Gulf countries need to better understand the returns from education

Omar Al-Ubaydli
Omar Al-Ubaydli
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It takes years for society to start reaping the benefits of educational investments, and the costs of making errors can be exorbitantly high. In Western countries, these important decisions are guided by extensive research on the returns of education. The Gulf countries lack such scholarship, sharply increasing the likelihood of wasteful investments.

Centuries ago, education – especially the university variety – was reserved for society’s elite, and was more about networking than it was about improving someone’s ability to contribute to the labor market. Societal attitudes started to change following the Second World War, when economists armed with new statistical methods and high quality data demonstrated the strong relationship between education and labor market earnings. This was formalized in the human capital model of education, which viewed going to school as a temporary earnings sacrifice in the pursuit of better skills and hence higher future earnings.

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This intellectual development had a huge influence on policy, as governments across the world started ramping up their educational investments in the pursuit of higher living standards. Moreover, educational spending on low-income and marginalized groups was seen as an effective method of combating inequality.

However in the 1970s, a new alternative analysis of education emerged, known as the signaling model. This theory postulated that education is not about improving people’s skills – it is about reliably and objectively conveying people’s innate abilities to prospective employers. The reason that a Stanford math major is so sought after in the labor market is not because of the rigorous training they have undergone, but because the sort of person who gets accepted into such a program, and who can pass those tough academic courses, is the sort of person you want to hire.

Distinguishing between the human capital, and signaling models of education is much more than an exercise in intellectual navel gazing. It has critical implications for the value of funding education. If you believe in the human capital model, then investing in education is societally valuable, since it increases people’s intrinsic productivity. If you believe in the signaling model, then investing in education is narrowly useful, and confers little benefits upon society, since all it does is help improve the job prospects of the educated, without making them more productive.

Saudi students study in the Prince Salman Library at the King Saud University in Riyadh. (File photo: Reuters)
Saudi students study in the Prince Salman Library at the King Saud University in Riyadh. (File photo: Reuters)

Naturally, both mechanisms can operate together: a hospital might prefer hiring a Harvard doctor to a non-Harvard one who studied the same curriculum because the former is likely smarter. It falls in line with the signaling model, but consider that neither have a hope of practicing medicine without the knowledge acquired during their six years of training, in line with the human capital model.

Fortunately, economists armed with advanced statistical methods can identify the applicability of the human capital and signaling models within the context of a specific job. This greatly enhances the quality of the advice that they give to educational authorities about the investments that yield the highest returns to society. Modern educational policy in Western countries has become evidence-based to a significant degree, fueled by high-level statistical analysis.

Should the Gulf countries seek to replicate this transition, they will find two major and interrelated obstacles. First, the data required to conduct such analysis is not available, since educational authorities gather limited data, and they are highly secretive with what little data they collect.

Second, the region lacks homegrown experts in education who are able to conduct these kinds of advanced analysis. This is partially the result of the first obstacle, since developing the requisite talent in the Gulf requires giving researchers lots of data for them to familiarize themselves with the nuances of the local education systems. This is analogous to a surgeon learning to perform operations on living humans by gaining extensive experience dissecting cadavers.

As a result, education policy in the Gulf is either not evidence-based at all, or is at best based on evidence gathered from other countries. This latter evidence is often of limited value to the Gulf countries due to the unique properties of the local economies, accompanied by young education systems, large numbers of migrant workers, and the dominance of public sector hiring. These factors combine to limit the value of the insights drawn from the educational systems of Western countries should they be applied to the Gulf.

The persistence of these weaknesses contributes to the failure of so many educational investments in the Gulf region to realize the returns that policymakers have in mind. The six countries have seen more than their fair share of educational white elephants, and there will be more unless they take a more scientific approach to educational policy. That means collecting high quality data, making it available to competent homegrown scholars, and providing them with the financial resources they need to conduct advanced research.

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