How education and training affect the economy

Why do most workers with college degrees earn so much more than those without? How does a nation's education system relate to its economic performance? Knowing how education and training interact with the economy can help you better understand why some workers, businesses and economies flourish, while others falter.

As the labor supply increases, more pressure is placed on the wage rate. If the demand for labor by employers does not keep up with the supply of labor, then the wage rate will be depressed. This is particularly harmful for employees working in industries that have low barriers to entry for new employees, i.e. they do not have high education or training requirements. Industries with higher requirements tend to pay workers higher wages, both because there is a smaller labor supply capable of operating in those industries and because the required education and training carries significant costs.

The advantages of education to a nation

Globalization and international trade requires countries and their economies to compete with each other. Economically successful countries will hold competitive and comparative advantages over other economies, though a single country rarely specializes in a particular industry. This means that the country's economy will be made of various industries that will have different advantages and disadvantages in the global marketplace. The education and training of a country's workers is a major factor in determining just how well the country's economy will do.

The study of the economics of training and education involves an analysis of the economy as a whole, of employers and of workers. Two major concepts that influence the wage rate are training and education. In general, well-trained workers

tend to be more productive and earn more money than workers with poorer training.

Training A successful economy has a workforce capable of operating industries at a level where it holds a competitive advantage over the economies of other countries. To achieve this, nations may try incentivizing training through tax breaks and write offs, providing facilities to train workers, or a variety of other means designed to create a more skilled workforce. While it is unlikely that an economy will hold a competitive advantage in all industries, it can focus on a number of industries in which skilled professionals are more readily trained.

Differences in training levels have been cited as a significant factor that separates rich and poor countries. Although other factors are certainly in play, such as geography and available resources, having better-trained workers creates spillovers and externalities. For example, similar businesses may cluster in the same geographic region because of an availability of skilled workers (e.g. Silicon Valley).

For employers Employers want workers who are productive and require less management. Employers must consider a number of factors when deciding on whether to pay for employee training.

While employers should be wary about newly trained workers leaving, many employers require workers to continue with the firm for a certain amount of time in exchange for the company paying for training.

Businesses may also face employees who are unwilling to accept training. This can happen in industries dominated by unions, since increased job security could make it more difficult to hire trained professionals or fire less-trained employees. However, unions may also negotiate with employers to ensure that its members are better trained and thus more productive, which reduces the likelihood of jobs being shifted overseas.

For workers Workers increase their earning potential by developing and refining their capabilities. The more they know about a particular job's function or the more they understand a particular industry, the more valuable they will become to an employer. Employees want to learn advanced techniques or new skills in order to vie for a higher wage.

Usually, workers can expect their wages to increase at a smaller percentage than the productivity gains by employers. The worker must consider a number of factors when deciding whether to enter a training program.

Some employers pay for all or a portion of the expense of a program, but this is not always the case. In fact, the worker may lose wages if the program prevents him or her from working.

For the economy Many countries have placed greater emphasis on developing an education system that can produce workers able to function in new industries, such as those in the fields of technology and science. This is partly because older industries in developed economies were becoming less competitive, and thus were less likely to continue dominating the industrial landscape. In addition, a movement to improve the basic education of the population emerged, with a growing belief that all people had the right to an education.

When economists speak of "education," the focus is not strictly on workers obtaining college degrees. Education is often broken into specific levels. (Wires)