mavromaras et al. (2007) is available online at http://www.iza.org/ as discussion paper No. 2837).
Employment and the crisis from the forthcoming Insights From crisis to recovery
The educationtoday blog has a post about the impact of recessions on graduate employment and earnings