Education and training → Growth: chain of analysis

ChainWhat it assumes · how to break it

Start

The government increases spending on education and training, for example funding apprenticeships and adult skills courses.

As a result, workers gain skills and qualifications, raising the stock of human capital.
human capital

Assumes: The training matches what employers need.

But: Poorly targeted courses may add qualifications without adding skills that employers will pay for.

This means labour productivity rises: each worker produces more output per hour.
labour productivity

Best link to attack
Assumes: Higher skills turn into higher productivity.

But: Productivity also depends on capital and management. Skilled workers using old equipment, or in badly run firms, add little extra output.

Consequently, the productive capacity of the economy increases, so LRAS shifts to the right.
LRAS · productive capacity

Assumes: Trained workers stay in the economy.

But: Some trained workers emigrate for higher pay elsewhere (brain drain), taking the gain with them.

Therefore, potential output rises, so the economy can grow faster without running into capacity limits.
trend growth · potential output

Assumes: Demand grows to use the extra capacity.

But: If AD is weak, the extra capacity goes unused and actual growth does not rise.

End

Long-run economic growth rises.

Time lag: schooling takes a decade or more to affect the workforce, and even short training schemes take a year or two to show up in productivity.

Can you say this chain from memory?
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Assess the effectiveness of education and training as a supply-side policy.
Discuss whether supply-side policies are the best way to achieve long-run economic growth.
Explain how spending on education might increase potential growth.

AD/AS with a vertical LRAS: LRAS shifts right from LRAS1 to LRAS2, real output rises and the price level falls.

Cuts to education and training → slower productivity growth → lower trend growth.

GCSE version