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Where has all the education gone?

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  • Pritchett, Lant

Abstract

Cross-national data on economic growth rates show that increases in educational capital resulting from improvements in the educational attainment of the labor force have had no positive impact on the growth rate of output per worker. In fact, contends the author, the estimated impact of growth of human capital on conventional nonregression growth accounting measures of total factor productivity is large, strongly significant, and negative. Needless to say, this at least appears to contradict the current conventional wisdom in development circles about education's importance for growth. After establishing that this negative result about the education-growth linkage is robust, credible, and consistent with previous literature, the author explores three possible explanations that reconcile the abundant evidence about wage gains from schooling for individuals with the lack of schooling impact on aggregate growth: 1) that schooling creates no human capital. Schooling may not actually raise cognitive skills or productivity but schooling may nevertheless raise the private wage because to employers it signals a positive characteristic like ambition or innate ability; 2) that the marginal returns toeducation are falling rapidly where demand for educated labor is stagnant. Expanding the supply of educated labor where there is stagnant demand for it causes the rate of return to education to fall rapidly, particularly where the sluggish demand is due to limited adoption of innovations; and 3) that the institutional environments in many countries have been sufficiently perverse that the human capital accumulated has been applied to activities that served to reduce economic growth. In other words, possibly education does raise productivity, and there is demand for this more productive educated labor, but demand for educated labor comes from individually remunerative but socially wasteful or counterproductive activities - a bloated bureaucracy, for example, or overmanned state enterprises in countries where the government is the employer of last resort - so that while individuals'wages go up with education, output stagnates, or even falls.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1581.

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Date of creation: 31 Mar 1996
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Handle: RePEc:wbk:wbrwps:1581

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Keywords: Capital Markets and Capital Flows; Economic Theory&Research; Decentralization; Health Monitoring&Evaluation; Banks&Banking Reform; Economic Theory&Research; Achieving Shared Growth; Governance Indicators; Banks&Banking Reform; Economic Growth;

References

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  1. Orley Ashenfelter & Alan Krueger, 1992. "Estimates of the Economic Return to Schooling from a New Sample of Twins," Working Papers 683, Princeton University, Department of Economics, Industrial Relations Section..
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  3. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
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  11. Orazem, Peter & Vodopivec, Milan, 1995. "Winners and Losers in Transition: Returns to Education, Experience, and Gender in Slovenia," Staff General Research Papers 5270, Iowa State University, Department of Economics.
  12. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
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  16. Weale, Martin, 1992. "Education, externalities, fertility, and economic growth," Policy Research Working Paper Series 1039, The World Bank.
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  21. Gersovitz, Mark & Paxson, Christina H, 1996. "The Revenues and Expenditures of African Governments: Modalities and Consequences," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 5(2), pages 199-227, June.
  22. Behrman, Jere R. & Rosenzweig, Mark R., 1994. "Caveat emptor: Cross-country data on education and the labor force," Journal of Development Economics, Elsevier, vol. 44(1), pages 147-171, June.
  23. Sala-i-Martin, X. & Mulligan, C.B., 1994. "A Labor-Income-Based Measure of the Value of Human Capital : An Application to the United States," Papers 722, Yale - Economic Growth Center.
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