What Effects Does Education and Training Affect the Economy


Both can bring benefits and assist in eliminating inequities

What does a country’s educational system affect the economic growth of its country? Why do people with degrees from college earn much more than those with no degrees? Understanding the way that education and training interact along with economy could help to explain why certain businesses, workers and economies prosper while others struggle.

As the supply of labor grows upward pressure is placed on wage rates. In the event that the employers’ demand for labor does not keep pace with the demand for labor the wages will usually decrease.


The oversupply of workers can be particularly detrimental for workers in sectors with low barrier in admission for new workers, that is, the ones with jobs that do not require a degree or special training. However, companies that have more education requirements and higher training requirements usually offer workers higher salaries. The higher wages are due to a lower workforce that can operate in those fields, and the education and training requirements costing a lot.

How education benefits a nation

Internationalization as well as the international market requires nations in their respective economies to compete each other. Countries that are economically successful will have competitive and advantage over other nations even though one country seldom has a specialization in one field.


The typical advanced economy is comprised of a range of sectors that offer various advantages and disadvantages in the international market. The training and education of the workforce of a nation is an important aspect in determining the way the economy of a country will be.

How job training influences the economy

A strong economy has a workforce that is capable of running industries at a rate that has an advantages over the economies of other nations. Some countries may want to encourage training by offering tax incentives and facilities to instruct workers, or any of a number of other strategies created to produce a better educated workforce. Although it’s unlikely that a skilled economy can have an advantage across all industries, it is possible to focus on a few areas where skilled professionals are more likely to be educated.


Differences in training levels are a significant factor that separates developed and developing countries. While other factors are definitely at play, including availability of resources and geography The fact that better-trained workers are more productive creates ripples across the economy and positively externalities.


Externalities could have a positive impact on the economy because of an educated workforce. Also every business benefits from external factors of having a well-trained workforce to choose employees. In certain instances the labor force that is highly skilled could be concentrated in a particular geographical region. In this way, businesses with similar operations could cluster within the same geographical region due to the skilled workforce. An instance being an example isSilicon Valley in Calif.

For Employers

In the ideal scenario, employers would like employees who are efficient and require less supervision. Employers should consider several factors when deciding whether not to fund employee training, including:


  • Can the training program boost the effectiveness of workers?
  • Does the rise in productivity be enough to justify covering all or a part in the course?
  • If an employer provides training, can the employee be able to leave the company to work for an alternative when the training is completed?
  • Are the newly-trained workers likely to be able to earn an increase in pay?
  • Does the worker get an increased bargaining power or leverage to negotiate a higher salary?
  • If increases in pay are justified because of the training, will increase in profits and productivity will be sufficient to cover increase in wages in addition to the overall expense of the training?


Employers often require employees to stay with their company for a set period of time in exchange for training in lieu of a fee which eliminates the possibility of trainees being let go when their free training ends.

There are times when employees do not want to take on training. This is especially true in areas that are dominated by unions as increased security for jobs can make it harder to find skilled workers or dismiss employees who are not trained. However, unions can also bargain on behalf of employers, to guarantee their members are trained better and therefore more productive, which decreases the chance of work being moved out of the country.


For Workers

They can earn more through the development and refinement of their abilities and capabilities. The more they understand about the job’s purpose and sector as well, their value are for employers.


Some employees may be interested in learning new techniques or learn new techniques in order to earn a higher salary. In general, employees can anticipate their earnings to rise but in a lesser proportion than the gains in productivity that employers enjoy. It is important to consider many aspects when deciding to enroll in a program of training for example:

  • How much additional productivity could they achieve?
  • Does the training program cost the employee for the training program?
  • Is the worker likely to see an wage rise that is sufficient to justify the expense for the programme?
  • How are labour marketplace conditions for professionals with higher education in this particular field?
  • Are the markets for labor over-saturated with skilled laborers in that field?


Employers can pay all or a portion the costs of training, but it isn’t always the scenario. Additionally, an employee could lose their income if the course isn’t paid for and they’re in no position to work as many hours as they did before.

To the Economy

Many countries have placed more importance on creating an educational system which will generate workers capable of working in the new fields including technology and science. This is partly due to the fact that old industries in the developed world have become less competitive , and consequently are less likely to remain dominant in the industrial scene. A movement to enhance the basic education of the populace is gaining momentum, with a growing acceptance that all citizens have the right to education.


If economists refer to “education,” the focus is not solely on students who have university degrees. The term “education” is often broken down into distinct levels:


  • Primary school is the primary elementary school in the United States
  • Secondary school–middle, high school and preparatory school
  • Post-secondary–university, community college, and vocational school


The economy of a country becomes more productive when the proportion of people with education increases, as educated people are able to more effectively accomplish tasks that require critical thinking and literacy. But, attaining the highest level of education isn’t without cost. It is not necessary for a country to have a large system of universities or colleges to gain from education. it could provide basic literacy programs and witness economic growth.


Countries that have a larger percentage of their population who are enrolled in and graduating from school experience more rapid growth in their economy as compared to countries with less educated workers. This is why numerous countries offer funds for education in secondary and primary schools to boost economic performance. In this way the education system is an investment into the human capital as is the purchase of better equipment.


It is the ratio between kids who are of secondary school age who are enrolled in schools to the total number of children who are of secondary school age in the total population (referred to by its ratio of enrollment) is more in developed countries than in the developing countries. 2


The percentage of students enrolled is different as a measure from the calculation of education expenditure in percentages from the gross domestic product (GDP) that isn’t always correlated with the degree of education in a particular country’s population. GDP is the result of goods and services produced by the nation. So, spending a large portion of GDP on education won’t necessarily mean that a nation’s population is better educated.


In the business world, employees’ intellectual capabilities can be considered as an asset. This asset is used to develop items and products that are able to be offered for sale. The better trained workers employed by a business is the greater amount of product that the firm could theoretically create. A society where employers view education as an asset is usually called an one that is based on knowledge.


Like all decisions making, investing in education comes with the chance cost for the individual. The hours spent in school mean less time at work and less an income. Employers however, offer higher salaries when the duties required to finish a job demand more education. So, even though an employee’s earnings may be less in the immediate time however, the wages are likely to be higher when the training is completed.

The Bottom Line

The skills and knowledge of the workers in the labour market are the most important factors that determine the growth of both economic and business. Countries with a large supply of skilled workers, which is the result of formal education and professional training are typically in a position to benefit through the development of more high-value industries, like high-tech manufacturing.


It is essential for countries to ensure by enacting laws and employment programs that their citizens can access the educational and training opportunities that will boost the performance of the quality of work, businesses as well as the overall economy.

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