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The contribution of education to economic growth in Australia, 1997-2009

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12 March 2014

ISBN 978 1 922056 73 3

Description

Using data from the Australian Bureau of Statistics Survey of  Education and Training, Tom Karmel estimates the impact of increasing education levels on economic growth in Australia between 1997 and 2009. He finds that increasing education levels are contributing to improved productivity at a rate of 0.14% per annum as well as having had a considerable impact on the hours worked by the Australian workforce.

Summary

About the research

This paper uses a growth accounting framework to estimate the impact of increasing education levels on economic growth, based on data from the Survey of Education and Training (SET), conducted by the Australian Bureau of Statistics (ABS). This survey is particularly apt because it allows a fine classification of education levels. The paper incorporates a novel extension by estimating the impact of increasing education levels on labour supply, exploiting the fact that, particularly for women, those with higher levels of education tend to work more than those with lower levels. Not only do those with higher levels of education tend to have a greater chance of being employed, but they also tend to work longer hours.

Key messages

  • Increasing education levels are contributing to improved productivity: of the order of 0.14% per annum between 1997 and 2009 (less than for the period 1968—69 to 1989—90). They will do so as long as the wage premiums associated with qualifications are maintained, noting that over the period in question the ratios of the hourly wage rates between education levels have been fairly stable.
  • Increasing education levels have had a sizeable impact on the hours worked by the workforce. In fact between 2001 and 2009 this impact (of over 3% on hours worked) was larger than the improvement in labour quality. This effect was almost entirely due to increases in the number of women with degrees and postgraduate qualifications.

The research in this paper measures the effect of increasing education levels on the quality of labour and hence the level of output. As acknowledged in the paper, it does not consider any effects that changing education levels might have on technology — so called ‘endogenous growth’ mechanisms.

Rod Camm
Managing Director, NCVER

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