How Education and Training Affect the Economy

How Education and Training Affect the Economy

What relationship is there between a nation’s educational system and its economic performance? Why does the average salary of workers with college degrees exceed that of those without? Knowing how education and training and the economy interact can help explain why some economies, businesses, and workers thrive while others do not.
As the labor pool grows, there is pressure on the wage rate to decrease. If employers’ demand for workers doesn’t match the labor supply, wages usually decline.
A surplus of workers has a negative impact on those in industries with low entry barriers for new hires—those with jobs that don’t require a degree or any form of specialized training. Conversely, jobs that necessitate a higher level of formal education and training often pay their workers more. Wages have increased as a result of a lack of individuals qualified to work in particular fields and the high cost of the required education and training.

How Education Benefits a Nation

To reap the rewards of globalization and trade, nations and their economies must compete with one another. Economically successful countries will have competitive and comparative advantages over other economies, even if a single country rarely specialized in a specific industry.
A typical developed economy will have a variety of industries, each with different competitive advantages and drawbacks in the global marketplace. The health of a nation’s economy is heavily influenced by the level of education and training of its labor force.

How Job Training Affects the Economy

An effective work force gives a strong economy a competitive advantage over the economies of other countries. Nations may make an effort to promote training through tax breaks, the provision of training facilities, or a variety of other methods designed to create a workforce with more competency. An economy can focus on a few sectors where it can more easily develop talented workers, even though it is unlikely that it will have a competitive advantage across all industries.
The main point is that training levels greatly differ between industrialized and developing countries. Having better-trained employees generates positive externalities that propagate across the economy, even if there are clearly other factors at play, such as geography and resource availability.
An externality can positively affect an economy when a workforce is properly trained. In other words, having access to a skilled labor pool for hiring is a shared external benefit for all enterprises. Sometimes a geographic location will have a concentration of highly skilled workers. Due to such exceptional employees, similar businesses may wind up concentrating in the same area, such as Silicon Valley, California.

Only Employers

Employers prefer workers that are efficient and require less supervision. Employers must consider a number of factors when deciding whether or not to offer staff training, such as:
Will the training program increase the workers’ productivity?
Will the increase in productivity justify the expense of paying for all or some of the training?
If their employer pays for their training, will an employee leave for a competitor after completing it?
Can the newly hired employee ask for a higher pay?
Will the worker be more powerful or influential in negotiations to obtain a raise?
If pay increases are required as a result of the training, will the increases in productivity and profitability be enough to cover any pay increases as well as the overall cost of the training program?
Employees who reject training may be encountered by employers. This might happen in unionized businesses where hiring competent workers or firing less qualified ones may be more difficult due to increased job security. To ensure that its members are more effective and well-trained, unions may also bargain with businesses, which lowers the likelihood that employment would be outsourced.

For Workers

Workers can increase their income by developing and improving their capacities and skills. Their value to an employer rises as they learn more about the responsibilities of a certain profession and a particular industry.
Employees can try to learn new skills or cutting-edge methods to compete for a higher compensation. The wage increase that employees can normally expect will typically be less than the employer’s productivity improvements. The worker must consider a variety of factors before deciding whether to join in a training program, such as:
How much more production can they reasonably expect?
Does the employee have to cover the cost of the training course?
Will the employee receive a wage raise that would make the program’s cost justifiable?
What are the employment opportunities in that field for professionals with further education?
Is there a significant need for skilled individuals in that industry?
Although it’s not usually the case, employers may pay all or part of the costs of training. Additionally, the company runs the risk of losing money if the program is unpaid and the employee is unable to work the same amount of hours as before.

In the Economy

Many countries today place a greater emphasis on developing educational institutions that can produce laborers qualified to work in rapidly developing fields like science and technology. This is partly because older sectors in industrialized countries have a lower likelihood of continuing to dominate the industrial landscape due to their declining competitiveness. With a growing belief that everyone has a right to education, there is also a drive to increase the general level of education of the public.


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