Economics, 3rd Edition

Investment in Education and Training 

The school and higher education system in an economy is a 

source of improvements in the quality of future human capital. Whilst many would not see education as 

purely a means of producing future workers, the sort of skills which school and university leavers have 

influence their ability to secure work and their productivity levels. As we have seen, productivity is a key 

factor in improving economic growth and standards of living.

The sort of education system that a country has will, therefore, be important and a number of countries 

have invested in trying to improve standards. The difficulty comes in defining what appropriate standards 

are for the individuals and for wider society. Some countries place a heavy emphasis on improving maths 

and science skills because these are crucial in helping to create new knowledge and innovation in industry. 

SELF TEST 

Why do policies to improve the flexibility of labour markets have to balance the rights of 

employers and employees?

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756  PART 14  SHORT-RUN ECONOMIC FLUCTUATIONS

Governments might provide grants or allowances to help boost interest in maths, science and engineer-

ing degrees; maths and physics graduates may be given incentives to put their skills to use in teaching in 

schools where there tends to be a paucity of highly qualified individuals in these subject areas.

Governments may also help to support training; firms may be reluctant to invest too many resources 

into training workers because of the lack of control they have over what workers do with the training 

they receive. On the one hand, a better trained workforce is beneficial to a firm because it makes 

workers more productive. It also makes workers more marketable and there is a risk that the worker 

moves on to a better job and another firm will benefit from the investment in training made by the 

initial firm. By providing help and support for training, governments may help to overcome this free-

rider problem.