Planning Model for the calculation of educational requirements for economic

development-Australia- Canada- USA

Elsa-Sofia MoroteYair Cohen

Dowling CollegeIBEC 2014

China

Theoretical Background

• The interrelation between education and economic development has been discussed since ancient Greece.

• Adam Smith (1776, 1976) and the classical economists emphasized the importance of investment in human skills. Early attempts to measure the contribution of education to economic development were based either on the growth accounting approach or on the rate of return to human capital.

Scientific Analysis

• However, it was not until late in the twentieth century researchers engaged in formal and scientific analysis of this relationship. Several studies have investigated the relationship between economic growth and education such as Psaharoupolous, 1988; Pencavel, 1993; De Meulmester and Rochet, 1995; Jorgenson and Fraumeni, 1998. Their starting point was always the root of the economic growth itself.

• Factor that matters for economic growth• Minute 7.40 – school attainment in 100 countries• Minute 11.36- 13.30 pay off of education – hard to answer• Minute 14.21 -14.45 secondary school is more important for

growth

Increase productivity in human factor economic growth

• The pioneer theorists hypothesized that economic development depended on the increase of capital and the labor factor in the productive processes. A fundamental reason for economic growth was found to be the increase of productivity in these factors of production.

• http://www.youtube.com/watch?v=-4U1NL1ESEo• Senator Webb Introduces the Adult Education

and Economic Growth Act of 2009

New tendencies

• Whereas researchers such as Pencavel (1993) affirmed that correlations exist across countries between economic growth rates and schooling enrollment rates including enrollment in higher education, another group of researchers such as De Meulmester and Rochet (1995), using more sophisticated econometric techniques, found that this relationship is not always a direct one.

Higher education and labor market

• The question of the connections between higher education and the labor market are again among the key issues of debate whenever challenges for innovation in higher education are at stake (Teichler, 1999). For example, in its 1994 report entitled “Higher Education: Lessons of Experience,” the World Bank cited the tensions between higher education and employment as one of the key elements of the higher education crisis related to mismatch of supply and demand of graduates and lack of contact with the market.

Employment and college enrollment

• Employment is an influential factor. For example, in a thorough analysis of almost 23,000 seniors from the national longitudinal study of the high school classes of the USA in 1972, Maski and Wise (1983) found that students are very responsive to tuition, scholarship and alternative employment opportunities in deciding which college to attend. Salaries given by industry are also highly related. This sensitivity to the issue of monetary considerations is important: Willis and Rosen (1979) estimated that a 10 % increase in starting salaries induced almost a 20 % increase in college enrollments. In general, college enrollments respond to the pecuniary net returns from investing in higher education.

The six years lag

• Morote (2001) developed a causality model that connected higher education, employment and economic growth. She consistently found in three countries the 6 year lag of impact. She used Vector autoregressive (VAR) models for forecasting and structural analysis, and also used to test for Granger Causality.

• She tested five countries and found the lag order 6 consistently.

Six year lag and other causes

• Morote (2001) found the six year lag, Wald test for restrictions on the parameters of VAR (6). Thus the economic growth (GDP) and higher education (HE) and an employment rate (EM) were related as in the following VAR(6) model. That means that after 6 years of graduation and in the market the causality between an education and economic growth can be affirmed, the causal relationship will changed depending on economic policies or economic situation measured by the employment rate.

BACK TO THE BASIS

• The OECD and its educational model programmed developed a mathematical model based on professors Jan Tinbergen theory presented in 1962. Shortly after, Tinbergen and Bos presented “a planning model for educational requirements of economic development”

• This model initial model was tested in six countries and have been expanded through the years to several models with different variables added.

• In the first part of this study, we used the simple model first in the USA casa.

Expanding to immigration case

• The model was applied to Australia (AUS), Canada (CAN) and the United States of America(USA)

• We decided to expand the model adding immigration situation. This is important when we want to use the models in comparative studies.

OECD MODEL - CONSIDERATIONS

• Economic life needs a stock of qualified manpower

• Education often consists of a series of successive stages, each depending on the former for its supply of new recruits

• Part of the stock of qualified manpower must be used in the education process itself

• Qualified manpower may important

Education & Economic development of the United States – OECD MODEL

Volumen of Production (GDP)

Labor Force

Tertiary Education

L3

• Number of Students Tertiary Education

• (s3 )

Labor Force

Secondary Education

L2

• Number of students in Secondary Education (s2 )

s26

s36

Extended ModelSecondary Education

Tertiary Education

International Students

Seasonal employment immigration

Workforce

Skilled Employment Immigration

Retirement

Volumen of production

• GDP expenditure approach = private consumption + gross investment + government spending + (exports − imports)

• GDP income approach:• The income approach to calculate 

gross domestic product (GDP) sums the compensation of employees, net taxes on production and imports, gross operating surplus and mixed income. The income-side approach shows how GDP is distributed among different participants in the production process, as the sum of:

Productivity -

• Measured as the increase in output per employee

• Results of higher productivity – Higher income for workers– Higher profit for business owners– Better goods and lower prices for the consumer

• Workforce development contributes to productivity gains by better matching demand for skilled people

According to the OCED

• In order to prosper in today’s economy, local communities increasingly need to ensure that they adequately invest in education and skills. Higher-level skills, such as the ability to analyze and process complex information, be creative and communicate effectively, are all increasing in importance in the context of the knowledge-based economy.

The following relationships are assumed to hold between these variables:

•  

………………………………………….. (1)

 

……………………………. (2)

 

……………………………………. (3)

 

………………………………………….. (4)

 

……………………………. (5)

 

………………………… (6)Pi= student teacher ratio, delta = manpower attrition ratesLamda = Productivity Technical coefficients

Labor Force

• …………………………… (1)Equation 1. The labor force with a secondary education is used for production only and must develop proportionately with the volumes of national production.………………(6)Equation 6. The labor force with a third level education consists of those employed in production, and is assumed to be proportionate in numbers to the volume of production and of those teaching at both levels of education and assumed to be proportionate to the respective students numbers (Tinbergen & Bos, 1965, page 11).Pi= student teacher ratio =.043 (2007) , =.0677

Labor force adjustment

• ……………………………(2)

• ……………………… (5)

• Equation 2 and 5. The labor force consists of those already in it one year earlier and those who have joined it during the previous six years. It is assumed that a proportion delta2 and delta 3 respectively of those already in the labor force one time unit earlier has dropped out owing to death of retirement.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

delta 2

0.142688932404181

0.142508485495304

0.151933146405125

0.137181969227099

0.144575046289926

0.14901701640515

0.148680295306888

0.136408832517004

0.114123156473918

0.133329914106871

0.124332768560707

delta 3

0.120949444053483

0.116138201125683

0.127678042768727

0.125639444600355

0.121223428841558

0.118099881933215

0.122129902451226

0.137301668194317

0.151777108870675

0.153253776798719

0.139781851643821

0.01

0.03

0.05

0.07

0.09

0.11

0.13

0.15

0.17 p

erce

nt

of

man

po

wer

wh

o w

ill

leav

e th

e st

ock

bec

ause

dea

d o

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Stock market crash

Technical coefficients USA(The ratio between labor force and the GDP)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -

1.00

2.00

3.00

4.00

5.00

6.00

4.69 4.55

4.32

4.03 3.82

3.65 3.49 3.44 3.44

3.31 3.11

2.94

0.81 0.79

0.77

0.75 0.72

0.70 0.70 0.73 0.78

0.78 0.76

0.76

technical tertiary

Technical Secondary

The ratio is going down, meaning we produce more with less manpower due to the increase of technology

Six year OECD model Projectionproduction in billion, population in thousands -USA

Assumption: Growth in GDP 3.5%/year, retirement rate 12% & 7%

  1999 2005 20112017

Projection

GDP 9,301 12,564 14,991 18,065

N2

96,422 96,911 95,520 95,083

N3

48,267 56,000 63,548 72,663

m2 - 12,102 11,917 11,025

m3

- 9,914 12,208 13,562

n2

22,445 24,432 24,144

n3

9,196 11,000 13,610

Applying the model to three countries

• AUSTRALIA• CANADA• UNITED STATES OF AMERICA (USA)

Australia, Canada, and the United States of America

• Similar historical background (colonized by the British); similar predominant language (English).

• Similar socioeconomic, educational and political systems.

• Similar experiences with immigrant populations.

• Educational challenges: - Australia: Close the achievement gap for indigenous populations.

- Canada: Continue to improve levels of student achievement, reduce gaps in achievement, and increase public confidence in education.

- United States: Improve levels of student achievement as compared to other students internationally, reduce gaps in achievement, especially disparities among economically disadvantaged, minority, and special needs students. The United States has the largest gap between the highest performing students and the lowest performing students of the nations belonging to the Organization for Economic Cooperation and Development.

Above Average Income Inequality Below Average Income Inequality

GINI Index

OECD Average=.34

OECD Average=.31

Per

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of v

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nce

in s

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Exp

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bac

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Australia, Canada, and the USA Comparison Table

(Figures are in Thousands)

USA Canada Australia

GDP Billion $ 14,419 1,577 1,138

Labor force Secondary education 95,838 10,225 7,510

Labor force Tertiary education 62,140 9,105 4,205

# of students in 6 years Secondary Education 24,193 2,658 1,533

# of students in Tertiary Education 13,335 1,739 1,193

# of international Students 723 175 230

# of students study abroad 274 45 10

# of Seasonal Visas approved 315 17 227

# of Skilled employee visas approved 118 98 114

PISA

• PISA exams are not directly linked to any particular curriculum.

• Exams are designed to assess the extent to which students who are near the end of their compulsory education can apply their knowledge to real-life situations.

• Exams have been administered every three years, in reading, science, and math, beginning in 2000. More than 70 countries have participated in the exams.

Students’ Performance

• The average scores of U.S. students has remained constant since 2000, but the United States has fallen in rank in reading and science, and has remained unchanged in math during the same period.

• Canada and Australia substantially outperform the United States on the PISA assessments each year.

 

Student Performance

PISA 2009 Results,1 Table I.2.3

PISA 2009 Results,1 Table I.3.3

PISA 2009 Results,1 Table I.3.6

Mean PISA score on the reading scale 2009

Mean PISA score on the mathematics scale 2009

Mean PISA score on the science scale 2009

Score S.E. Score S.E. Score S.E.

Australia 515 (2.3) 514 (2.5) 527 (2.5)

Canada 524 (1.5) 527 (1.6) 529 (1.6)United States 500 (3.7) 487 (3.6) 502 (3.6)OECD average 493 (0.5) 496 (0.5) 501 (0.5)

Australia 2010 Data Review

• 20% of Australia tertiary education are international students.

• 227,036 temporary visas approved annually in a program called Holiday work visa for young people ages 18-30 (3% of secondary level workforce)

• 113,725 skilled employees multiyear visas approved annually (14% of tertiary workforce over 6 years lag)

Australia Education Highlights (OCED Report June 2013)

• Students: One of the highest PISA performers among OECD countries (#9-reading, #15 math, #10 science)

• I……new results…

• Institutions: Australia’s schools have positive learning environments, strong pedagogical leadership and well-prepared teachers

• Governance and funding: Australia works in a decentralized environment, and the education system is steered nationally through agreements with states and territories, focused on education priorities and funding

Australia 2025 workforce goals• Sustain Economic growth and raise productivity by increasing skills and avoiding

future skills shortages

• Lift workforce participation to 69 per cent by 2025 to provide the required workforce and improve social inclusion

 • Lift the unacceptably low levels of adult language, literacy and numeracy to enable

effective educational, labor market and social participation

• Increase productivity, employee engagement and job satisfaction by making better use of skills in the workplace

 • Position the tertiary education sector to ensure it has the resourcing and workforce

capacity to deliver skills for the new economy

• Lead a new partnership approach to workforce development at government, industry and enterprise level

Canada labor force needs

• Demographic projections suggest Canada will not be able to rely on population growth to fuel our economy in the coming decade.

• By 2030, the population over the age of 65 will double, while the working age population (25-64 years of age) will grow by just eight percent. There will simply not be enough population growth to drive the kinds of increases in the overall size of our labour force that would be needed to support an increasingly dependent, aging population. Canadians are in for a major demographic shift.

Canada higher education needs

• In 2010, international students represented approximately eight percent of full-time undergraduate students in Canada, approximately 18 percent of full-time master’s students and 23 percent of full-time PhD students. Greater representation of international students at the graduate level is not unique to Canada. For example, in the U.S., visa students represent about two percent of full-time undergraduate students in four-year public universities and about 23 percent of full-time graduate students. In the U.K., international students represent 55 percent of the graduate student body.

Planning education: AUS, CAN and USA – adding immigration factor

Volumen of Production

(GDP)

Labor Force Tertiary

EducationL3

National + exported

labor

• Number of Students Tertiary Education

• (s3 )

Labor Force

Secondary Education

L2

• Number of students in Secondary Education (s2 )

• - (Current Students- foreign students - National Students Overseas)+ Working Visas s2

6

s36

Emerging Populations

• Immigration has a profound impact on a country’s economy and society. The successful adaptations of each wave of immigrants and their children depend on the society’s response to newcomers, and especially on the effectiveness of a country’s educational system.

• Australia, Canada, and the United States are among the countries that are major immigrant-receiving countries.

Country Percentage of foreign born population

Australia 22.2%

Canada 19.8%

United States

12.5%

Participation in the workforce

Elementary & Secondary Education

Tertiary Education

USA 56.2% 73.2%

Australia 68.9% 86.2%

Canada 63.6% 80.0%

Percent share of international students, AUS, CAN and USA

• In 2007-2008, U.S. universities attracted some 580,000 international students, by far the most in the OECD. The U.K. was second, attracting about 310,000 students, followed by Australia with almost 200,000 and Germany and France with approximately 180,000.

• However, given the overall size of the U.S. system, only four percent of their university-level students were of international origin, whereas international students represented approximately 21 percent of Australia’s student population, followed by 17 percent in the U.K., 11 percent in France and nine percent in Germany. In 2007, with a little above seven percent, Canada was near the middle of OECD countries in terms of the share of international students at all program levels.

Extended Model𝜸 total volume of production (income) of a country

L2 the labor force with secondary education

L3 the labor force with a third level education

Ln62 those who have entered the labor force with secondary education within the previous six

years

Ln63 those who have entered the labor force L3 within the previous six years

s2 the number of students in secondary education

s3 the number of students in third level education

I3 the number of international students in third level education

A3 the number of students in third level education studied abroad

V2 Unskilled employment Visa (usually one year)

V3 Skilled employment visa

T2 Unskilled international employees without visa (treaty agreement/ or undocumented)

T3 Skilled international employees without visa (treaty agreement)

Extended Model• The following relationships are assumed to hold between these

variables:•  • …………………………………………………………………………………... (1)•  • …………………………………………………………………. (2)•  • …………………………………… (3)•  • …………………………… (4)•  • …………………………………………………………………(5)•  • ……………………………………………………………. (6)•  

• Equation 1. The labor force with a secondary education is used for production only and must develop proportionately with the volumes of national production.

•  • Equation 2 and 5. The labor force consists of those already in

it one year earlier and those who have joined it during the previous six years. It is assumed that a proportion y2 and Y3 respectively of those already in the labor force one time unit earlier has dropped out owing to death of retirement.

•  • Equation 3. The number of newcomers to the labor force with

a secondary education is equal to the number of students’ one time unit earlier minus the number of students now in third level education plus the number of international students (since they are part of the third level education) minus number of students who study abroad and therefore are not counted as third level education + non skilled visa employees usually given for one year per the need of the local industry + six years sum of unskilled employees without visa (in Australia due to treaty agreement with New Zealand, In US & Canada this number represent illegal immigration).

•  

Extended Model

• Equation 4. The number of newcomers to the labor force with a third level education is equal to the number of third level students’ one time unit earlier – 95% of international students who go back to their homeland + 95% of students who studied abroad + six years accumulation of skilled employees visa (since skilled employees visa is a multiple years visa) + six years accumulation of skilled employees without visa (in Australia due to treaty agreement with New Zealand).

•  • Equation 6. The labor force with a third level education consists of

those employed in production, and is assumed to be proportionate in numbers to the volume of production and of those teaching at both levels of education and assumed to be proportionate to the respective students numbers (Tinbergen & Bos, 1965, page 11).

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Canada

11.5148552846682

10.1871858807729

8.73239016960407

7.68261328015133

6.92045946933618

6.63953092463195

7.55132114728807

6.48392073699708

NaN NaN

USA 8.68477910438441

8.17460040954786

7.71323058854958

7.31051494491495

6.96481588401716

6.84299608447077

6.92397656613711

6.64648095042944

6.37170277568387

NaN

Aus-tralia

14.9877597741749

11.259574516661

10.1386953258523

9.47290838401016

8.75838728543238

7.13420728199915

8.1920040396477

6.69798684683662

5.55091993469216

5.09201026501417

2.00

6.00

10.00

14.00

f(x) = − 0.659959488653018 x + 11.1838523106198R² = 0.797957378342138

f(x) = − 0.264711509957109 x + 8.61612391735612R² = 0.913125616880351

f(x) = − 0.919350079320167 x + 13.784870801693R² = 0.889382486597636

Technical Coefficients - Secondary

Axis Title

Efficiency AngleAustralia = 49.82 grades

Canada = 35.70 grades

USA = 16.23 grades

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Canada 8.2358663720319

7.30120252269903

6.687771947027

6.14476688863424

5.75585968303429

5.59237487158971

6.44220520138563

5.60217032383103

NaN NaN

USA 4.60118341221155

4.41619302510845

4.24314132502857

4.1398743245142

4.04403270028639

4.08768200510688

4.25044725922715

4.11364310745256

4.1784970063933

NaN

Australia 6.33916498155758

5.12372868438254

4.87184396433705

4.57872299359753

4.0558617830685

3.47841960754647

4.16808885775095

3.53447564371413

3.02659362253136

NaN

3.50

4.50

5.50

6.50

7.50

8.50

f(x) = − 0.314356635427201 x + 7.88488208570151R² = 0.692143785377408

f(x) = − 0.0439329304541805 x + 4.45018622619635R² = 0.459209836970578

f(x) = − 0.342097635955556 x + 6.06347708405402R² = 0.858864474136417

Technical Coefficents - Tertiary EducationEfficiency Angle:Australia: 21.25Canada: 19.38USA: 3.98 grades

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Canada 0.075800725638189

0.0614829303991142

0.0882694162496508

0.102460844031049

0.0885962375317731

0.0920206301518198

0.0839299263823566

0.0849867455196233

NaN NaN

Australia 0.0664463818128644

0.0857108268397148

0.0828611411092072

0.0633596648608141

0.0337302737624094

0.0203816452690126

0.0374766306848368

0.0215765603820969

0.0386845597152266

NaN

USA 0.130966829703426

0.125547398584959

0.12062559211252

0.120116484605812

0.126746041342278

0.121384114820563

0.13083830086492

0.124785352557441

0.127665732335543

NaN

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

13.0%

Percent of Manpower - Secondary Education - who will leave the Market because retirement or dead

Axis Title

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Canada 0.0201584690353086

0.0167247045149895

-0.003341464

12440489

-0.016643751

4193356

-0.003490064

33050805

0.0201576410160004

0.0499717163156507

0.0538347836970284

NaN NaN

USA 0.0529291107531907

0.02628539132237

0.0451766465729789

0.0419190826103609

0.0471642962246838

0.0489736693070417

0.0598908860755576

0.081805683526674

NaN NaN

AUS 0.0378265507409929

0.00790839627902093

-0.032077458

7440134

0.0317238750985935

0.119802204852314

0.150371694214634

0.14434644872086

0.150848374624268

0.174535262456278

NaN

-17.5%

-12.5%

-7.5%

-2.5%

2.5%

7.5%

12.5%

17.5%

Percent of Manpower (Tertiary Education) who will leave the market because retirement or dead

CONCLUSIONS

• This study extends this theory specifically to secondary and higher education. Nevertheless, investment would not contribute to improvements in economic growth if policy makers did not also relate education to labor.

• In other words, higher education must provide the education related to and needed by the labor market.

Unlike the United States, Canada and Australia have developed “value added” immigration policies designed to boost GDP and per-capita incomes (Marshall, 2011).

While these two countries recognize the importance of markets as institutions, they also realize that markets unchecked by moderating policies and institutions will produce declining real incomes for many or most workers and unsustainable inequalities in income and wealth (Marshall, 2011).

Canada and Australia have explicit employment-based migration policies that are closely related to other economic and social objectives (Marshall, 2011).

Conclusions

Further studies

• In the same way, how education would impact to national wellness, will be moderated by the quality of education and how it affects the human development of a country. Economic growth itself will not be sustained unless preceded or accompanied by improvements in Human Development (HD) and using GDP rates as an indicator of a country economic wellness, can hide other areas that the governments needs to focus on to generate that wellness.

Further studies: Human development index instead gdp

• Several researches have discussed the need of a more integral index, some have created HD index of a country, and much of them suggested that it should be consisting of the health and education of its people, recognizing that this is very much a reductionist interpretation. Furthermore, Human development reports (2009) conultants who created the HD index is exploring challenges including poverty, gender, democracy, human rights, cultural liberty, globalization, water scarcity, climate change, and mobility to measure human development (Human Development Reports, 2010, http://hdr.undp.org/en/reports/global/hdr2010/).

Further Research

• Questions?• Elsa-Sofia Morote

sofiamorote@gmail.com• New York