Apr 25, 2007

Education and Development: A Delicate Marriage

by Laura Starita

Education has long been considered a silver bullet in development circles, an area of investment that can create out-sized returns and trickle-down impacts.  For example, girls who receive a primary-school education not only become more skilled workers, they also have fewer children and are statistically less likely to contract HIV. Children who attend secondary school have better opportunities to enter their local labor markets or continue with their education. Post-secondary education is also increasingly recognized as a boon even in developing economies.

The connection between an educated population and economic growth has also been seen notably in India. India’s economic expansion over the past two decades has been attributed largely to growth in its technology and pharmaceutical industries, made possible by the seemingly endless supply of skilled workers graduating from its universities and going to work for comparatively lower salaries than their counterparts in the developed world. It is these skilled workers and their low salaries that give Indian companies their competitive advantage in world markets—yet studies show that advantage is on the wane, argues James Surowiecki in a recent New Yorker article. In a country where more than a third of the population lacks basic literacy or numeracy, a university degree seems pretty great. Yet the jobs available in the industries that are fueling India’s growth require even more. In world terms, Surowiecki argues, an Indian university degree gives graduates a skill level comparable to a U.S. graduate of a two-year technical college. More than the average Indian, maybe, but not good enough for many to land jobs in India’s skills-intensive service industries. In short, India is coming up on a skills shortage. The impact has been a projected 14.5 percent salary increase in India for skilled workers this year alone. If this level of increase becomes a trend, India’s economic Wuenderkind status could be threatened.

There are some interesting parallels between India’s situation and that of the United States. One of the reasons why Indian technology companies have seemed so attractive to U.S. businesses is because the U.S. also doesn’t have enough skilled workers of its own, so the ones it does have can demand out-sized salaries. Like India, the reasons for this lack are multi-fold. As argued in a recent Wall Street Journal article, it is not just that 20 percent of U.S. kids fail to finish secondary school, but also that those who do finish don’t necessarily go on to four-year colleges and finish with Bachelor’s degrees.

There is a broader lesson to be gleaned from the experiences of these countries: The long-term economic health of both the U.S. and India is at risk because their growth industries potentially will not be able to find workers with the right skills to fuel their continued expansion. Sure, both countries have a large group of people with primary, secondary and even post-secondary educations, but they aren’t educated with the right skills to get them jobs and fuel their economies. They provide examples for how necessary it is in development to couple education with an eye toward where the opportunities for employment lie. Education is key to growth—that is clear. But for students in less developed economies the investments in their education need to be targeted so that the skills they learn in school can be targeted for income generation and broader economic development.

New Yorker: India’s Skills Famine

Wall Street Journal: Lack of Well-Educated Workers Has Lots of Roots, No Quick Fix