Skilled labour speeds up economic growth

Economic growth can be sped up by investing in the skills of the labour force. Finland’s labour force has traditionally been highly skilled, but at present it seems that skills are declining. Taking care of the skills of the labour force contributes to the preservation of the welfare state.

Human capital refers to a person’s knowledge, skills, capabilities, manners and other characteristics (such as health) that have an effect on productivity and well-being. The accumulation of human capital begins in families and continues in education and learning on the job. As such, human capital is a considerably broader concept than education. A skilled labour force often refers to a labour force with a high amount of human capital.

Human capital can affect economic growth via various mechanisms. Firstly, investments in human capital improve the quality of labour and thus the productivity of work. Secondly, human capital facilitates innovation, which in turn facilitates continuous economic growth.

Research and product development are characteristically associated with significant external impacts: innovative solutions have wide-spread impacts throughout society.

These external impacts provide a reason for supporting innovation, and one way of creating the preconditions for innovation is to support the accumulation of human capital. In other words, society can boost economic growth by investing in human capital.

The consensus among economists is that human capital increases economic growth, although the empirical verification of this claim has proven to be very difficult. In other words, the direction of the effect has been established, but there is uncertainty as to its magnitude.

Is Finland’s skill capital deteriorating?

The claim that human capital bolsters economic growth is supported by both theoretical and empirical studies. As such, maintaining a high level of human capital is important for the growth prospects of Finland. The current situation is good in the sense that Finland boasts one of the highest levels of human capital in the world, but on the other hand the prevailing trend raises concerns.

Finland’s results in PISA surveys have declined significantly in all areas of the survey since 2006. For example, the science skills of Finnish pupils have subsided by an amount equal to almost an entire school year’s syllabus in nine years. In fact, skills in science and mathematics have dropped more in Finland than in any other country included in the PISA survey.

Finland’s level of education is also undergoing a downswing. In light of the current trend, it seems that the age groups consisting of those born in the late 1970s will remain the most highly educated age groups in Finland. For example, the level of education of 30–34-year-olds began to clearly decline soon after 2005. In the age group of 35–39-year-olds, growth stopped slightly later.

These results indicate that human capital is decaying in Finland, which will eventually be reflected in the form of slower economic growth.

Maintaining growth requires investment in skills

Finland’s level of education and skills are both in decline. This trend must be stopped if Finland is to continue growing and using the wealth accumulated as a result of this growth to maintain its status as a Nordic welfare state.

What makes the weakening of skills difficult to stop is the fact that the reasons behind it are unknown. PISA surveys show that the proportion of pupils who do poorly in the tests has increased, that the role that family background plays in performance has become more pronounced and that differences in skills between regions have increased. However, the exact causes of these changes remain unclear. Because of this, it is also difficult to determine how these changes should be addressed.

The rise of Finland’s level of education came to halt in the early 2000s as a result of education policy decisions. The range of higher education subjects offered has been reduced since the early 2000s, which is now being reflected in the level of education of young people. Reversing this trend is easier than stopping the decline of PISA survey results as it can be directly affected by increasing the amount of resources allocated to education. Resources should be allocated particularly to increasing the intake of tertiary education: at present, the intake of Finnish universities is lower than it was in the early 2000s.

In Finland, the proportion of the age group that completes only a comprehensive school education compulsory for children aged 7–16 is still approximately 15%. This proportion should be significantly reduced, as there is very little demand in the current employment market for the skills provided by a comprehensive school education alone. Not continuing beyond a comprehensive school education is often associated with dropping out of upper secondary education, due to which there is a clear need for measures focusing on reducing drop out rates in upper secondary education.