So far in this series, we have tackled the issue of industrial policy and how it can impact a country’s prospects. Industrial policy can mean that a country’s government has a vision and a plan to support that vision. This vision and plan should support how the country views its place in the world and the expectations for the lives of its citizens. If a country envisions a global leadership role and high standards of living for its citizens, it will need to have sound industrial policy that result in a growing economy that employs its citizens in high-paying jobs and a strong tax base. What is a tax base? A tax base is the revenue that a government collects from its citizens. This is the money that the government uses to do everything that it does: provide safety net programs; spend money on national defense; AND make key investments that can result in future economic growth, which in turn result in a higher tax base that it can use to make even more investments.
We have talked about some of these investments: basic research and development that makes key scientific and technological discovery and inventions that create new industries; investment in infrastructure that results in increased overall productivity in the economy; and investments in education that improve the skill level of its citizens. The last one was the focus of our last post in this series. We touched on the key elements of a great educational system: good teachers, high-quality schools, and students who are prepared to learn.
The key issues that I’d like to tackle in this post are whether US spends enough on educating its citizens? and, does that translate into a well-educated workforce that is ready for high-paying jobs? An examination of the data shows that US actually spends a comparatively high percentage of its GDP on education (Figure 1)
As you can see, US is on the top end of the OECD countries in terms of its investments in education as a percentage of its GDP. This is encouraging and probably is in part responsible for the fact that US has a strong economy and its GDP per capita, which is a measure of a country’s overall wealth, is among the highest in the world. There are, however, indications that although US spends a high amount overall on education, this money is not necessarily well-spent and that there is much room for improvement (Figure 2)
This is probably at least partially responsible for the fact that there is a large and growing skills gap in US. What is a skills gap? It is the gap between the skillset of the citizens of a country and the skillset required for the jobs in the marketplace. There are currently millions of jobs unfilled in the US because there are not enough trained individuals to fill those roles. This is opportunity lost! This is significant tax revenue that the government is not collecting, products and services that companies are not producing and revenue they are not generating, and high wages that people are not earning.
Why does a country that spends a respectable amount on education has such a significant skills gap? Let’s discuss that in the next post in this series.