Education and its Impact on the Economy

Education is the process of receiving instruction or knowledge to expand our understanding of a certain topic. Practical education teaches us specific skills that allow us to do more productive work.

How education helps us as individuals

A higher level of education is correlated with a higher pay¹. This is because:

- At higher levels of education, an individual becomes uniquely specialized in a certain skill set.

Since fewer people have this knowledge base, there is a lower supply of these individuals and a

higher demand for them by companies who have requirements for the knowledge. This can result

in businesses paying those professionals a relatively higher salary to attract them to the job and

since they provide value that is scarce.

For example, few people graduate with a PhD in Mathematics each year, so companies like

Google who actively look for Mathematicians, are willing to pay relatively higher amounts to hire

these individuals than other companies who hire individuals with more common degrees.

- On the other hand, an excess supply of workers is particularly harmful to employees. Some

industries have low barriers to entry for new employees — that is those industries with jobs that

don’t require a degree or specialized training. Since there are more potential employees available

than required by businesses, people will be more accepting of relatively lower salaries since their

need to work is stronger than their bargaining power since their skill set can be commonly found.

- With innovation playing an increasingly important role in society, higher education is focusing

more on preparing students for the future rather than teaching them a static set of skills.²

How education helps the economy

A strong education is vital for any country to grow economically and socially.³ A country’s economy

becomes more productive as the proportion of educated workers increases. Education also tends to raise

productivity and creativity, as well as stimulate entrepreneurship and technological breakthroughs. All of

these factors lead to greater output and economic growth.

Taking a closer look at Pakistan, below is the literacy rate in the country:

- Adult (total) literacy rate: 58%.

- Adult (male) literacy rate: 69%

- Adult (female) literacy rate: 46%

(World Bank Data, 2019)

Literacy rate measures the number of people aged 15 and above who are able to read and write. The literacy rate is strongly correlated with a higher GDP per capita (more economic output per person). The graph below shows a range of countries and comparies their literacy rate with GDP per capita. As shown on the graph, countries with a higher literacy rate generally tend to have a higher GDP per capita.

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The Patwari is a not-for-profit education platform. We create content to help people learn about money, finance, savings and economics in Pakistan. Follow us @thePatwari on Instagram for more educational content!

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 1. College Education: Influence on Higher Pay and Job Security. Research.com. 2020. 

https://research.com/universities-colleges/college-education-influence#:~:text=College%2DDegree%20Holders%20Have%20Higher%20Lifetime%20Earnings&text=The%20estimated%20lifetime%20earnings%20of,who%20has%20a%20bachelor's%20degree

 2. How higher education can adapt to the future of work. Farnam Jahanian for the World Economic Forum. 2020. 

https://www.weforum.org/agenda/2020/01/how-can-higher-education-adapt-to-a-constantly-evolving-future-of-work/ 

3. Why education matters for economic development. Harry Patrinos for the World Bank Blogs. 2016. 

https://www.weforum.org/agenda/2020/01/how-can-higher-education-adapt-to-a-constantly-evolving-future-of-work/