An empirical study on the effect of education on labor productivity

Abstract

This study investigates the effect of education on labor productivity using data from the Jordanian economy. Jordan has the world’s second-highest share of refugees in comparison to its population. This fact outlines the main challenges facing efforts to provide quality education to Jordanian citizens and refugees. This study shed light on the obstacles and challenges facing education in Jordan to serve as a wake-up call for decision-makers. The study employs the autoregressive distributed lag (ARDL) model bounds testing procedure developed by Pesaran, Shin, and Smith (2001), using data ranging from 1984 to 2018. The results showed that in the long run, education has a positive and statistically significant effect on labor productivity. Inversely, in the short run, education has a negative and statistically significant effect on labor productivity. The estimation results indicate that a 1% increase in education in the long run increases labor productivity by 1.15%, and a 1% increase in education in the short run decreases labor productivity by 1.25%. In addition, the study found that both labor share of capital and foreign direct investment (FDI), have a positive and significant effect on labor productivity. The study concluded with several recommendations.