Europe’s university challenge

OECD Education Directorate

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When European Union heads of state and government met at a summit in Lisbon in 2000, they set the goal of making Europe “the most competitive and dynamic knowledge-based economy in the world.” That goal is far from being met, not least in tertiary education.*

The time when Europe competed mostly with countries that offered low-skilled work at low wages is long gone. Today, countries like China and India are starting to deliver high skills at low costs–and at an ever increasing pace. This is profoundly changing the rules of the game. There is no way for Europe to stop these rapidly developing countries from producing wave after wave of highly skilled graduates. What economists call “barriers to entry” are falling. Individuals and companies based anywhere in the world can now easily collaborate and compete globally. And we cannot switch off these forces except at great cost to our own economic well-being.

The challenge for Europe is clear. But so is the solution: evidence shows–consistently, and over time–that countries and continents that invest heavily in education and skills benefit economically and socially from that choice. For every euro invested in attaining high-skilled qualifications, tax payers get even more money back through economic growth. Moreover, this investment provides tangible benefits to all of society–and not just to the individuals who benefit from the greater educational opportunities.

[…]In short, if Europe wants to retain its competitive edge at the top of the global value-added chain, the education system must be made more flexible, more effective and more easily accessible to a wider range of people.

OECD studies show that money spent on obtaining university qualifications pays dividends higher than real interest rates, and often significantly so. The difference in the amount of money that someone with tertiary education (i.e. college level or higher) can expect to earn compared to the amount someone with only secondary education (i.e. schooling that finishes at ages 16-18) can expect to earn grew on average by one percentage point per year between 1997 and 2003 in 18 of the 22 OECD countries with available data. Moreover, the earnings differential between workers with secondary and tertiary education ranged from around 25% in Denmark and New Zealand to between 50% and 119% in the Czech Republic, Finland, France, Germany, Hungary, Ireland, Italy, Portugal, Switzerland, the United Kingdom and the United States. Countries that give individuals one additional year of education can boost productivity and raise economic output by 3% to 6% over time. Meanwhile, people without basic qualifications face a significantly higher–and growing–risk of unemployment and poverty.

OECD data also shows that more and more people are gaining higher educational qualifications around the globe. Today, almost all of the OECD’s 30 members are producing more college graduates than they did in 1960, but the rate of increase has varied widely. In the 1960s, Korea had the same gross domestic product as Afghanistan and was ranked No.21 out of 30 OECD countries in terms of the number of adults as a proportion of society with tertiary qualifications. Today, Korea is No.3 among the 30 OECD countries in the ratio of 25- to 34-year-olds with educational qualifications as a proportion of society.

Some European countries–including Ireland, Portugal and Spain–improved their relative standing as well. But most of Europe’s major economies–including France, Italy and the United Kingdom– only held their ground or, in the case of Germany, significantly fell. In Germany, growth in the number of people with high-skill qualifications has been so limited that Germany’s relative position declined to No.23 in the 1990s among the 30 OECD countries, down from No.14 in the 1960s (though Germany’s strong vocational education system does help to make up for some of this gap). A look towards the future suggests that differences in educational achievement between countries could widen in years to come.

Traditionally, the US has led in tertiary-level enrolment, and it remains strong. But in the Nordic countries, more than two-thirds of today’s school-leavers now enter higher education institutions, leaving the US behind in this indicator. France and Germany, meanwhile, boast little more than half of the tertiary-level enrolments per capita of the leading countries–a sign that France and Germany, which make up 35% of the European Union’s €11.6 trillion economy, are no longer among the world’s leaders in developing knowledge and skills. One might imagine that with educational opportunities expanding like this, there will be massive inflation and ultimately a decline in the value of degrees and qualifications. However, the evidence points to the opposite. With the exception of Spain, earnings and other variables which tell us something about the labour-market value of education have risen faster than supply since 1998, the earliest point with comparable data. This suggests that demand for high skills is increasing faster than our current institutions can deliver them.

It is indeed hard to assess issues of the quality of Europe’s tertiary education, but the latest ranking from Shanghai Jiao Tong University, the most widely cited but not undisputed ranking of universities, finds that Europe may have boasted world-class universities before America even appeared on European maps but today it is running behind in the quality of the graduates it produces (see table). Of the 20 top ranked universities, 17 are in the United States and only two are in Europe, according to the Shanghai study. What’s more, nearly 40% of all foreign students in the world go to the US to study–a sign that the US remains the No.1 choice for global consumers of education.

[…] Europe’s universities are unlikely to catch up unless our governments succeed in creating and maintaining a system of diverse, sustainable, and high-quality institutions with the freedom to respond to demand and be accountable for outcomes they produce. The OECD’s Programme for International Student Assessment (PISA) studies have focused attention on the outcomes of schooling–we have no comparable tool for higher education.

Europe must ensure that the growth and development of tertiary educational systems are managed in ways that improve access and enhance quality. And we must implement financing and student support policies which mobilise public and private funding in ways that better reflect the social and private benefits of tertiary education. Beyond that, Europe’s universities will have to evolve so that their leadership and management capacity matches that of modern enterprises. Appropriate strategic, financial and human-resource management techniques should be introduced to ensure long-term financial sustainability and meet accountability requirements. And the university system itself must be governed by bodies that reflect a much wider range of stakeholder interests than the academic community.

[…]The world is indifferent to tradition and past reputations, unforgiving of frailty and ignorant of custom or practice. Success will go to those individuals and countries which are swift to adapt, slow to complain and open to change.

* This article is an extract from Schleicher, Andreas (2006), The economics of knowledge: Why education is key for Europe’s success, Lisbon Council Policy Brief, Brussels. The complete 20 page pdf version, including graphs, tables, and special focuses on Finland and Korea, is available at

©OECD Observer No 254, March 2006

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