Opinion: universities may not directly improve the performance of the economy, but they improve the skills of the people who do

With Budget 2024 soon approaching, many in society are fighting their corner to see increased investment in their own area. UCC president, Prof. John O'Halloran, recently tweeted about how grossly underfunded the education sector was and explained that underinvestment into education has a huge impact on students and staff.

While this is certainly the case, there's also the wider importance of education for our society as a whole. While universities help provide employment for their staff and improve the future employment prospects of their students, they also have major implications for the wider economy. Macroeconomic growth theory emphasises that long-run economic growth is a function of labour, capital accumulation, and technological advancement. Essentially this means, to get economic growth we need capital, people to use the capital, and innovation to improve the capital. This is where the wider implications of universities comes into play.

Universities may not directly themselves contribute a lot to the private economy, but they do increase the skill level of individuals who will work in the private economy. This can lead to increases in innovation and advances in technology which do directly contribute towards the growth of businesses.

When firms perform better because of skilled employees, they grow and hire even more people

Furthermore, human capital theory also suggests that higher skilled individuals may be better able to identify and exploit economic opportunities. Evidence for this can be found in some of my own research which shows that increases to the rate of third level education within European regions increases the rate of business creation.

Of course, there will be those who try to demean the value of education by pointing out that some incredibly successful businessmen like Mark Zuckerberg and Bill Gates never got college degrees. What is important to remember about these businessmen is that the thousands of people that work for them did get college degrees.

While Zuckerberg didn’t need a degree to start Facebook, he does require a lot of his employees at the company to have degrees themselves. A quick look at the positions Facebook advertise shows they value college education. In fact, the minimum qualifications which Facebook look for in a data scientist is a bachelor's degree in either mathematics, statistics or a relevant technical field. Additionally, they also list having a bachelor's of science in computer science or a related technical discipline as a minimum requirement for a technical program manager job.

The role education plays in providing people with the necessary skills often goes unnoticed because it is somewhat of an indirect effect

The reason for this is quite simple: skills improve businesses. When an employer hires someone, they are taking a risk that the employee will be of more benefit than cost to their company. The way to ensure someone will be of benefit to a company is to ensure they have relevant skills.

The only reason an employer prioritises candidates with qualifications is because their degree communicates they successfully attended classes, studied material, completed assignments to a deadline and have some kind of technical expertise in a specific area. Research in the area tends to find that greater access to educated employees helps a firm to perform.

And when firms perform better because of skilled employees, they grow and hire even more people. When more people have jobs, consumer demand increases and aspiring entrepreneurs seize this opportunity by creating more businesses to meet this new level of demand. And so begins the cycle of economic growth where we get increases in capital accumulation, labour, and technological advancement.

The role which education plays in providing people with the necessary skills to start this cycle often goes unnoticed because it is somewhat of an indirect effect. The university itself may not directly improve the performance of the economy, but it does improve the skills of the people who do.

The views expressed here are those of the author and do not represent or reflect the views of RTÉ