Brief analysis 7: Education pays off

Education is one of the key drivers of a country's economic and social development and, at an individual level, the basis for success on the labor market. However, there is room for improvement in the Austrian education system. This was also recently pointed out in a study by the OECD on behalf of the Ministry of Social Affairs, which criticized the limited opportunities for social advancement. Accordingly, education is likely to play a central role in the current exploratory talks and upcoming coalition negotiations. "An improved educational structure of a society leads to an increase in labor force participation and lower unemployment. Productivity and income also increase and economic growth is higher," says Tobias Thomas, Director of the economic research institute EcoAustria.

A comparison of unemployment by educational attainment shows how education improves opportunities on the labor market. In Austria, 14.7 percent of all 25 to 64-year-olds currently have no more than a compulsory school leaving certificate (UNESCO International Standard Classification of Education levels 0-2). Among them, the unemployment rate is 11.5 percent according to the international definition. 52.6 percent of 25 to 64-year-olds have an intermediate qualification (ISCED levels 3-4), such as a high school diploma or completed apprenticeship. Of these, only 4.2 percent are unemployed. Just under a third (32.7%) of people of working age have a university degree (ISCED levels 5-8). Among them, the unemployment rate is only 3.2 percent.

Even a very moderate improvement in the education structure would have considerable economic and fiscal effects. This is shown by an analysis by EcoAustria using the macro model PuMA ("Public Policy Model for Austria"). For this purpose, the educational qualifications of one percent of school leavers were raised annually in model simulations, taking into account the tax system and social security. This corresponds to between 850 and 950 more graduates with higher qualifications per year. If one percent of graduates per year attain an intermediate level of education instead of at most a compulsory school-leaving certificate, the unemployment rate for people with low qualifications will fall by 0.4 percentage points in the long term, combined with only a moderate increase for people with intermediate qualifications. GDP is almost 0.2 percent higher in the long term. Investments (+0.2%) and private consumption also increase (see table).

The effects are also positive if one percent of graduates per year obtain a university degree instead of an intermediate degree. In the long term, gross domestic product increases by 0.3 percent and investments by a substantial 0.7 percent. Due to higher productivity, average incomes also rise (+0.1 percent in the long term). Employment, on the other hand, will hardly change, as unemployment in Austria is already quite low for those with medium-level qualifications.

As far as the financing of education measures is concerned, in both scenarios the higher public expenditure on education is more than compensated for in the long term by higher revenue from taxes and the primary balance improves noticeably. In the short to medium term, however, the balance would be outweighed by additional expenditure. In addition, there is potential for efficiency in the Austrian school system in particular, which could significantly improve school performance without having to increase expenditure. For example, education expenditure in elementary, primary and secondary education per pupil in Austria amounts to EUR 9,373 per year, adjusted for purchasing power. This gives Austria 492 points in the OECD's PISA test. In comparison, the Netherlands achieved a test result of 508 PISA points with expenditure of EUR 8,273, i.e. EUR 1,099 less per pupil and year. The difference in efficiency is even more striking when compared to Finland. With total expenditure of just EUR 7,733, i.e. EUR 1,640 per pupil per year less than in Austria, Finland achieved a total of 523 PISA points and thus a top European score.

"In addition to the long-term worthwhile investments in education, the efficiency of public spending in the education system should be increased in particular. Countries such as Finland or the Netherlands spend considerably less per pupil when adjusted for purchasing power, but achieve significantly better results in the PISA test," says Thomas.