education is one of the most important variables in determining economic success on an individual
Regional and National level countries with little to no natural resource wealth or Geographic
positions and even unstable geopolitical situations can and do outperform countries
that have all of these factors working in their favor simply because they have a better educated
population but in economics there can be too much of a good thing and in certain countries around
the world education may be going too far and costing too much to ever return positive economic
results on an individual level there is more to just economic returns to consider of course
people seek higher levels of Education because they are interested in subjects and that's fine
but on a national level when things like Workforce participation skills mismatches and student debt
are all turning into major economic burdens it's important to recognize that more isn't necessarily
always better finding the right balance is going to be hard especially as new technologies are
constantly changing the skill sets that are demanded by the economy and that's before
considering variables like skilled migration which can add or subtract skills to the labor market
very quickly if economies can prosper or perish based on the skills of their people then it's
something that we're going to have to get right even if it is really difficult and to do that or
at least to have the best shot at doing that we're going to need to answer some important questions
so are our modern economies becoming over-educated if they are what are the consequences of having
too much of a good thing and finally what can be done to slow down or reverse this trend
this episode of Economics explained is brought to you by Babel it's one of the leading learning
apps globally Babel provides you an engaging and effective route to mastering real-life
conversations in new languages let me share an amusing anecdote from a trip to Paris a few
years ago despite my attempts to Auto and Cafe a coffee my broken French had me erroneously
asking for in shape the hat at a local cafe the waiters bewildered expression said it all and
left me with a travel tail I won't forget Babel's lessons aim to avert such amusing yet inconvenient
mishaps they are designed to equip you with practical conversation skills for travel business
relationships and more during my subsequent travels vowell's teachings allowed me to immerse
myself in different cultures enhancing My overall travel experience bursting smoothly with locals
in their language added a delightful Nuance to my interactions and deepened my connection with these
new places the platform employs a scientifically proven methodology enabling you to start speaking
a new language confidently in just three weeks the lessons developed by experienced language teachers
emphasize practicality and real world application join Babel today and get 60 off your subscription
by using the link in the description and embark on your own Unforgettable language learning Journey
economics is the study of how people interact with things of value and while that's simple enough
people are a difficult bunch to properly predict which is why even four years later we still have
new theories and Concepts to share with you all watching every week one of the most important
questions that economists must ask themselves when performing this study is how to determine
the value of goods and services that people are interacting with different economic schools of
thought have different approaches to finding this value one of the earliest attempts by economists
to assign value to things originally came about before economists were even known as economists
the labor theory of value assigns the economic value of a good or service based off how much
labor is required to produce it A car costs more than a lump of Steel because a car takes
more labor in total to produce something like a computer that is very expensive but doesn't
take that many labor hours to produce is explained by this Theory because all of the capital or the
means of production required to make something highly Advanced like a computer took a lot of
Labor to produce too so even though laptop might only take two men hours to produce from beginning
to end it would still be more valuable than 4 hours worth of gardening because of all of the
man hours that went into making the capital that finally made the laptop from the mines
that harvested the rare earth materials to the billion dollar factories that produced the CPU
and the massive ships that moved all the parts all over the world most interpretations of this Theory
also note that not all labor is equal The Gardener spending four hours mowing lawns will have skills
that are in far greater Supply than the quantum physicist designing the next generation of silicon
chip Fabs in the Netherlands the way that labor does become more valuable is through education and
this is pretty clear to see in the world around US economies with low literacy rates where most of
the workforce are simple laborers or farmers are almost exclusively low-income countries despite
any natural resource advantages countries that have basic schooling which enable their people
to work in value-add manufacturing or simple services that involve reading and writing will
always do better and finally advanced economies normally become Advanced because they give their
people the education and resources they need to develop world-class products and technology which
can add value beyond the country's borders Apple and Samsung phones are produced in China and India
from components made in dozens of countries from resources mined in dozens more and then
they're transported all around the world on Dutch ships with Filipino Crews and sold in
hundreds of countries but it's the USA and South Korea that benefit from this whole supply chain
the most because they were the countries that brought together enough well-educated people to
produce these products that demanded all over the world but can only be produced with a brain power
supplied by these economies So based on the labor theory of value the value of Labor is a product of
how much labor it took to educate put in a less confusing way it doesn't take many man hours to
educate someone to the level of basic literacy it takes more to give them a good understanding
of a technical field and even more still for them to be a world leader with a PhD from Cutting Edge
research every step makes the labor more valuable and looking generally at the world today it checks
out more educated populations make the wealthier economies so overeducating just isn't ever going
to be a problem that is according to this Theory the labor theory of value may have first been
written about by early economists like Adam Smith and David Ricardo but it was made famous by Karl
Marx who really liked labor the labor theory of value works really well when there are no
free markets because it can be used by economists to monitor economic activity even without regular
transactions and of course it fits well into the general arguments of placing value on a
population's labor the reason that communism calls for Laborers to seize the means of production is
because the means of production is just another way of saying capital and capital was built with
labor so someone profiting by owning capital and doing no work themselves like say a factory owner
is the same as just stealing someone's labor just with more steps the importance of Labor and adding
value to labor is why the Soviet Union for all its flaws had a very well educated population
that were able to keep up with or in many cases exceed scientists and Engineers from the West
given what they had to work with now obviously this video is not to tell the workers of the world
to rise up so I don't want to get too into that just yet but we do have a video on that coming
soon so make sure to subscribe so you don't miss out on that comrade but for now the labor theory
of value is just one scale that we can use to determine the optimal level of education and
it does have problems the labor theory of value is not widely accepted amongst most economists
today and even when Adam Smith spoke about it 250 years ago he added the disclaimer that this
system only works in A Primitive society and an advanced economies The Exchange value of a good
or Services also determined by The Profit taken by the owners of the capital and the land required to
make it later economists would also include other factors like the expectation of future value The
Prestige of an item and its utility especially in highly sophisticated market economies we see
this all the time uh Charizard playing card in perfect condition took basically no resources
or human labor to produce but it still has a higher exchange value than that laptop from
earlier I think because it's a prestigious item and some people expect that it may be worth even
more in the future so they're willing to pay a lot for it now utility is also important a
laptop in most cases has a higher exchange value than a 20 meter deep hole in the ground because
unless you're digging a Subway your underground car park a big hole doesn't really have that much
utility even though it would take a lot more man hours to produce the subjective theory of
value basically says that something is worth what people are willing to pay for it but when
we're talking about an education that value is still a little bit complicated is the value base
purely off how much someone is willing to pay for a degree is it based off how much the labor
market is willing to pay someone with that degree and other market dynamics change when
people are getting their education funded by the government instead of paying for it themselves
since we're looking at this from the perspective of a macro Economist that is only trying to create
optimal outcomes for the economy as a whole we can simplify this by saying that people can pay
whatever they want for their own education if it's something that they value it's okay to seek out an
education for personal fulfillment even if it is to develop a skill that is not highly demanded
but for the entire economy subjective value is important the advanced economies that have been
able to leverage Highly Educated populations to create technologies that add value to the entire
global economy are obviously very grateful for those small groups of people with world-leading
educations the supplier people like this is very small but only because it takes a lot of resources
to get that much education but also because well it's hard just giving a person endless education
does not necessarily guarantee that they're going to create new technologies to boost the
global economy the other thing is the demand for people like this is also pretty small yeah sure
advanced economies have got to where they are today through advancements in technology but
having a country full of nothing but researchers and scientists just isn't going to work they need
everyday people performing everyday tasks to keep things going eventually an additional unit or
an additional person because it feels weird to talk about people as units who is a researcher
is going to have less value than someone who can build a house or Farm food or even just operate
the technology that the Highly Educated people come up with the classic example that economists
give when using the subjective theory of value is diamonds and water diamonds are obviously
more valuable than water we would normally be willing to exchange a lot of water for just a
small diamond but we and our economies need a lot more water than we do diamonds and it's the same
with skills a few people with highly specialized skills can create a lot of value in an economy
but we still need a lot more people in normal jobs so that's the economic theory behind finding this
optimal level of Education across our populations but are our economy is getting the balance right
in short not really on a macroeconomic level I'm sure it makes sense to everybody watching that
the optimal output of an economy would have more water than diamonds but on an individual level
most people would probably still prefer to pay diamonds in most advanced economies more people
are spending more time at more universities than ever to become workers with the most valuable
skills possible but as that Trend continues those economies are running out of their metaphorical
water even as people are more skilled than ever major economies around the world are dealing
with skill shortages because nobody is getting educated to fill the roles that are really in
demand in many countries that's leading to unusual results where people with Advanced
degrees are earning less than people with a basic trade skill all other things been equal
that shouldn't be the case because it's harder to qualify for a job that requires an advanced
degree all other things are of course not equal remember there are other factors that determine
value the expectation of future value being a big one someone with a master's degree in
economics might own less than their first year out of University than someone who left high school to
become a welder ask me how I know but there is the expectation that eventually the economists
will end up earning more there is also Prestige and comfort an economist will spend most of their
time in an ergonomic chair and an air-conditioned office rather than flying to remote mines in the
Australian Outback since the barriers to entry to these qualifications are far lower than when only
a small share of the population went to University at all and a far lower share still had a graduate
degree more people are getting them which is increasing the supply and reducing value for
now a lot of this can be balanced out in advanced economies through skilled migration that can fill
in the skills gaps for jobs that people are born in advanced economies don't want to do but endless
migration causes its own problems and eventually countries will need to balance this out themselves
especially as the world moves away from global trade the economic trend of global trade and
highly efficient but complicated Supply chains is starting to reverse in fact it peaked in 2008 and
it's been going backwards since then the aftermath of the global pandemic and general tensions
between the world's major economic Powers means that companies are starting to shift their supply
chains back onshore or at least simplify them so there is a smaller chance of Supply disruptions
in the event to further lockdowns sanctions or trade restrictions now we have already spoken
about this trend extensively in multiple videos on this channel before so as always I don't want
to repeat too much here but one thing that hasn't really been mentioned yet is how this trend could
impact domestic labor markets advanced economies have so far probably been able to get away with
an overabundance of overskilled workers because a lot of lower skilled jobs could just be offshored
if the trend really does end up with more basic manufacturing coming back to advanced economies
then the demand for practical trade skills will Skyrocket at best this will leave a lot of people
working in jobs that they are overqualified for at worst it will further heighten the skills shortage
and continue to to stop the supply of goods and services in our economies over education causes
other problems too eventually someone has to pay for it in some highly egalitarian countries
education is paid for by the government but the government is paid for through taxes normally
a better educated population can work in more advanced jobs and add more value to the economy
so they earn more money and pay more taxes but as we've explored in this video that only works
up to a point if education is totally free on an individual level then there is even less to stop
over education and the people of an economy will collectively end up paying more for Less optimal
outputs most advanced economies have free or highly subsidized education up to a high school
level and then some system for students to fund their tertiary education through loan programs
this puts the financial burden more specifically on the students seeking this education we should
in theory mean that they more carefully assess the economic returns they will generate from each
level of additional education whether 18 year olds are really doing that is a bit harder to
say AI but it still has an immediate impact on the economy if young workers are spending their income
on paying off debts that they took on to get an education that is going to be undervalued by the
economy they're going to have less money left over to spend on goods and services contributing to
the output on the demand side on the supply side they are also going to be entering the workforce
later a basic four-year graduate degree means roughly 10 of the workers working life will be
spent producing nothing at all again if this gives them the knowledge they need to produce twice as
much value in every year that they do work it's a great investment for the student and the economy
but if it doesn't increase their output at all it's just kind of a waste of time again purely
from an economics perspective so if economists can see this problem coming can it be fixed
of course nobody can predict the future least of all economies but the good news is that it kind
of already is fixing itself public awareness about student debt becoming a real problem in
a lot of countries and jobs that don't require tertiary education but still pay well is meaning
that University admissions in countries like the USA Canada Australia and Western Europe
are actually shrinking in many cases only being kept stable by students coming from abroad which
is something that is overwhelmingly positive for the host country shifts in what is demanded from
the labor market happens all the time and it always causes frictions but it normally works
itself out economics is a study of how people interact with things of value and not to get
too philosophical here but there are very few things that people value more than their time
so even if we are able to generate slightly higher aggregate output figures by dictating what people
study it just wouldn't be an operable economic outcome if it meant that people were spending
their entire lives doing something that they would rather not thanks for watching mate bye
foreign