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EC Study on the potential of education to cause macroeconomic imbalances and negative spillovers

European Commission, Directorate-General for Education and Culture. Andruszkiewicz O., Barrett G., Seemore J. F. EC Study on the potential of education to cause macroeconomic imbalances and negative spillovers European Commission 2016. ISBN: 978-92-79-40897-7. Pages: 13

The study was commissioned by DG Education and Culture of the European Commission to investigate: (i) the importance of education in influencing labour productivity, output growth and other key macroeconomic trends in Europe’s increasingly knowledge-based economies, primarily through education’s capacity to improve the capabilities of individuals to perform well on the labour market and, (ii) whether and how divergence in the effectiveness of national education systems lead to macroeconomic imbalances and negative spill-overs within the euro zone and the wider EU.

The main goal of the study was to identify the extent to which sustained or widening differences between the effectiveness of educational systems within the EU may contribute – via labour market outcomes and subsequently through a range of wider economic impacts – to the emergence and/or deepening of macroeconomic imbalances. Within the euro zone, and to a certain extent in the case of countries participating in the second phase of the Europe Exchange Rate Mechanism (ERM II – currently only Denmark), such imbalances cannot be mitigated by a devaluation of the currency, but need to be addressed by potentially more harmful fiscal adjustments (e.g. growth-inhibiting and likely to increase economic and social differences between countries) and/or large-scale migration of citizens between EU Member States. The study explores the economic impacts of education in terms of the generation of macroeconomic imbalances – taking into account the policies behind the EU Macroeconomic Imbalances Procedure (MIP) and the indicators used therein. The main outputs of the study are the results of a model simulating how persisting differences in the effectiveness of national education systems would create or augment harmful macroeconomic spill-overs between Member States of the euro zone and the EU. To illustrate the economic case for education the study presents a logically sound narrative – a simplified chain of causes and effects for which theory and empirical findings exist – with plausible explanations on the nature and some estimates of the quantitative properties of the links.

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