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Italian Education paradox: scarcity and low return

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Economic theory predicts that investment on scarce goods yields higher returns, since rarity represents a source of competitive advantage.

In Italy, the system of education displays an apparent paradox: despite the scarcity of the “good” education, investment on education yields low private returns, as proxied by earnings difference between a university and a secondary school graduate. In 2008 and 2011:

–          population share (25-64 years) with completed tertiary education was 14 in both years, a much lower value than the average for OECD countries, 43 and 31;

–          earnings from employment for tertiary education were 150 and 148, against higher average values of 152 and 157 for OECD countries.

An analysis of the interaction between demand and supply of human capital offers possible explanations for the observed phenomenon. First of all, the firms’ difficulties to find adequate competences and skills compatible with the use of new technology reduce the return of education. The resulting decrease in the supply of high qualification restrains, even more, the demand of competences, triggering a vicious cycle. The roots of this circle can be found in the existence of informative problems and in the peculiar structure of labor market.

Informative problems in the recruitment stage are reflected by the difficulties of firms to recognize superior competences of high qualified individuals. In fact, the training offer provided by the scholastic system is not labor-market oriented; hence, the educational offer doesn’t provide students with distinctive labor skills compared with those of individuals with lower educational attainments.

The problem is sharpened by the labor market conditions. One concern is the limited labor mobility that, combined with the prevailing structure of small and medium businesses, has hampered the flexibility of labor market at the expense of a low human capital.

A higher investment in R&D might be beneficial through two channels: directly, by requiring more educated individuals for research activities; indirectly, because investment in new technology allows to increase labor market flexibility and, therefore, is likely to result in the request of a higher human capital. Besides, the institute of internships (already included in some universities’ programs), providing labor skills, can reduce the size of the mentioned informative problems.   

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Moreover, the analysis of wage premia cannot exclude the concern for horizontal equity, namely, for the wage differentials of individuals with the same observable characteristics, including education. As underlined by Franzini and Reitano, since wage differentials within graduates are even deeper than the ones across individuals with different educational attainments, the analysis should focus also on the differences in unobserved characteristics, such as individual abilities, as well as on the differences in the quality of education provided by different institutions.

All in all, the research of a solution to the Italian paradox is an issue of primary order. Investing in knowledge and increasing the value of education on labor market are necessary requirements for the country’ s development.       

 

                                                                                                                                             Silvia Sarpietro – 676

 

 Sources:

http://www.oecd.org/edu/eag2013%20(eng)–FINAL%2020%20June%202013.pdf

http://www.bancaditalia.it/pubblicazioni/econo/quest_ecofin_2/qef180/QEF_180_ITA.pdf

http://www.siecon.org/online/wp-content/uploads/2012/08/Franzini-Raitano1.pdf

 

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Author: studentnovasbe

Master student in Nova Sbe

One thought on “Italian Education paradox: scarcity and low return

  1. It is true that in Italy both the number of graduated and returns to higher education are lower than OECD average. Even according to Eurostat the share of Italian population aged 30-34 years old that completed university (data of 2012) is 21,7%, well below the Eu-28, that is 35,7%. For sure, I agree on what it had been written, that the main cause could be the strong prevalence of small-medium sized companies, being many of them family businesses. In fact, especially in the North, a lot of people do not need to attend university, having the opportunity to work in his/her own business. However, I think that if we avoid considering aggregate data and we concentrate on regional data and differentiating per sex we can find results that do not constitute a paradox for the economic prediction at least in the case of men returns. In fact, Italy presents strong regional differences and aggregate data have a large variance, being the values normally very far from the average. Furthermore, marked differences among sexes exist.
    First of all, considering data relative to regions, we can see that number of students at tertiary level varies a lot. The main results is that in central regions the rate considering the number of university students on the number of people aged 20-24 living in the region is very high, and normally higher than European regional average, while northern regions present lower rates, some of them in line with European average. In the South of the country the values outlined by this indicator are significantly lower.

    *Number of students in tertiary education as a percentage of the population aged 20-24 years old in the region (Values from each European region, minimum 4,4 maximum 577,4). Reported below values of 12 over the 20 Italian regions (4 from the centre, 4 from the North and 4 from the South.
    Centre North South
    Lazio 101.7 Lombardia 61.9 Basilicata 23.6
    Toscana 80.1 Trentino 64.1 Campania 57.2
    Abruzzo 98.7 Emilia Romagna 84.2 Sicilia 48.9
    Umbria 75.6 Friuli Venezia Giulia 69.8 Puglia 45.7
    Source: Eurostat, Tertiary education, by regions

    Concerning the average earnings premium for 25-64 years old people with tertiary education, we saw that the average level of earnings premium is lower than OECD level. If we divide per sex, we can find different results. Men have a little higher return than OECD average, while women have a significant lower return than OECD average.

    *Average earnings premium for 25-64 years old with tertiary education compared to people with upper secondary (=100)
    Italy OECD
    Total 150 159
    Men 162 160
    Women 142 157
    Source: Education at a Glance, 2012, OECD

    Considering the number of graduated per region and sexes we can see that in all the regions the percentage of graduated women is always higher (around 30% higher on average) than the percentage of men.

    *% Graduated per sex and region aged 30-34 (2010)
    Regions Total Men Women
    Lazio 26,2 20,4 31,9
    Umbria 25,6 19,7 31,4
    Marche 25,0 18,7 31,4
    Liguria 24,8 21,9 27,6
    Molise 24,4 17,7 31,5
    Lombardia 22,8 18,4 27,4
    Trento 22,7 19,4 26,0
    Bolzano/Bozen 21,5 20,3 22,6
    Abruzzo 20,9 14,0 27,9
    Emilia-Romagna 20,8 14,8 26,9
    Toscana 20,8 14,7 26,9
    Piemonte 20,1 16,1 24,1
    Basilicata 19,8 16,9 22,8
    Friuli-Venezia Giulia 19,6 15,3 24,1
    Calabria 19,2 15,3 23,1
    Veneto 18,6 14,8 22,6
    Sardegna 16,8 13,4 20,3
    V.d’Aosta/V.d’Aoste 15,8 10,5 21,3
    Puglia 15,4 12,5 18,3
    Sicilia 14,6 10,3 18,9
    Campania 12,9 11,2 14,6

    Italia 19,8 15,5 24,2
    Regions Total Men Women
    Source: Istat (Istituto Italiano di Statistica)

    Source: Istat (Istituto Italiano di Statistica)

    According to these results we can state that the case of Italy does not constitute a paradox for economic theory for men. The relative low abundance of graduated men yields to higher returns to them than OECD values, being scarcity a source of competitive advantage. The scarcity theory is more difficult to apply in the case of women. On the one hand, the relative abundance of graduated women yields to them lower returns, but on the other hand the number of graduated women is still lower than European average, and this is against the scarcity theory. These conclusions are in my opinion very insignificant. Disaggregated data for men are in line with economic theory, but assuming that the relevant datum is the number of graduated (assuming that skills of men and women are equal) and not the proportion of graduated by sex we can state that Italy is still a male dominated society.
    However, another issue can bring us to a different conclusion. This issue is the relative abundance of women enrolled in “low returning studies”. In fact, the percentage of enrolled and graduated men in many “low-profitable” studies is much lower than women percentage, while in faculties such as engineering the number of enrolled and graduated women is much lower than the percentage of men. This could be the possible explanation of earnings premium gaps between men and women.

    Enrolment (%) per sector of education at tertiary level and by sex, academic year 2007/2008
    Sector of study % of Male % of Female
    Scientific sector 69,4% 30,6%
    Engineering 79,8% 20,2%
    Economics and Statistics 52,2% 47,8%
    Psychological sector 18,1% 81,9%
    Teaching and training sector 9% 91%
    Language sector 18,4% 81,6%
    Humanistic sector 31,8% 81,9%
    Source: Istat (Istituto Italiano di Statistica)

    The main cause of average lower returns to education in Italy, despite a low rate of graduated at national level, might be the oversupply of women enrolled in low-returning studies. This conclusion is plausible because in Italy the access to many of those studies is free (no numerical limits to enrolment).

    Francesco Morandotti