Investments in education are a key driver of labour productivity growth, according to Barbara Baarsma, chief economist at PricewaterhouseCoopers and professor of economics at the University of Amsterdam. In the Economist Magazine Esp.
Dutch labour productivity fell by 1.3 percent last year compared with the previous year, figures from Statistics Netherlands showed last week. It was one of the biggest declines in 50 years. Only during the financial crisis of 2009 was the decline sharper. Labour productivity fell in only five other EU countries.
For Barsma and research assistant Francisco Dore Neves, that was the reason they decided to study the factors that determine labor productivity growth. They used a model from the World Bank and compared productivity developments in more than two dozen European countries and the United States.
In light of the ageing economy, Baarsma believes it is important to know what the Netherlands should focus on to boost labour productivity. “Because of the ageing population, the proportion of the working population is decreasing,” she says. “If you want to keep the economy growing, you have to do only one thing: work more productively.”
Countries with higher scores on the Programme for International Student Assessment have higher productivity growth.
The best way to do this now is to invest in education, according to research by Baarsma and Dore Neves. “This is mainly because the quality of education in the Netherlands has deteriorated in recent years compared to other countries we compared,” says Baarsma. The quality of education is measured, among other things, by the so-called PISA score. Countries that invest more in education and achieve higher scores in the Programme for International Student Assessment appear to enjoy higher productivity growth.
Outline Agreement
The Dutch government spends a relatively low share of GDP on education, says Baarsma. “Although the new government’s main agreement says that the quality of education is deteriorating, if you look at the accounts, you see big cuts in education and research.”
According to Baarsma, this poses a problem for labour productivity growth, because better education ensures that employees perform better. They have more skills and are therefore able to produce faster and in larger quantities. “The risk is that companies will eventually leave the Netherlands because they cannot find enough trained employees.”
After education, innovation is the most important driver of labour productivity, according to an analysis by Baarsma and Dore Neves. For example, new technologies can help take over “routine and repetitive tasks”. This frees up space for employees to focus on more complex tasks that generate more money. Baarsma: “Education and innovation go hand in hand. Employees with higher education are more open to innovations, for example because they have greater digital skills and can therefore adapt more quickly.
According to Baarsma, policymakers do not sufficiently realize how important education spending is for increasing labor productivity. She hopes that the new government will take a broader look at the Dutch productivity agenda and halt plans to cut education. “In the long run, it will have a negative impact. And also on economic growth.”
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This growth is important, says Barsma. “Not as a goal, but as a way to generate more tax revenue while increasing GDP.” According to the Economist, if the economy grows less in the long run, the government will have to make big cuts to public benefits, such as health care, education and justice. “Citizens will then see health care, education and justice become less accessible, because they have to pay more for it and because there are longer waiting lists. This is at the expense of broader prosperity.”