Higher Education, Economic Growth, and Earnings

Abstract

This chapter provides a selective, nontechnical, review of research on the contribution of education, and especially higher education, to economic growth and efficient resource allocation. Three major questions are posed. First, what is known about the role of education in economic growth? This question has been addressed in different ways. Some economists have applied growth accounting techniques to macroeconomic data on changes in schooling completion levels and changes in aggregate output. These procedures are outlined. Though there is a very large literature in this vein, the methods are arbitrary and the results are fragile. Recently, economists have started to examine more systematically the association across countries between economic growth rates and school enrollment rates. This may well prove to be a fruitful line of research. At present, it is too early to report with any confidence on its conclusions on the impact of education on growth. This research is sketched. Another approach makes use of observations at the level of individual industries to measure the association between the educational attainments of workers and productivity growth. This research confirms the notion that education contributes positively to economic growth, but it has not been successful in quantifying that contribution at all precisely. The reasons for this are discussed.