A new report (Linking Education Policy to Labor Market Outcomes) from the WB looks at how education improves labor market outcomes. One of the main recommendations of the report is that it is not rational to increase skilled labor force without first assessing demand of such manpower in the labor market. Increasing skills of labor force if there is limited demand for such manpower in the market would be just a waste of resources and would neither spur economic growth nor help the trained labors get high wage jobs, i.e. policymakers need to first look how elastic the market is and bring out economic policies accordingly.
Some interesting stuff from the report:
...If, however, the attainment of these basic skills takes 8 to 12 years of education, as in the systems in the countries analyzed in this report, the system is extremely inefficient. Similarly, if a 15-year-old enrolled in school is unable to use his or her literacy skills for further learning and attainment of knowledge, as indicated by low proficiency scores in international student assessments,the education system has failed the individual.
...The data analyzed in this report indicate that just increasing the quantity of education at the lower educational levels will not raise earnings substantially, and thus not prove to be effective in helping people climb out of poverty.
...In spite of improved primary education completion rates, fewer individuals might be attaining competitive skill sets.
...The literature on human capital accumulation indicates that high quality education at the primary level generates the highest returns, both at the primary level and all levels thereafter.
...Improvements to the quality and efficiency of basic education are urgently needed, in both developing and transition countries.
...Although a number of studies indicate that achieving literacy and numeracy skills in developing countries has a high cost, more research on this topic is needed.
...Different macroeconomic and country contexts create very different labor market demands and associated rewards, suggesting that educational policy needs do not follow traditional development groupings or categories. (In Pakistan, high returns are seen at all levels of education, particularly among women in wage employment, and these increase at higher levels of education, whereas higher returns are apparent only at the highest level of education in Ghana.)
...To gain a comprehensive picture of education–labor market linkages in any country, supply-side analysis needs to be complemented with demand-side analysis.
...The role that FDI flows, trade penetration, and industrial policies play in inducing skills-biased technological change, and thus affecting the demand for education, merits greater research.
...Policies aimed at improving the skills of the workforce will have limited impact on the incomes of those who acquire these skills, or on the performance of a national economy, unless other policies are in place that increase the demand for those skills.
...The framework within which educational supply and demand are analyzed needs to be broadened to include a country’s macroeconomic situation, investment climate, and labor market policies. (A more comprehensive framework will not only strengthen the diagnostic capacity of education supply and demand analysis, it will also streamline the policy approach to education issues.)