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  • Writer's pictureJuntao Ren

How Improving Education Boosts the Economy

Productivity, defined as “a measure of economic efficiency which shows how effectively economic inputs are converted into output” (US Bureau of Labor Statistics), is a cornerstone measurement of potential national income.

The reason that the United States was able to grow into its current state as an economic superpower is because it substantially increased its productivity, which was made possible by “making production more efficient”; in other words, by allowing workers to produce more with less time.

What allows for productivity?

Of various factors, the most straightforward is perhaps human capital.

The more skilled a worker is, the more the worker will be able to take whatever resources and time they are given and transform it into a large amount of output. Other factors, such as the amount of natural resources available or the tools and technology available to workers, can easily be provided in a highly industrial country like China.

Frankly, the most easily utilized source of human capital in China is the forty percent of its population that are rural.

Why Education is a Worthwhile Investment

To see examples of how education has transformed economies, and still has the potential to do so, there is no other place more relevant than the United States.

Similar to China, the U.S. is a large landmass with a large (although smaller in comparison) population. After studying the effect of better educational attainment in the members of the American labor force from 1915 to 1999, Harvard economists Lawrence F. Katz and Claudia Goldin estimated that the increases directly led to 10 percent growth of gross domestic product.

To predict future benefits that investment in education could bring, economists from the University of Munich compiled data from the National Assessment of Educational Progress (NAEP) in the United States as well as data from other countries to create a model that predicts economic effects of improved education.

The model estimated that if all students in America were brought up to a level of “basic mastery” defined by the NAEP, the U.S. gross domestic product would increase by 14.6 percent, equal to 32 trillion dollars.

Currently, spending on education across all states amounts to 6.2 percent; with spending low and returns high, increasin

g the budget for education slightly would lead to returns that far outweigh costs.

Even if a locality is not willing to invest so much into K-12 education, the researchers from the Brookings Institute estimate that implementing a “high-quality universal preschool policy” would add 2 trillion dollars annual to U.S. GDP by 2080. Such a program would cost the government around 59 billion dollars in administrative and production costs.

In short, economists studying both the past and the future find that education is an investment that would yield long-term profits. Thus, even if basic measures were taken to improve the quality and availability of education in China, the eventual returns still are many times larger than the investment.

China's Necessity of Education

All of these studies are exclusive to the U.S., and the argument could be made that it would not work exactly the same in China.

Of course, China’s situation is unique to the country. For one, their rural population is many times larger than America’s while they still maintain a

large economic output from their urban areas. Yet on the other hand, this rural population has much less access to education than their urban and suburban counterparts.

Thus, given that the fundamental principles of productivity and labor capital are true across any human economy, it would stand to reason that China has even more potential for economic growth through providing better education than the United States.

Almost all studies of education systems in multiple countries (including China) find that a one percent increase in school enrollment rates results in a one to three percent increase in GDP growth. Similar calculations found that by increasing the average education duration of the population by one year, the level of output per capita would in turn increase by three to six percent.

China’s Skilled Worker Crisis

Universally, education will increase productivity in a country. However, when examining China’s unique business sector, its lack of skilled workers is glaringly evident.

Around 44% of executives specifically cited lack of talent as preventing their companies from reaching global ambitions. Projections of the future find the shortage of college-educated workers reaching 23 million by the end of 2020, despite the actual number of college-educated workers rising by 50 million.

To combat this shortage, China has already undertaken measures such as pledging money for colleges and building vocational schools in rural areas. Even so, efforts to improve rural education like these are not widespread enough and are often mishandled; students and officials criticize vocational schools continually, arguing that they do not properly educate students.

Furthermore, as China’s economy evolves away from being almost completely manufacturing based as it was in the past, the demand for high-skilled workers will also rise at a quicker pace. China has yet to find a way to properly tap into their rural population and cover their skilled worker insufficiency.


Ultimately, investing in education by allocating manpower, money and resources is, by nature, a long term investment. Political systems that are seeking immediate returns would avoid making such a commitment, yet economic analysis and prediction points toward education’s returns being manyfold any investment.

Thus, should a locality seek to make an investment that will steadily grow their economy into the future, education would be a primary choice.

With a college-educated worker shortage as well, perhaps China can seek to fix two of their problems with one solution.


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