Education and Economic Growth

Economic growth Opens in new window can be defined as increasing the provision of goods and services to be enjoyed by our people.

Education's Importance to Economic Growth

Through the development of our economy, we expect the various categories of consumption—including both private consumption and collective services—to grow with the economy Opens in new window.

One important category of consumption is education.

It is a part of our standard of living, and increasing the supply and quality of education is one of the end products of economic growth.

But education is not only an end product of growth; it is also a cause of economic growth.

The ability of a country to produce is determined by the quantity and quality of its factors of production—land, capital, and labor—and by the degree of efficiency in the use of these productive resources.

Of these resources, labor is ultimately the most important.

But it takes more than living bodies to constitute a productive labor force. The millions of people in many countries in sub-Saharan Africa do not make up a highly productive labor force. And great population increases in such countries do not initiate rapid growth in ability to produce.

High productivity requires that a population be physically healthy and well educated.

Economic growth derives primarily from improvements in health and education—and health itself is largely a product of education.

No country has ever been able to achieve high economic status without high educational status.

The importance of education is readily seen when one compares the productivity of countries with similar natural resources but with differing human characteristics; for example, Norway and Chile, Israel and Syria, Turkey and Egypt, and the United States and China.

It is no accident that the United States, which has led the world in education, should also have led the world in economic productivity.

Evidence that education—even in small amounts—has the effect of increasing productivity is found in statistics on the annual income of persons with varying amounts of education. (see table below.)

Median income in 1949, for males 14 years old and over, by years of school completed
Yrs of school completedMedian income
0$1, 108
1 to 4$1, 365
5 to 7$2, 035
8$2, 533
9 to 11$2, 917
12$3, 285
13 to 15$3, 522
16 or more$4, 407

According to these statistics, persons with an eight-grade education earn income (and presumably produce) more than double the amount earned by those with no formal education, and high-school graduates receive almost three times as much as those with no schooling.

Paul C. Glick and Herman P. Miller, of the Bureau of the Census, have estimated that a college education adds on the average $91,000 to the lifetime earnings of individuals over the average earnings of high-school graduates. It should be added that this return is the result of an initial investment of perhaps $16,000.

From the economic point of view, education is an important kind of capital investment.

The investment takes the form of human characteristics instead of bricks, mortar, and machinery. The effect on production, however, is the same.

For this reason the education our people have received may properly be regarded as one of our greatest national assets. And the process of educating the young may be regarded as our most potent form of capital investment.

The mere abilities to read, write, and calculate are of great importance for those who are to enter industrial employment or to conduct modern agriculture.

To be able to read signs, or to comprehend written instructions, or to carry out simple calculations are obvious requisites to almost any kind of skill.

A rudimentary knowledge of science has innumerable applications in everyday life. Training in manual arts, household management, agriculture, and other skills have of course a direct bearing on productivity.

But education is perhaps as important in its effects upon people’s aspirations and motives as upon their skills.

Knowledge of the world about them tends to enlarge their perspectives and to raise their aspirations.

Education helps people become interested in distant goals, to plan ahead, to prepare for the future, and to save.

It also helps them to develop self-discipline and responsibility. And it makes people more intelligent, imaginative, and adaptive. All of these results of education have the most profound significance for economic growth.

We conclude that economic growth Opens in new window cannot be maintained in the long run unless there is also an increase in both the number of persons receiving education and in the amount of education they receive.

And it is probable that to achieve economic growth of any given amount requires a proportionate increase in both the extent and depth of education.

If the educational requirements of growth are not met, then the growth must eventually come to an end simply because there is a limit to the economic productivity of people of a given level of education.

In this sense, investment in people is fully as necessary as investment in things if economic growth is to be achieved.