Quantifying the effect of policies to promote educational performance on macroeconomic productivity

This paper evaluates the link between educational policies and i) student performance and ii) macroeconomic measures of productivity. The analysis has two stages. First, using the 2015 and 2018 PISA databases, it quantifies the relationship between student test scores and the characteristics of students taking the tests, their school environment and national educational systems. Second, assuming that these relationships reflect the effect of different characteristics/policies on student test performance, the second stage converts the latter into an estimated effect on macroeconomic measures of productivity using a new measure of human capital as an intermediary variable. This new measure of human capital, devised in previous OECD work, combines student test scores and mean years of schooling with estimated elasticities that suggest the former is more important. The analysis shows a positive association between spending on education and student test scores, but only for levels of student expenditure below the OECD median, suggesting scope for currently low-spending countries to raise student performance with potential gains to long-run productivity. Boosting participation in early childhood education as well as improving teacher quality is found to generate large aggregate productivity gains. There are significant, but smaller, macroeconomic gains for many countries from limiting grade repetition and ability grouping across all subjects as well as increasing the accountability of schools. Finally, the results provide evidence for income inequality having a major influence on productivity through a human capital channel.