CEPS, 1 Place du Congrès, 1000 Brussels, , 1 The Key Role of Education in Employment and Competitiveness THE LISBON STRATEGY AND THE TRADE UNIONS ROLE PARTNERSHIP FOR BETTER JOBS Lisbon, 7 th March 2008

2 Structure of Presentation: 1.Background 2.Levels of Education—A Comparison of Countries 3.Education and Employment 4.Education and Competitiveness 5.Education and Social Cohesion 6.How to achieve higher quality of education? 7.Conclusion

3 1.Background With only two more years left it is clear that the European Union has missed the goal to become the most competitive Economy by All three Lisbon goals will not be achieved: i) Employment rate is less than 70%, ii) Growth rates have decreased, iii) no significant increases in social cohesion due to growing income inequalities Education plays a key role in all three objectives

4 2.Levels of Education— A Comparison of Countries

5 Figure 1 Average Years of Schooling (25+) Source: Barro and Lee data (2000) – Authors Estimations

6 Figure 2 Average Years of Schooling (25+) – Regime Typologies Source: Barro and Lee data (2000) – Authors Estimations

7 Figure 3 Mean Score in “Science” in 2007 PISA Test Source: OECD data – Authors Estimations

8 Figure 4 Average Years of Schooling (15+) Source: Barro and Lee data (2000) – Authors Estimations

9 Figure 5 Achievement in Education (Post Secondary, 15+) Source: Barro and Lee data (2000) – Authors Estimations

10 Figure 6 Achievement in Education (Post Secondary, 15+) – Inclusion of USA Source: Barro and Lee data (2000) – Authors Estimations

11 3.Education and Employment The most visible Lisbon target, and in principle the one most susceptible to be influenced by policy remains the goal to reach an employment rate of 70 % (by the year 2010). In 2000 the implicit benchmark for the EU in setting the goal of an employment rate of 70 % was the US, which had attained this value at that time. Over the last years the employment rate (those employed as a percentage of the working age population) has indeed increased, by almost about 4 percentage points, from around 62 to 66%, (for the EU-15). However progress has been too slow to put the Lisbon target within reach by the end of the decade. Another 20 millions jobs would have to be created to reach the goal.

12 Table 1 A rough Trans-Atlantic comparison Share of population Typical employment rates EU-15 USEU-15 = US Below secondary Secondary Tertiary Source: Eurostat and OECD Labour force survey – CEPS Estimations

13 Table 2 What has improved since Lisbon? Share of PopulationShare of Employment Change Change Below Secondary Secondary Tertiary Overall NANANA Source: Eurostat and OECDLabour force survey – CEPS Estimations

14 Figure 7 Employment rate with respect to Levels of Education in EU15 Source: Eurostat - Authors Estimations

15 Key Findings The tables show that the key problem of Europe in terms of employment is not so much the regulation of its labour markets, but the insufficient skill levels of its population. The small improvement in the overall employment ratio that has taken place since Lisbon can mostly be explained by an ongoing change in the skill composition of Europe’s labour force. Labour market reform does not seem to have had any impact on employment ratios. Since the Lisbon reform the levels of education have stagnated. If the European work force had the same skill composition as the US (or some more advanced member countries) the employment rate in Europe could easily reach the Lisbon goal even without any labour market reforms. Even with rather rigid labour markets it leads to higher employment.

16 4.Education and Competitiveness Societies are more and more knowledge driven Especially tertiary education is the key to R&D and overall technological progress, more engineers and natural scientist have to be trained for future economic prosperity. A degree of 30% of the population having tertiary education is necessary to successfully increase the R&D budget to 3% Education plays a key role in explaining the international variation of economic growth rates, in a global perspective but especially in the highly developed countries (OECD and EU)

17 Figure 8 Partial Regression Plot – Human Capital and Economic Growth Source: OECD - Authors Estimations

18 5.Education and Social Cohesion Besides associational density and income inequality, education plays an important role in explaining levels of interpersonal trust in a cross-section of countries Interpersonal trust can be regarded as a good proxy for the Lisbon goal of social cohesion

19 Figure 9 Scatter Plot between Education and Social Cohesion Source: WVS - Authors Estimations

20 6.How to achieve higher quality of education?

21 Figure 10 Total Expenditure on Education and Student Achievement Source: OECD - CEPS Estimations

22 Figure 11 Government Effectiveness and Student Achievement Source: OECD - CEPS Estimations

23 7. CONCLUSION Stocks and quality of human capital varies substantially in the European Union. Especially the Mediterranean countries have low levels education and are achieving only low results in the PISA tests. Education plays a key role in increasing the Employment rate in the European Union. Labour market reforms are important but further investment in human capital is more important Education plays a key role in explaining long-term economic growth. Countries with higher stocks and quality of education are growing faster and are more competitive, with respect to the process of globalization Education is important for fostering social cohesion Government efficiency is an important factor for the quality of the education

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