Policy Note 33: Investments in education pay off

Education makes an important contribution to economic and social development. "An improved educational structure in 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.

An analysis by EcoAustria using the macro model PuMA ("Public Policy Model for Austria") shows the economic and fiscal effects of even a very moderate improvement in the education structure. In the simulation, the researchers raised the educational qualifications of one percent of school leavers each year. This corresponds to between 850 and 950 people. If one percent of graduates per year achieve an intermediate education instead of no or compulsory schooling, the unemployment rate of people with low qualifications will fall by 0.4 percentage points in the long term, combined with a moderate increase for people with intermediate qualifications. GDP is almost 0.2 percent higher. If one percent of graduates per year obtain a university degree instead of an intermediate qualification, average incomes are higher due to higher productivity. Gross domestic product increases by 0.3 percent and investments by 0.7 percent in the long term. "As investments in education only have a positive effect in the long term, they should be started at an early stage," says Thomas.

As far as the financing of education measures is concerned, in both scenarios the higher public spending on education is more than compensated for in the long term by higher tax revenues and the primary balance improves noticeably. "In addition to the long-term worthwhile investments in education, the efficiency of public spending in the education sector should be increased in particular. Efficiency analyses by EcoAustria show that countries such as Finland or the Netherlands spend significantly less per pupil when adjusted for purchasing power, but achieve significantly better results, for example in the PISA test," says Thomas on the EcoAustria policy note published today.