The benefits of educational investments

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While many nations express a commitment to improved educational quality, education often slips down on the policy agenda. Because the benefits of educational investments are seen only in the future, it is possible to underestimate the value and the importance of improvements. This report uses recent economic modelling to relate cognitive skills – as measured by PISA and other international instruments – to economic growth. This relationship indicates that relatively small improvements in the skills of a nation’s labour force can have very large impacts on future well-being. Moreover, the gains, put in terms of current GDP, far outstrip today’s value of the short-run business-cycle management. This is not to say that efforts should not be directed at issues of economic recession, but it is to say that the long-run issues should not be neglected. A modest goal of having all OECD countries boost their average PISA scores by 25 points over the next 20 years – which is less than the most rapidly improving education system in the OECD, Poland, achieved between 2000 and 2006 alone – implies an aggregate gain of OECD GDP of USD 115 trillion over the lifetime of the generation born in 2010 (as evaluated at the start of reform in terms of real present value of future improvements in GDP). Bringing all countries up to the average performance of Finland, OECD’s best performing education system in PISA, would result in gains in the order of USD 260 trillion. The report also shows that it is the quality of learning outcomes, not the length of schooling, which makes the difference. Other aggressive goals, such as bringing all students to a level of minimal proficiency for the OECD (i.e. reaching a PISA score of 400), would imply aggregate GDP increases of close to USD 200 trillion according to historical growth relationships.



The High Cost of Low Educational Performance: The Long-Run Economic Impact of Improving PISA Outcomes
Eric Hanushek and Ludger Woessmann
Organisation for Economic Co-operation and Development
January 2010

This study builds on previous work by economists Hanushek and Woessmann and shows that improved performance on international math and science tests has a positive impact on a country’s future GDP. The effects within the U.S. would be remarkable. The analysts used data from twelve international tests (including PISA) dating back to 1964 to construct an index of cognitive skill levels for a large sample of countries. Since the U.S. had participated in all of these tests and also has a separate longitudinal assessment system (i.e., NAEP), they were able to calibrate scores on each international test against one another. They employed three scenarios to estimate the long-term effects of educational improvement. (1.) To increase average scores on PISA by 25 points (a quarter of a standard deviation) over 20 years would result in an increase in the American GDP of $40 trillion over the lifetime of the generation born in 2010. (2.) To bring each country up to the average level of the highest performing PISA country (Finland, or roughly 50 points) would boost American GDP by $100 trillion over the same time period. And (3) raising the scores of the 19 percent of young Americans children who perform below the PISA minimum competency level to that level would add $72 trillion to our GDP, again over the same timeframe. Those are BIG numbers.


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