Notes on the Productivity Improvements from Education

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Total Factor Productivity (TFP) or we may also call it productivity (Y/L) is a very significant concept against the background of economic growth of a nation, especially developing countries. It contributes to industrial growth and brings competitive environment in the international market and refers to the rate at which employment is generated from the employed resources (Ahluwalia, 1991; Biesebroeck, 2003). An improvement in the productivity level results in better utilization of resources and diminishes the cost and the prices of industrial goods and services, which in turn, leads to a faster growth in demand in both national and international markets. Productivity is used as a point of reference or yardstick to rank firms or economies.
Education as an investment is 3.5 times more attractive than investment in physical capital like machinery (Schultz, 1961). In agriculture, research studies covering 31 countries concluded that if a farmer had completed four years of schooling at elementary level, his productivity was on an average 8.5 percent higher than that of a farmer who had no education at all. In case of India, there is a proof that adoption and spread of green revolution in the early years was faster among the educated farmers. In secondary or industrial sector, most research evidence suggests that at the business or enterprise level, educated workers are more productive.

The attainment of education or years of schooling is positively related to entrepreneurial participation rates and value of firm’s production. The average educational attainment of Nigerian entrepreneurs in firm’s with eight or more workers is more than firms with large number of workers and this difference becomes insignificant if entrepreneurs from smaller firms are included in a sample, that is to say that the relationship between education and supply of entrepreneurs becomes insignificant once smaller firms are incorporated in the sample. Consequently, more education by increasing knowledge, skills and training level also tend to increase the supply of entrepreneurs (Nafziger, 1970). The various sources of US growth for the time period 1929-82 was analysed by Denison (1985) who found that education and change in the level of technology contributed 14% and 28% respectively to growth in output during this period.

A study for 88 countries for the period 1960-63 and 1970-73 found that an increase in literacy from 20 percent to 30 percent were associated with an increase in real GDP of between 8 and 16 percent. Another study of 37 middle-income and 29 low-income countries indicated that a 1 percent difference in the primary enrolment ratios was associated with 0.035 percent difference in per capita income growth rates.

Egalitarianism highlights equality for all people but it doesn’t mean that it should be forcefully thrust upon people. Education increases equal opportunity and egalitarianism as well. A study of 49 countries showed that about a fifth of income inequality could be explained by educational inequality. Another study showed that an increase in literacy rate from 10 to 60 percent has been associated with a 2.8 percent increase in the income share for the poorest 40 percent of the population.

At lower levels of development, in some cases, explaining education could possibly increase inequality, but with development, education does seem to generally have an income levelling effect. The poor countries get much higher rates of return than the rich countries from investing in education. For the poorest countries, the highest returns are from primary education. For instance in case of African countries the estimated rate of return on primary education was 26 percent in comparison to 17 percent for secondary education and 13 percent for higher education.
Labour and capital productivity in developing economies is very low and this problem is very prominent. Augmenting labour productivity levels in both labour and capital is a major challenge for such countries. Investment in education should be undertaken so as to improve the labour and capital productivity which should increase efficacy and competitiveness, economic growth and development, availability of jobs, the standard of living along with the quality of life. Key issues in the level of productivity take account of the faulty and weak systems of education and teaching models and systems. Furthermore, there is a divergence between training productions/productivity levels and the demand for labour in the labour market. Therefore, there is a need for ground-breaking education and training strategies which can improve productivity levels in the market.

Biesebroeck, J.V. (2003) “Revisiting some Productivity Debates”. NBER Working 34 Paper No. 10065.
Goldar, B.N. (1986) Productivity Growth in Indian Industry, Allied Publishers,New Delhi:
Ahluwalia, I. J. (1991) Productivity and Growth in Indian Manufacturing, Oxford University Press, Delhi.
Raghavan, P. & Kumar, N. (2011). Indian Economy. Eleventh Edition. Spectrum Books Pvt. Ltd., New Delhi. ISBN:81-7930-423-X.

The author is a Research Scholar at the Department of Economics, Central University of Kashmir, , an Academic Counsellor, IGNOU STUDY CENTRE 1209,S.P. College, Srinagar and Editor in EPH – International Journal of Business and Management Science & Asian Journal of Managerial Science; Ezine Articles Expert Author. She is also the IJRULA title awards, 2018 winner (Best Researcher, 2018) and can be reached at: