What drives social returns to education?

Schooling typically delivers significant private returns, with better educated individuals generally receiving higher earnings. However, the schooling of one person has also the potential to generate significant positive effects on other individuals, through formal and informal social interactions between them. Economists refer to these spillovers as ‘externalities’. These third-party effects also explain the wedge between private and social returns to education: while the former are typically estimated at 5% to 10%, the latter can be as high as 10% to 20%.


Such third-party effects mean that the education provided exclusively by markets would be inefficiently low. Government intervention can correct this ‘market failure’ - which explains the large public investments in education, particularly at the primary and secondary levels, that we observe in most countries. For instance, according to the World Bank, over 15% of governments' total expenditure is devoted to education. This amount to an average of more than 4% of GDP around the world.

This non-technical blog summarises the findings of our recent GLO working paper, in which we seek to understand the factors behind different social returns to education, including the role of economic development. To do so, we conduct what we believe I the first meta-analysis of the social returns to education literature. We analyse over 1,000 econometric estimates from 31 articles published between 1993 and 2020. These articles cover 15 countries in total, a third of which are emerging or developing economies.

Some of our main findings are as follows:

First, education spillovers are stronger when measured at the workplace (compared to the region, the industry or the country). This may be because people engage much more directly and intensively within firms, including through face-to-face communication. This facilitates deeper interactions, through which the human capital obtained by each worker from their schooling can more easily spillover to other individuals, their colleagues, thus magnifying the social effect of schooling. 

Second, tertiary schooling and schooling dispersion increase spillovers. It is widely believed that spillovers are largely generated by highly-educated individuals, thus increase in tertiary education appears to be a particularly relevant source of such externalities. Moreover, spillovers tend to decrease as schooling dispersion in the labour market shrinks. In the limit, if every worker has the same level of schooling, a higher level of schooling for the entire workforce may not lead to spillovers as there would be no scope to learn from more-educated colleagues. 

Third, spillovers slow down with economic development. This finding may be driven by the positive association between income and schooling levels at the cross-country level and the diminishing scope for spillovers as schooling levels increase. If a large share of the workforce already has higher levels of schooling, the scope for less-educated workers to learn from their more-educated co-workers is weaker, leading to lower spillovers. 

In conclusion, our findings support the continuing (public and private) investment in schooling - including tertiary education – as they highlight the strong social role of education. Education may promote world development both from an individual private perspective but also in terms of the higher social returns that it generates, in particular in emerging economies.

 (Joint blog with Ying Cui) 



Measuring the representativeness of social partners in Europe

(joint blog with Marta Martínez Matute) 

Are workers and firms well represented in social dialogue? In many countries, affiliation rates to social partners (employer associations and trade unions) have been decreasing for decades. However, social dialogue still regulates labour conditions of a significant part of firms and workers through collective agreements and, in some cases, their extensions. The result of this social dialogue generally includes conditions over wages, working time, training, and many other issues, with important effects on the labour market and the economy.

Given the importance of social dialogue, the representativeness of its constituents is critical. This is even more relevant in the present times in which countries are facing a pandemic and its aftermath. In general, if affiliation rates are low, there might be firms or workers for which their preferences are not represented and their views are not heard. 

This post summarizes our recent working paper, “How representative are social partners in Europe? The role of dissimilarity” in which we propose a complementary measure of representativeness by comparing distributions of firms affiliated and not affiliated in employers’ associations. This corresponds to the analysis of dissimilarity or segregation that have been conducted in different settings but not in the context of labour representation. We also compared firms with trade unions or work council representatives. In both cases, we do so across industry and firm-size categories and for 32 European countries, using the European Company Survey and also detailed data on all firms in Portugal.

The results show that, in most countries, affiliated and non-affiliated firms are distributed in a dissimilar way, i.e. they are concentrated in different firm size categories, for instance. Moreover, we find a positive correlation between affiliation to employers´ associations and dissimilarity levels across countries. This means that higher affiliation rates do not necessarily equate to lower dissimilarity levels. For instance, while France, Spain, Portugal and Greece have similar affiliation levels of around 50%, they exhibit very different dissimilarity levels: Firms affiliated and non-affiliated to employers’ associations in France and Spain have very low dissimilarity levels (of about 20%), while firms in Portugal and Greece are much more dissimilar (around 33% and 45%, respectively).

The results above are also supported when analyzing the case of Portugal using better data and comparing across different employers’ associations.

Overall, these results show that the use of both affiliation and dissimilarity measures may be necessary to have a better understanding of representativeness of social partners and their preferences in the social dialogue.



Contributions to the discussion on the European Pillar of Social Rights

Thank you for the invitation to participate in this debate (link)

It is a great pleasure to do so and also to meet Mr Nicolas Schmit again

The questions that were posed for this debate concerned the gaps in the European Pillar of Social Rights and the challenges in its implementation

These questions involved potential contributions of the participants

In my short response, I would like to focus on three inter-related subjects. I would also like to try to make relatively concrete and novel proposals that may have some relevance for the action plan.

The three subjects are the following:

-labour market information

-social dialogue and social partners

-public employment services


The first subject, labour market information, is an area where there may be gaps in the pillar and also an area where academics and researchers like myself could contribute

The pillar correctly emphasises the importance of equal opportunities and access to the labour market. However, no reference is made to the provision of labour market information in this regard.

This information may concern the employment opportunities and wage levels that students or jobseekers may expect depending on their choice of education or training courses. This information would therefore support their choices and lead to better outcomes for all. This is particularly important at a time where labour markets may be changing rapidly.

This type of information can also be of great use for governments and education and training providers to improve the range and contents of the courses they offer.

Labour market information can also be used to develop statistical indicators around the 20 principles of the Pillar. These would be used to compare the extent to which the principles are gradually achieved across member states and over time.

These indicators could also greatly facilitate the monitoring and evaluation of different policies and programmes and even contribute to benchmarking and mutual learning across the EU.


The second subject I would like to raise here is about social partners and social dialogue. Social dialogue is a cornerstone of the European social model and it is fully appropriate that the several principles of the Pillar make reference to the role of social partners.

At the same time, it is important to be aware of the considerable differences in representativeness of the social partners across the EU. In Portugal, for instance, trade union density is estimated at 15% and falling. In some other member states, trade union density is even lower. Moreover, the distribution of unionised workers is typically very uneven across sectors and job types.

I believe this situation calls for a debate on the modernisation of employee (and employer) representation in Europe. Why is it that so many workers are not affiliated with trade unions (or worker’s councils)? Should there be more support for the modernisation of the existing trade unions and employers’ associations and the emergence of new social partners?

I believe that social dialogue can be an engine for economic growth, and economic growth is a key ingredient behind the promotion of sustainable social rights. More representative social partners can be very important in this process.


The third subject I wanted to raise is public employment services.

These public agencies are key operators behind the delivery of several of the principles of European Pillar. These include some areas that will be more directly recognisable as “European principles” by the general public. An important example is principle 4, which includes the Youth Guarantee.

However, again there are significant differences across member states in the ability of public employment services to deliver effectively and efficiently and therefore fully meet the goals of the European Pillar.

There is an important effort to be made in some countries so that their public employment services can catch up and get closer to the best performing PES in the EU. In this regard, further support from the EU would potentially be very welcome.

Some efforts are already taking place, including through the EU PES Network and its activities around bench-learning, for instance. EURES is also a very important tool. However, I think there is a case to be made for widening and strengthening of this support, taking place in a larger and more systematic way.

For instance, this could involve widening the remit of the new European Labour Authority to include public employment services as well. This could facilitate the provision of additional support to PES across the EU making sure that they are all better able to deliver on the ambitious goals of the European Pillar.


Thank you for your attention



Do fim do princípio para o princípio do fim?

Proposta para o principio do fim da crise economica do Covid19 - no Eco: link



O potencial do teletrabalho em Portugal

Resumo: A crise do Covid19 e a emergência do ‘distanciamento social/físico’ está a despertar um interesse acrescido sobre o teletrabalho: este estudo breve analisa em que medida este tipo de trabalho poderá ser utilizado de forma alargada no caso de Portugal. A avaliação baseia-se numa análise subjetiva do potencial do teletrabalho entre as 200 profissões que representam o maior número dos empregados no setor privado no país. 

O estudo estima que apenas 9% dos trabalhadores possam desempenhar de forma plena as suas profissões atuais em teletrabalho, enquanto que 26% o poderão fazer de forma significativa. Mais de metade (54%) dos trabalhadores têm perspetivas muito baixas ou inexistentes de teletrabalho. O estudo estima ainda que o potencial do teletrabalho cresce muito significativamente com a escolaridade e com o salário do trabalhador, dada a associação destas variáveis e as profissões desempenhadas. 


Versao no Observador



What do employers' associations do?

New working paper - Link

Abstract: While trade unions have been studied in detail, there is virtually no economics research on employer associations (EAs), trade unions' counterparts in many countries. However, besides conducting collective bargaining, EAs perform several other activities that can in uence economic outcomes, including training and coordination. This paper studies the contributions of EAs by comparing affiliated and non-affiliated firms in terms of sales, employment, productivity, and wages. Using matched employer-employee panel data for Portugal, we find that affiliated firms exhibit better outcomes along most of these dimensions, even when drawing on changes in affiliation status over time; and that this affiliation premium tends to increase with EA coverage (defined as the percentage of workers in the relevant industry/region domain that are employed by affiliated firms). Sectors as a whole also appear to benefit from EA coverage, even if non-affiliated firms do worse.



New research on employee training and firm performance

Employee Training and Firm Performance: Quasi-experimental evidence from the European Social Fund - Link 

Abstract: As work changes, firm-provided training may become more relevant for good economic and social outcomes. However, so far there is little or no causal evidence about the effects of training on firms. This paper studies a large training grants programme in Portugal, contrasting successful firms that received the grants and unsuccessful firms that did not. Combining several rich data sets, we compare a large number of potential outcomes of these firms, while following them over long periods of time before and after the grant decision. Our difference-in-differences models estimate significant positive effects on take up (training hours and expenditure), with limited deadweight; and that such additional training led to increased sales, value added, employment, productivity, and exports. These effects tend to be of at least 5% and, in some cases, 10% or more.

LSE blog: http://cver-blog.blogspot.com/2020/03/training-grants-useful-policy-to.html

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