Teaching Economic Dynamism

NEW YORK – Business leaders often argue that the widening education gap – the disparity between what young people learn and the skills that the job market demands – is a leading contributor to high unemployment and slow growth in many countries. For their part, governments seem convinced that the best way to close the gap is to increase the number of students pursuing degrees in the so-called “STEM” subjects (science, technology, engineering, and mathematics). Are they right?

The short answer is no. Indeed, the two main arguments underpinning claims that inadequate education is to blame for poor economic performance are weak, at best.

The first argument is that the lack of appropriately skilled workers is preventing companies from investing in more advanced equipment. But that is not how economic development usually works. Instead, firms begin to invest, and either workers respond to the possibility of higher wages by acquiring (at their own cost) the required skills, or firms provide their current and future employees with the relevant training.

The second argument is that it is increasingly difficult for the United States and other advanced countries to match the gains that developing countries have achieved by investing heavily in upgraded equipment, targeted higher education, and skills training. But, again, this contradicts traditional trade dynamics, in which one country’s success does not imply hardship for another.