Effects of Tertiary Education on Economic Growth - Example

Effects of Tertiary Education on Economic Growth Introduction Education and economy cannot substitute one another rather they complement one another. The two issues need careful handling as they form critical parts of the economy. The economic division covers two major parts, mainly macro and microeconomics. Macroeconomics covers the whole issues in the economy, which is not specific or covering one unit. Microeconomics covers individual areas in the economy. On the other hand, education is universally applicable and available to all citizens of a country. Each level of education plays its own role in modeling he individuals to make them resourceful in the future. In this discussion, our argument surrounds mainly the tertiary level of education. In other words, this constitutes a higher education level mainly involves the colleges and university education. The relationship between growth in the gross domestic product and education analysis is also available. The different challenges encountered to acquire education and the success due to learning in relation to the economy has the full coverage in this analysis. The influence each has on another and the planned steps to develop them form part of the discussion. The marginal product of the various groups according to their respective education levels is also covered. Body Education in china has undergone several stages in its development up to now. Some years back, the economy in china did well although the education level was below standards. However, this has continued improving gradually, and many have access to education currently. The number of the trained managers in China who can bring expertise to the institutions has increased due to the increased learning opportunities1. China focuses much on quality and the high numbers of those joining learning institutions currently evidences this. In a current research, the gross enrollment in higher education in China rose to 30% from 3-4% in the 1990s. This is a remarkable increase and symbolizes why china has achieved so much success in economic growth2. The increased education level also means increased wages and salaries to employees and hence increased spending ratio. Below is a table showing higher education and the economic growth rate for different nations, Higher Education and Economic Growth Rates For Selected countries Country GNP/Carpita 1993 Dollars Annual Growth GNP/Carpita 1980-93(%) Gross Enrolment Ratio in Higher Education % Total Public Spending on Education as % of GNP 1992 1980 1993 China 490 8.2(7.7)1 1 2 2.1 India 300 3.0 4 8 3.7 Hong Kong 18,060 5.4 5 20 2.9 Japan 31,490 3.4 29 32 4.7 Former USSR 2,340 -1.0 22 45 8.2 United States 24,740 1.7 56 72 5.7 The information above is retrieved from the World Bank and gives an outline of the economic growth in different countries. The increase has not come without sweat as the government, and the ministry of higher education in China has brought in several reforms and implemented them to the maximum. Initially, the Chinese economic system and higher education system was centralized. This brought a lot of challenges to the education system as they could not serve the interests of the students well and according to the needs of the economic society. The system was fixed and so many departmental units were formed each offering its own discipline, and this lowered the efficiency of the education. The lack of coordination and systematic flow of education process dealt a big blow to the nation. Thus, the urgency for reforms beckoned and active measures taken. The reforms have paid off quite well and the high number of graduates from the Chinese universities and colleges proof this. China currently is constructing so many universities and most of its land goes to learning institutions. The free integration and clear definition of roles between the government and the higher learning institutions has much contributed to the growth of the education system3. Each body is able to perform independently with the sole aim of propelling forward the education sector. This transformation in higher education has seen tremendous rise in economic growth in China. The graduates from higher learning institutions bring expertise to the market, and this translates to quality and excellence performance. The production capacity increases and hence the sales. The profitability of the company increases and the general level of performance of the company hikes. This is a step further to the development of the economy as unemployment rate decreases. Employment Rate and GDP in China The many graduates produced at the end of every academic year encounter fewer difficulties in trying to penetrate the market. This in a way acts to discourage those still learning and those who have not yet joined the school. However, during the recovery period of the economy, and the improvement in economic production due to high investment in educating employees, companies starts registering high production levels and hence able to offer job opportunities. When companies experience high growth rate, employment opportunities increase because they want to maximize production and thus the profits. This translates to increase in Gross Domestic Product of the country as many of the population have employment. A research carried recently revealed that, china is one of those nations whose their rate of unemployment is at 4.2% now. This is a remarkable step and an indication that, china is thriving for more and more success every day. It’s great involvement in world trade and the massive development in science and technology all aim at reaching greater heights. Many explorers and researchers even in other countries belong to the Chinese society. Research in Higher Education Institutions and Economy China is a productive nation as it is evident. Productivity has its own investments and majorly it relies on research and development. The uniqueness and innovation in production techniques, product development and management techniques comes through scientific research and development4. The knowledge and skills gained in universities and colleges help the researchers in their work to formulate and come out with the required designs to satisfy the needs of the society. The colleges and universities in China have taken the full initiative to revolutionize the economy of the country. The diversity in technology in China has made the institutions to yearn for more success year by year. The institutions have carried out intense researches through the various research methods and tools, which merge with current technology5. Acquiring of the current technological equipment and systems though expensive, the colleges and universities have tried their level best and invested heavily to have them. The groups have also ensured that the expertise available to them is widely known in their country and to the whole world as a whole. This achievement has come through advertising in various media of communication notably the newspapers. China relates well with other countries, and this helps it to exchange educational ideas that can help them improve their education system and economy. The reforms in the education sector in China have enabled it to open up and extend their relation to the outside world in a bid to encourage development, progression, and success. They have been able to send quite a large number of their students to other nations they have developed a good relationship with, and in return they have received students from other nations. They fund overseas studies and ensure the students of employment opportunities once they complete their studies. This motivates the students to work even harder and dedicate themselves to serving their nation. Through their interaction with the outside world, the Chinese learn the challenges and merits of being a foreigner, various ways and means of improving their education and facilitate peaceful co- existence between China and other countries6. Schooling and Resource Allocation- Household Economy It is true that improvement in education has greatly improved economic growth. However, there is a gap left needing filling in order to match development with allocation of resources. The change in china currently from a planned economy to a market economy has contributed greatly to identifying the many gaps in the economy. Many governments China included tend to ignore the household economy, which comprise of the rural agriculture and this negatively affects the economy growth. Everything has an origin and hence household farm activities from the origin for urban activities. The difference in allocation of resources in China has led to some parts of the economy lagging behind in development and a swift action need when taken will save the situation. For example, taking an allocation of resources in the agriculture sector in the rural areas, it is evident that fewer resources were allocated to the sector since instead of encouraging the workers there to produce more; many of them were urged to leave the employment in the sector instead. This lowered the production capacity in the rural areas and the people could only produce what could satisfy their basic needs only, mainly production meant it was for consumption purposes. Many of the population being illiterate at that time, felt justice not on their side anymore and retaliated in moving to the cities. They had already adapted to living in the rural areas and enjoying life on the farms and the thought of relocating to the city disturbed them a lot. However, being a transition period they had no option other than to adhere to the policy. Many moved to the towns with their physical resources, and they had to start life afresh. Yang explores how the relocation had an impact to the rural sector and how the policies of transition were exploiting peoples’ rights. The allocation of resources mainly was for household profit as much of the production was tax free. The inputs to enhance the farm production also cost less. The allocation of resources especially capital by those who had a high level of education, namely high school or college education, to nonfarm activities seemed less compared to those who had primary education7. This meant that many of those who had gone past high school moved to the cities after completing their studies and invested their resources there. The income variation between the two also symbolized the difference in education level. The more one got much educated the more the earnings increased. Those who had gone to school had knowledge to understand the different economic changes and disequilibrium and hence when they occurred they did not get so many challenges. Many claimed that education was expensive and thus could not cater for their children’s education to higher levels. They did not understand that the opportunity cost of educating a child in higher educational institutions in not much and that the gain from the schooling of the child overcomes the expenses incurred in schooling. Household income generally increases when one is educated, and this can project further progress in the education sector as many will see the benefit of education. An expertise deployed in the rural areas to execute their duties is more likely to achieve greater success than one deployed in the city. This is because the officer will ensure efficient allocation of resources according to the needs and rights of the people and in accordance with the relevant regulations. Generally, allocation of resources to the agricultural sector in the rural areas has encountered much challenge, but emphasis on equitable allocation is encouraged. Farm activities contribute largely to the development of any economy in any country and consequently ignorance does no favor to any at all. Household income increases gradually with an increase in the education level and the associated benefits follow. Schooling and Resource Allocation: The Labor- Market Perspective The labor supply continued to increase gradually as education gained its access to the society. The more many people turned to attending school the more the number of labor increased. As the economy continued to improve, more opportunities emerged and this meant that labor was in need. The percentage of the graduates who found off-farm work increased so much and it helped to boost the growth of the economy further. The relationship between labor and wages comes out clearly in the economic growth. However, some policies hold back the progress in the labor market and thus hindering labor supply. High rate of employee turnover impacts negatively to the economy and creates an abnormal distribution curve8. The policies which were majorly known as Xia gang policies required that every town employee to have urban hukou. According to a certain research, the effect of encountering lay off did not only affect ones schooling time but also the period of staying unemployed. The length of time one would stay jobless once laid off increased gradually as the time taken studied. The more one stayed in school the more the time of re employment also increased9. The policy was so contradicting, as those who had spent more time in school, once they got the opportunity for re employment, had less risk of facing layoff unlike those who had shorter time of learning. Labor supply also encountered many restrictions due to the Xia gang policies as migration had legal restrictions. This hindered equitable distribution of experienced and skilled labor and thus production did not match education level in the country. The Xia gang policy had much negative impact on the people and many fought for a change to get rid of the policy. Amendments to the policy at last led to so many movements among the societies and labor mobility increased. So many people moved to different parts of the country and interacted with their fellow citizens. Costs incurred during the movements increased drastically and almost outweighed the economic gains. The people shared and exchanged a lot and they were able to live amongst one another happily and peacefully. The economic gains improved due to increased production that came as a result of increased mobility of labor. Their incomes started peaking again when they settled down and went back to employment activities. Education also increased and the expertise and skill in the market increased10. Marginal Product of Highly Educated and Less Educated Workers Bias may arise when one is estimating production functions as explained by Tybout. In order to overcome this effect, consider two-way variable components. The marginal product of the highly educated and the educated vary in different parts of China. Some parts experience a higher marginal product of the highly educated workers, and low marginal product for the less educated workers. In other parts, the marginal product is the same. The table below with estimates extracted from FE shows the marginal product of inputs for a selected sample of firms, Variables Mean Std. Dev. Min Max MP of capital 1.65 6.81 0.01 141.8245 MP of highly Educated Workers 1017.97 2070.92 5.76 32407.7 MP of Less Educated Workers 210.25 629.73 1.04 11125.95 MP of Highly Educated Workers (2000) 1239.15 2661.58 5.76 32407.7 MP of Less Educated Workers (2000) 275.19 854.28 1.32 11125.95 Earnings of Highly Educated Workers (2000) 96.30 1362.11 0.09 27853.71 Earnings of Less Educated Workers (2000) 36.49 468.95 0.02 9600 This occurs due to various reasons in the different parts of the country. The growing inequality in marginal product has led to the government of China to address the issue immediately11. The “Go- West” program carries much emphasis because it has majorly contributed to investment in specific parts only, which are the western areas and not the whole country. The lowest marginal product of capital is experienced in the western region but not in all the other regions. This attributes to the higher education the western regions get as opposed to the other regions. The various reasons given to support the difference in the marginal product include wages. Highly educated workers receive high wages as opposed to less educated workers and this is believed to widen the gap further. It is evident from studies that marginal product is directly proportional to education. When education increases, the marginal product too increases and vice versa. Many nations try as much as possible to eliminate the gap between the two but all in vain. In China, the gap gradually seems to decline and as more of the population becomes educated, the gap reduces12. Conclusion It is evident from the discussion above that education in China has greatly contributed to its growth in the economy. The more the education has continued to improve the more the economy has also experienced tremendous growth. The fewer challenges experienced in improving the economy together with the education system have been addressed promptly13. The labor distribution and the cost incurred to distribute the labor all formed key issues of the discussion that have helped to conclude the work. Investment in human capital has greatly helped improve the productivity levels and thus the economy’s improvement. The ability of managers to differentiate and understand different disequilibrium has contributed to the transformation of the economy towards success. Although most of the policies in China did not favor education, the government towards improving the education system has made heavy capital investments. The purpose of the heavy capital investment is to reduce the imbalance in growth if China’s economy. The allocation of less funds to lower income areas will increase individual productivity hence lead to low returns and thus commitment to promote rural growth diminishes. Generally, proper and equitable allocation of resources to the less developed areas in China will lead to great success in the future. This is so because many of the residents will have access to education and this will increase expertise and skills to perform to higher standards in the area of operation. The policies developed by the government should aim at improving the education sector but not deteriorating it. All irregularities and shortcomings evident in the existing policies are eliminated. No public government officers should formulate policies that serve their own interest but rather those serves the interest of the people. Every individual in China has a responsibility to ensure education in the country is a success and no one fails in the process of achieving this goal. Through this, productivity increases leading to increased sales hence increased profits, and thus the economy in China will grow due to the educational growth. Bibliography Basu, Parikshit K., and Yapa M. W. Y. Bandara. 2009. WTO accession and socio-economic development in China. Oxford: Chandos. Gallagher, Michael. 2009. 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