Free Cheese, not in the Mousetrap

OECD has a nice cost-benefit analysis of returns to education. First, what a high school gives to students:

Source
Source

Okay, huge net benefits for a degree. Even more interesting is the “unemployment effect.” Here lies a monetary value of higher employment security. The degree holder spends less time unemployed due to job security during crises and later retirement. This component is especially high in Slovak and Czech Republic. These countries have one of the lowest wealth inequality in the world, but it looks like the effect of relatively low incomes in the top quantiles. Their labor markets need more highly educated employees, as the market quickly absorbs high skilled candidates and low-skilled workers remain jobless (unemployment rates of 14 and 7% for Slovakia and Czech Republic, respectively). You can compare it to Korea, which has a more balanced labor market: a degree holder earns more but not because she gets jobs faster.

Net lifetime gains from having Bachelor’s, Master’s, or PhD:

screenshot

Eastern Europe could do a lot better given its middle-income status. Slovenia and Czech Republic would greatly benefit from more educated workers. A Hungarian with a tertiary degree creates more benefits for others than for herself, which makes a case for government support. It’s not necessarily support for education spending in this particular case. Free labor migration within the EU creates difficulties for public spending on education. Political support for these subsidies is low because students who get free education may migrate to high-income Germany and United Kingdom. High returns to tertiary education in Eastern Europe discourage this move, but they cannot fully offset the income gap between the West and the East.

So, it’s a case of the European Union without unity. Countries still have independent budgets (with exception of “stability and growth” rules), collect and spend their public revenues, but have to distort policies in response to other members stealing employment, demand, capital, or workforce. So, hypothetically, net beneficiaries from the brain drain should compensate losers for free public education.

But the point is, countries with fewer emigrants keep the returns to education and should invest in it more. Both by increasing public spending and by facilitating student loans. It’s not rocket science, just more care about people’s future.

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