Human capital proves worth

May 26, 1995

Improving workers' education can boost productivity more than adding tools and machinery, according to the census bureau of the United States department of education.

Based on interviews with managers and owners of 3,000 businesses, the study found that a 10 per cent improvement in the educational attainment of a company's workforce produced an 8.4 per cent rise in productivity.

A 10 per cent increase in the value of capital stock such as tools, building or machinery, however, produced only a 3.4 per cent increase in productivity.

While studies over the years have correlated education with higher wages, this is the first large-scale survey to link education directly to productivity.

Democrats seized on the results. "These are very, very dramatic," said labour secretary Robert Reich. "What they show is the utter folly of the Republican budget proposals, which would cut education and training in hopes of boosting somewhat the incentives to invest in physical capital" The findings could not come at a worse time for Republicans. In the House of Representatives they have proposed cutting by one-third the $8 billion a year spent by the federal government on education and training programmes. That includes eliminating Mr Clinton's $250 million School to Work scheme.

The survey, commissioned by President Bush and designed by the National Centre on the Educational Quality of the Workforce at the University of Pennsylvania, measured productivity in terms of sales, controlled by hours worked.

It found that companies that used grades in hiring and forged links with schools through work placements or training schemes tended also to have higher productivity and more innovative workplace practices.

The first part of the survey, published in February, found employers tended to disregard grades and school evaluations when deciding recruitment.

Instead they would base their judgements on factors such as attitude, communication skills, previous work experience and recommendations from current employees or previous employers.

"The lesson that emerges is simple," the report said. More "direct, substantive and businesslike transactions" between employers and schools.

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