In a mature transportation system such as Australia's the impacts of additional investment in transportation are much less perceptible than in the 1950’s and 1960’s. Nowadays decisions on the appropriate level of investment required from an economic perspective are much more subtle and harder to measure.
In the contemporary fiscal policy climate T&L decision makers are increasingly held accountable for their decisions as they relate to national and regional growth and development. The decisions are now more complex and go beyondT&L, involving the priorities placed on government funding. Should the money be spent on transport, education, health etc? Within the transport allocation should more resources be devoted to road, rail, sea, air etc? What level of these resources should be devoted to developing education and training courses for the various T&L sectors? It is the latter issue couched in a cost/benefit framework that is the main focus of this report.
The increasing complexity in the decision-making processes in T&L in Australia calls for greater dissemination of information and expanded education and training efforts. Such enhanced training efforts need to be focussed on all sectors of the T&L industry. At present concepts and studies concerning the effects of education and training investments on economic growth in the broader national context, as well as the T&L sector specific impacts, are not readily accessible to policy makers. Nor are they accessible to the various sectors of the T&L workforce.
More effort should be made in the future to make the analysis and the concepts meaningful to practitioners and decision makers and to educate them about the value of incorporating these findings into their workforce training programs.
This step requires both educational and transport decision makers understanding the relevant research that has been conducted and use it to underpin arguments to increase funding for additional education and training programs in the transport and logistics sector.
THE HUMAN CAPITAL LITERATURE: ASSESSING THE EFFECTS OF EDUCATIONAL INVESTMENTS ON ECONOMIC GROWTH
In the human capital literature there are two main hypotheses connecting the relationship between enhanced education provision (investment) and growth and productivity. These are: -
a) the ‘neo-classical’ or standard human capital model which predicts a relationship between the level of education and training and the level of productivity; and
b) The “new growth” or technology diffusion models which predict a relationship between the level of education and training and the rate of growth of productivity.
Macro Economic impacts of Increased Targeted Education & Training Expenditure
In the OECD Report “The Well Being of Nations, The Role of Human and Social Capital” OECD 2001, empirical estimates are provided of the change in GDP for a given increase in normal levels of human capital investment. The OECD study states that “…in OECD countries one extra year of education leads, on average and in the long run, to an increase in output per capita of between 4 and 7 percent”.
Professor Steve Dowrick of the Australian National University (ANU) in his “Ideas and Education; Level or Growth Effects” concludes that the potential productivity benefits for Australia of increased investment in education and research are substantial. For education an increase of 0.8 in the average years of schooling of the labour force would have an effect on the Australian Economy of “an increase of one third of a percentage point in the annual growth rate – coming both through human capital deepening and more rapid adoption of new technologies” .
In addition by devoting an extra 0.6 percent of GDP to Research & Development (R&D) ….“the impact on the Australian economy would be an increase of one quarter of a percentage point in the annual rate of productivity growth” . Taken together both effects are estimated by Dowrick at (0.36+0.25=0.61% pa).
Dowrick concludes that “to sum up, positive prospects for continuing strong productivity growth will be enhanced if Australia emulates the higher rates of investment in knowledge – both in education and in research and development – that we observe in the leading OECD economies. An increasingly well-educated (albeit shrinking) workforce, operating in an economy that continues to be open to trade in goods and ideas, will be well placed to identify, introduce and mange the new technologies that will emerge over the next few decades.”
A recent study for the UK Institute for Fiscal Studies evaluates the most recent policy relevant research on the effect of educational investment on economic growth. The key findings of the study are:
a) “there is compelling evidence that human capital increases productivity. Although there is an important theoretical distinction between the augmented neo-classical approach and the new growth theories, the empirical literature is still largely divided on whether the stock of education affects the long-run level or growth rate of the economy. A one-year increase in average education is found to raise the level of output per capita by between 3 and 6 percent according to augmented neo-classical specifications, while it would lead to an over 1 percentage point faster growth according to estimates from the new-growth theories;
b) Over the short-run planning horizon (4 years) the empirical estimates of the change in GDP for a given increase in the human capital stock are of similar orders of magnitude in the two approaches;
c) The impact of increases at different levels of education appear to depend on the level of a country’s development, with tertiary/higher education being the most important for growth in OECD countries;
d) Education is found to yield additional indirect benefits to growth (in particular, by stimulating physical capital investments and technological development and adoption). More preliminary evidence seems to indicate that type, quality and efficiency of education all matter for growth” .
Their preliminary evidence seems to indicate that type, quality and efficiency of education all matter for growth. In particular:
a) “The measured growth returns to engineers appear to be higher than those to lawyers;
b) Labour force quality has a significant and positive impact on growth; such a result however lacks policy implications, since measured educational inputs fail to affect labour force quality, nor do they seem to directly affect economic growth;
c) The contribution of human capital to growth has been found to depend on the efficiency with which resources are allocated to the various levels of education.”
Whilst methodological and conceptual problems abound in this literature the comprehensive analysis conducted by Sianesi and Van Reenen leads them to positively assert that the literature gives some clear guidance for policy.
In this regard…”Taken as a whole we feel confident that there are important effects of education on growth. We are less confident that the effects of education on growth are as large as it is claimed by the new growth literature. There needs to be a much more concerted attempt to combine the new growth theory with rigorous micro-studies to demonstrate the link between innovation and human capital, in particular work reconciling micro and macro evidence by combining data at different levels of aggregation (individual, firm, industry and economy-wide).
Other main research areas that need supporting include better attempts to control for reverse causality by using more exogenous changes affecting education, in parallel to the experimental approach adopted in the estimation of private returns by labour economists. Improving the (time-varying) measurement of the stock of human capital, taking account of quality issues as well as of further investments in the form of training, should also be high on the agenda.
Finally, a more policy-oriented approach would attempt to open up the ‘black box’ of education by trying to explore the mechanisms through which human capital affects growth, for instance by looking at more disaggregated issues in more detail and in a more satisfactory way than done to date.”
TALC is keen to open up the black box on T&L education and training.