Why More Education Is Not Always Better | Economics Explained

education is one of the most important variables  in determining economic success on an individual   Regional and National level countries with little  to no natural resource wealth or Geographic   positions and even unstable geopolitical  situations can and do outperform countries   that have all of these factors working in their  favor simply because they have a better educated   population but in economics there can be too much  of a good thing and in certain countries around   the world education may be going too far and  costing too much to ever return positive economic   results on an individual level there is more  to just economic returns to consider of course   people seek higher levels of Education because  they are interested in subjects and that's fine   but on a national level when things like Workforce  participation skills mismatches and student debt   are all turning into major economic burdens it's  important to recognize that more isn't necessarily   always better finding the right balance is going  to be hard especially as new technologies are   constantly changing the skill sets that are  demanded by the economy and that's before   considering variables like skilled migration which  can add or subtract skills to the labor market   very quickly if economies can prosper or perish  based on the skills of their people then it's   something that we're going to have to get right  even if it is really difficult and to do that or   at least to have the best shot at doing that we're  going to need to answer some important questions   so are our modern economies becoming over-educated  if they are what are the consequences of having   too much of a good thing and finally what can  be done to slow down or reverse this trend   this episode of Economics explained is brought  to you by Babel it's one of the leading learning   apps globally Babel provides you an engaging  and effective route to mastering real-life   conversations in new languages let me share  an amusing anecdote from a trip to Paris a few   years ago despite my attempts to Auto and Cafe  a coffee my broken French had me erroneously   asking for in shape the hat at a local cafe the  waiters bewildered expression said it all and   left me with a travel tail I won't forget Babel's  lessons aim to avert such amusing yet inconvenient   mishaps they are designed to equip you with  practical conversation skills for travel business   relationships and more during my subsequent  travels vowell's teachings allowed me to immerse   myself in different cultures enhancing My overall  travel experience bursting smoothly with locals   in their language added a delightful Nuance to my  interactions and deepened my connection with these   new places the platform employs a scientifically  proven methodology enabling you to start speaking   a new language confidently in just three weeks the  lessons developed by experienced language teachers   emphasize practicality and real world application  join Babel today and get 60 off your subscription   by using the link in the description and embark on  your own Unforgettable language learning Journey   economics is the study of how people interact with  things of value and while that's simple enough   people are a difficult bunch to properly predict  which is why even four years later we still have   new theories and Concepts to share with you all  watching every week one of the most important   questions that economists must ask themselves  when performing this study is how to determine   the value of goods and services that people are  interacting with different economic schools of   thought have different approaches to finding this  value one of the earliest attempts by economists   to assign value to things originally came about  before economists were even known as economists   the labor theory of value assigns the economic  value of a good or service based off how much   labor is required to produce it A car costs  more than a lump of Steel because a car takes   more labor in total to produce something like  a computer that is very expensive but doesn't   take that many labor hours to produce is explained  by this Theory because all of the capital or the   means of production required to make something  highly Advanced like a computer took a lot of   Labor to produce too so even though laptop might  only take two men hours to produce from beginning   to end it would still be more valuable than 4  hours worth of gardening because of all of the   man hours that went into making the capital  that finally made the laptop from the mines   that harvested the rare earth materials to the  billion dollar factories that produced the CPU   and the massive ships that moved all the parts all  over the world most interpretations of this Theory   also note that not all labor is equal The Gardener  spending four hours mowing lawns will have skills   that are in far greater Supply than the quantum  physicist designing the next generation of silicon   chip Fabs in the Netherlands the way that labor  does become more valuable is through education and   this is pretty clear to see in the world around  US economies with low literacy rates where most of   the workforce are simple laborers or farmers are  almost exclusively low-income countries despite   any natural resource advantages countries that  have basic schooling which enable their people   to work in value-add manufacturing or simple  services that involve reading and writing will   always do better and finally advanced economies  normally become Advanced because they give their   people the education and resources they need to  develop world-class products and technology which   can add value beyond the country's borders Apple  and Samsung phones are produced in China and India   from components made in dozens of countries  from resources mined in dozens more and then   they're transported all around the world on  Dutch ships with Filipino Crews and sold in   hundreds of countries but it's the USA and South  Korea that benefit from this whole supply chain   the most because they were the countries that  brought together enough well-educated people to   produce these products that demanded all over the  world but can only be produced with a brain power   supplied by these economies So based on the labor  theory of value the value of Labor is a product of   how much labor it took to educate put in a less  confusing way it doesn't take many man hours to   educate someone to the level of basic literacy  it takes more to give them a good understanding   of a technical field and even more still for them  to be a world leader with a PhD from Cutting Edge   research every step makes the labor more valuable  and looking generally at the world today it checks   out more educated populations make the wealthier  economies so overeducating just isn't ever going   to be a problem that is according to this Theory  the labor theory of value may have first been   written about by early economists like Adam Smith  and David Ricardo but it was made famous by Karl   Marx who really liked labor the labor theory  of value works really well when there are no   free markets because it can be used by economists  to monitor economic activity even without regular   transactions and of course it fits well into  the general arguments of placing value on a   population's labor the reason that communism calls  for Laborers to seize the means of production is   because the means of production is just another  way of saying capital and capital was built with   labor so someone profiting by owning capital and  doing no work themselves like say a factory owner   is the same as just stealing someone's labor just  with more steps the importance of Labor and adding   value to labor is why the Soviet Union for all  its flaws had a very well educated population   that were able to keep up with or in many cases  exceed scientists and Engineers from the West   given what they had to work with now obviously  this video is not to tell the workers of the world   to rise up so I don't want to get too into that  just yet but we do have a video on that coming   soon so make sure to subscribe so you don't miss  out on that comrade but for now the labor theory   of value is just one scale that we can use to  determine the optimal level of education and   it does have problems the labor theory of value  is not widely accepted amongst most economists   today and even when Adam Smith spoke about it  250 years ago he added the disclaimer that this   system only works in A Primitive society and an  advanced economies The Exchange value of a good   or Services also determined by The Profit taken by  the owners of the capital and the land required to   make it later economists would also include other  factors like the expectation of future value The   Prestige of an item and its utility especially  in highly sophisticated market economies we see   this all the time uh Charizard playing card in  perfect condition took basically no resources   or human labor to produce but it still has a  higher exchange value than that laptop from   earlier I think because it's a prestigious item  and some people expect that it may be worth even   more in the future so they're willing to pay  a lot for it now utility is also important a   laptop in most cases has a higher exchange value  than a 20 meter deep hole in the ground because   unless you're digging a Subway your underground  car park a big hole doesn't really have that much   utility even though it would take a lot more  man hours to produce the subjective theory of   value basically says that something is worth  what people are willing to pay for it but when   we're talking about an education that value is  still a little bit complicated is the value base   purely off how much someone is willing to pay  for a degree is it based off how much the labor   market is willing to pay someone with that  degree and other market dynamics change when   people are getting their education funded by the  government instead of paying for it themselves   since we're looking at this from the perspective  of a macro Economist that is only trying to create   optimal outcomes for the economy as a whole we  can simplify this by saying that people can pay   whatever they want for their own education if it's  something that they value it's okay to seek out an   education for personal fulfillment even if it is  to develop a skill that is not highly demanded   but for the entire economy subjective value is  important the advanced economies that have been   able to leverage Highly Educated populations to  create technologies that add value to the entire   global economy are obviously very grateful for  those small groups of people with world-leading   educations the supplier people like this is very  small but only because it takes a lot of resources   to get that much education but also because well  it's hard just giving a person endless education   does not necessarily guarantee that they're  going to create new technologies to boost the   global economy the other thing is the demand for  people like this is also pretty small yeah sure   advanced economies have got to where they are  today through advancements in technology but   having a country full of nothing but researchers  and scientists just isn't going to work they need   everyday people performing everyday tasks to keep  things going eventually an additional unit or   an additional person because it feels weird to  talk about people as units who is a researcher   is going to have less value than someone who can  build a house or Farm food or even just operate   the technology that the Highly Educated people  come up with the classic example that economists   give when using the subjective theory of value  is diamonds and water diamonds are obviously   more valuable than water we would normally be  willing to exchange a lot of water for just a   small diamond but we and our economies need a lot  more water than we do diamonds and it's the same   with skills a few people with highly specialized  skills can create a lot of value in an economy   but we still need a lot more people in normal jobs  so that's the economic theory behind finding this   optimal level of Education across our populations  but are our economy is getting the balance right   in short not really on a macroeconomic level I'm  sure it makes sense to everybody watching that   the optimal output of an economy would have more  water than diamonds but on an individual level   most people would probably still prefer to pay  diamonds in most advanced economies more people   are spending more time at more universities than  ever to become workers with the most valuable   skills possible but as that Trend continues those  economies are running out of their metaphorical   water even as people are more skilled than ever  major economies around the world are dealing   with skill shortages because nobody is getting  educated to fill the roles that are really in   demand in many countries that's leading to  unusual results where people with Advanced   degrees are earning less than people with a  basic trade skill all other things been equal   that shouldn't be the case because it's harder  to qualify for a job that requires an advanced   degree all other things are of course not equal  remember there are other factors that determine   value the expectation of future value being  a big one someone with a master's degree in   economics might own less than their first year out  of University than someone who left high school to   become a welder ask me how I know but there is  the expectation that eventually the economists   will end up earning more there is also Prestige  and comfort an economist will spend most of their   time in an ergonomic chair and an air-conditioned  office rather than flying to remote mines in the   Australian Outback since the barriers to entry to  these qualifications are far lower than when only   a small share of the population went to University  at all and a far lower share still had a graduate   degree more people are getting them which is  increasing the supply and reducing value for   now a lot of this can be balanced out in advanced  economies through skilled migration that can fill   in the skills gaps for jobs that people are born  in advanced economies don't want to do but endless   migration causes its own problems and eventually  countries will need to balance this out themselves   especially as the world moves away from global  trade the economic trend of global trade and   highly efficient but complicated Supply chains is  starting to reverse in fact it peaked in 2008 and   it's been going backwards since then the aftermath  of the global pandemic and general tensions   between the world's major economic Powers means  that companies are starting to shift their supply   chains back onshore or at least simplify them so  there is a smaller chance of Supply disruptions   in the event to further lockdowns sanctions or  trade restrictions now we have already spoken   about this trend extensively in multiple videos  on this channel before so as always I don't want   to repeat too much here but one thing that hasn't  really been mentioned yet is how this trend could   impact domestic labor markets advanced economies  have so far probably been able to get away with   an overabundance of overskilled workers because a  lot of lower skilled jobs could just be offshored   if the trend really does end up with more basic  manufacturing coming back to advanced economies   then the demand for practical trade skills will  Skyrocket at best this will leave a lot of people   working in jobs that they are overqualified for at  worst it will further heighten the skills shortage   and continue to to stop the supply of goods and  services in our economies over education causes   other problems too eventually someone has to  pay for it in some highly egalitarian countries   education is paid for by the government but the  government is paid for through taxes normally   a better educated population can work in more  advanced jobs and add more value to the economy   so they earn more money and pay more taxes but  as we've explored in this video that only works   up to a point if education is totally free on an  individual level then there is even less to stop   over education and the people of an economy will  collectively end up paying more for Less optimal   outputs most advanced economies have free or  highly subsidized education up to a high school   level and then some system for students to fund  their tertiary education through loan programs   this puts the financial burden more specifically  on the students seeking this education we should   in theory mean that they more carefully assess  the economic returns they will generate from each   level of additional education whether 18 year  olds are really doing that is a bit harder to   say AI but it still has an immediate impact on the  economy if young workers are spending their income   on paying off debts that they took on to get an  education that is going to be undervalued by the   economy they're going to have less money left over  to spend on goods and services contributing to   the output on the demand side on the supply side  they are also going to be entering the workforce   later a basic four-year graduate degree means  roughly 10 of the workers working life will be   spent producing nothing at all again if this gives  them the knowledge they need to produce twice as   much value in every year that they do work it's a  great investment for the student and the economy   but if it doesn't increase their output at all  it's just kind of a waste of time again purely   from an economics perspective so if economists  can see this problem coming can it be fixed   of course nobody can predict the future least of  all economies but the good news is that it kind   of already is fixing itself public awareness  about student debt becoming a real problem in   a lot of countries and jobs that don't require  tertiary education but still pay well is meaning   that University admissions in countries like  the USA Canada Australia and Western Europe   are actually shrinking in many cases only being  kept stable by students coming from abroad which   is something that is overwhelmingly positive for  the host country shifts in what is demanded from   the labor market happens all the time and it  always causes frictions but it normally works   itself out economics is a study of how people  interact with things of value and not to get   too philosophical here but there are very few  things that people value more than their time   so even if we are able to generate slightly higher  aggregate output figures by dictating what people   study it just wouldn't be an operable economic  outcome if it meant that people were spending   their entire lives doing something that they  would rather not thanks for watching mate bye foreign

Channel: Economics Explained

Views: 386,235

Keywords: economics, economics explained, economy explained, overeducation, education, university, jobs, unemployment, jobless, economy

Id: r5sw-6lJmTA

Length: 16min 7sec (967 seconds)

Published: Wed Jun 14 2023