Quantifying the link between educational policies and macroeconomic productivity

By Christine de La Maisonneuve, Balazs Égert and Dave Turner, OECD Economics Department

The importance of education is frequently emphasised by policy-makers and the OECD’s Programme for International Student Assessment (PISA) is often used to compare OECD countries educational performance of students aged 15 and to formulate policy advice. Recent OECD work not only quantifies the relationship between policies and educational performance, but further extends it to a measure of human capital and to the effect on macroeconomic productivity (Égert et al., 2023). Based on this work, this blogpost highlights the policies with the greatest potential to raise productivity through the human capital channel. In particular, boosting the participation in early childhood education and care, increasing education spending (for low spending countries) or reducing country income inequality could generate large potential gains in long-run productivity of several percentage points for some countries.

Early childhood education and care

At the student level, participation in early childhood education and care (ECEC) is the policy with one of the strongest links with student performance and productivity.

Participation in ECEC is widely recognised to have a positive effect on children’s cognitive, socio-emotional, and physical development (Heckman et. Al., 2013, Braga et al., 2013; OECD, 2022). Quality ECEC is particularly important for pupils from disadvantaged backgrounds, and those not speaking the country’s official language (Phillips et al., 2017).

Recent data (relating to 2021) show that 70% of OECD countries have already achieved an impressive 90% coverage for three-to-five-year-olds in ECEC. However, the same data suggest that one-fifth of OECD countries have a coverage which is between 10 and 60 percentage points below this threshold, suggesting an increase in PISA score of between 5 and 20 points and the potential for long-run gains in productivity of between 0.6% and 2.9% (Figure 1). Türkiye and Switzerland have the most to gain from raising ECEC participation to this 90% threshold, with potential long-run productivity gains of 2.9% and 1.8%, respectively, but United States, Greece, and Costa Rica might also benefit with long-run productivity gains of about 1.5%.

Education spending

At the country level, education spending has a strong link with student performance and productivity.
The literature summarised in Smidova (2019) suggests that the relationship between the level of spending per student and student performance is non-linear, with any positive relationship weakening at higher levels of spending.

For countries with low education spending such as Colombia and Mexico, raising spending per student to the median OECD would boost PISA scores by between 25 and 30 points. For those countries, productivity gains could reach between 4.0 and 4.5%.

Education as a transmission channel between inequality and growth

At the country level, the links between growth and income inequality are complex, with causation running in both directions and a range of published empirical findings (Cerra et al.,2021). However, a number of recent studies using cross-country data (Guillemette et al, 2017; Cingano, 2014), all suggest a negative effect of inequality on growth, with macroeconomic effects that are often very large.

The recent work suggests that human capital is an important channel by which reduced inequality is transformed into a higher growth performance. Based on the most recently available data, the new analysis suggests that if countries with the highest levels of inequality, measured by the Gini coefficient, such as Colombia, Costa-Rica and Mexico moved towards the OECD median, the expected gains in average PISA scores would be between 30 and 40 points, which if sustained could raise long-run aggregate productivity by 4% to 6%.

Other policies

Other education policies could generate large effects on the performance of individual pupils or schools, although the overall macroeconomic gains are much less important than the ones from the policies considered above. These include:

• Enhancing teacher quality by elevating the share of teachers with master’s degree from the lowest shares (in Chile, Colombia or Denmark) to the OECD median, would be translated into productivity gains of around 1.8%.
• Reducing the share of schools separating students in all subjects or reducing grade repetition to the median OECD would be translated into productivity gains of up to 1.0%.
• For countries with low accountability rules such as Austria, Belgium or Finland, increasing the share of schools posting achievement data publicly to the upper quartile would be associated with long-run productivity gains of 0.3%.

Figure 1. Aggregate productivity gains from policy reforms and reduced inequality

Note: This chart summarises the scenario analysis performed in Égert et al. (2023). For most scenarios, low performing countries are expected to converge to the median OECD except for teacher quality and accountability where low performing countries are expected to converge to the upper quartile.

References

Braga, M., D., Checchi and E. Meschi, (2013), “Educational policies in a long-run perspective“, Economic Policy, 28 (73), 45–100.

Cerra, V., R. Lama and N. Loayza (2021), “Links between growth, inequality and poverty: A survey, IMF Working Paper No.WP/21/68.

Cingano, F. (2014), “Trends in Income Inequality and its Impact on Economic Growth”, OECD Social, Employment and Migration Working Papers No. 163, OECD Publishing, Paris.

Égert, B., C. de la Maisonneuve and D. Turner (2023), “Quantifying the effect of policies to promote educational performance on macroeconomic productivity”, OECD Economics Department Working Papers, No. 1781.

Guillemette, Y., A. Kopoin, D. Turner and A. De Mauro (2017), “A revised approach to productivity convergence in long-term scenarios“, OECD Economics Department Working Papers No. 1385.

Heckman, J. J., R. Pinto and P. Savelyev (2013), “Understanding the Mechanisms, through which an Influential Early Childhood Program Boosted Adult Outcomes”, American Economic Review, Vol. 103 (6), pp. 2052-66.

OECD (2022), Using school funding to achieve both efficiency and equity in education, Chapter 4 in: Value for Money in School Education: Smart Investments Outcomes, Equal Opportunities, OECD Publishing, Paris.

Phillips, D. A. et al. (2017), Puzzling It Out: The Current State of Scientific Knowledge on Pre-Kindergarten Effects A Consensus Statement, Brookings, consensus-statement_final.pdf (brookings.edu)

Smidova, Z. (2019), “Educational Outcomes: A Literature Review of Policy Drivers from a Macroeconomic Perspective”, OECD Economics Department Working Papers, No. 1577.