Going to School on Europe’s Real Problem

By admin_45 in Blog Going to School on Europe’s Real Problem

Today we are launching a 3-day series looking at Eurozone demographics.The goal: to explore less-discussed data points that highlight the economic challenges the region faces. Today’s focus is on educational attainment.

In the US, educational attainment is a critical variable in employment and workforce participation. The numbers:

2.0% of college graduates are unemployed, and 73% of Americans over 25 years of age with such a degree are in the workforce.

For high school graduates with no further schooling, unemployment is almost double the prior category at 3.9% and barely half (54.9%) are in the workforce. The size of this cohort is large: 36 million Americans.

For those who did not finish high school, unemployment is currently 5.4% and participation is 45%. There are 10 million working aged Americans in this group.

Education is therefore a critical variable in workplace success, so how do the countries of the Eurozone stack up on this variable? Our goal is not to compare Europe to the US, but rather to consider how different countries there stack up versus each other.

Here is the latest available data (2016) from Eurostat across the 28 countries of the European Union:

High educational attainment: 33.4% have completed either college or an in-depth occupation-based training program.

Medium educational attainment: 46.2% stopped with either general secondary education or limited occupation-based training.

Low educational attainment: 20.5% stopped with either a primary education or limited secondary education and received no vocational training at all.

The differences between countries are where things get dramatic.

High educational attainment in the 4 largest EU countries (ex the United Kingdom), high to low:

Spain: 39.2%
France: 38.7%
Germany: 29.0%
Italy: 19.4%

Medium educational attainment, high to low:

Germany: 57.8%
Italy: 44.4%
France: 43.7%
Spain: 23.5%

Low educational attainment, high to low:

Spain: 37.4%
Italy: 36.2%
France: 17.7%
Germany: 13.2%

As a reminder, current unemployment levels vary wildly across these four countries: Germany (3.4%), France (9.2%), Italy (11.2%) and Spain (15.9%). To the degree that education makes a difference in these outcomes, the data lends itself to the following conclusions:

College/advanced vocational training (the “High attainment” category) isn’t the answer to lowering Eurozone unemployment. If it were, Spain and France would have lower unemployment than Germany.

Getting a majority of citizens through secondary/limited vocational training (the “Medium attainment” group) seems to be a more productive approach. Germany stands head and shoulders above the rest here.

Spain and Italy have a structural problem when it comes to their educational programs; too large a part of their populations (+33% of each) stop their education at a lower secondary level.

Why all this matters: capital markets tend to view economic issues through the lens of fiscal and monetary policy, but that approach omits many important facts. Educational attainment is one of them, and it is a far stickier issue than interest rates.

The Italian elections recently roiled markets, and both Spain and Italy have debt/GDP levels above regional averages. Better economic growth is the solution, but that is harder to achieve in countries with lower levels of educational attainment. And those take a lot longer to fix.

Eurostat education data: http://ec.europa.eu/eurostat/statistics-explained/index.php?title=File:Share_of_the_population_by_level_of_educational_attainment,_by_selected_age_groups_and_country,_2016_(%25).png

Explanation of educational classifications (ISCED 2011): https://en.wikipedia.org/wiki/International_Standard_Classification_of_Education