Competition stimulates business? Investigating the influence of global economic competition on investments in skill formation

Labor markets’ demand for skilled and/or unskilled individuals is majorly affected by economic interdependencies between countries. Whereas interdependencies through trade is a prevailing topic in political economy research, competition in the export of specific goods and has not yet been comprehensively analyzed as a driver potentially influencing advances in skill formation. Therefore, I intend to investigate the relation of a country’s export profile based on the skills needed for these production processes and investment in adult learning and education (ALE). More precisely, this paper investigates the reactions to economic competition of two major groups of actors: a) state actors, in particular the Government, and b) individuals, in particular those of potential need/motivation for upskilling. On the one hand, we could expect competition to “stimulate business”. Governments concerned with their competitive position in global markets can be expected to steer policies in directions that improve their countries’ position on these markets. Likewise, individuals can be expected to align their human capital to the labor market situation. Thus, when countries compete in sectors, which require high-skilled workers, both governments and workers are incentivized to invest in upskilling efforts; thus actively tackling skill-shortages. On the other hand, if countries majorly compete in sectors reliant on cheap low-skilled labor we would expect, if not the reverse effect, no major efforts in upskilling. In these instances, governments and individuals alike gain no advantage by investing in human capital. What’s more is that in these societies we can even observe the opposite of skill shortage, that is overeducated (young) people whose only job possibilities are below their acquired skill level. Using linear mixed models, my main explaining variable will come from the Harvard Growth Lab’s ‘Atlas of Economic Complexity’, which, in simple terms, depicts how skill intensive the sum of production processes of export goods in single countries are. I suspect variance in these values to affect both public expenditure on and participation rates in ALE. For my dependent variables I mainly focus on the Global Report on Adult Learning and Education, and combine those data with information from the World Bank and UNESCO. In the, end my analysis can cover over 100 countries and a time-frame of at least 2010 - 2018. I suspect that the COVID-19 pandemic had such devastating effects on both export numbers and education systems, that taking these years into account could severely bias the estimates. Nonetheless, analyzing the effects of competition in world markets during and after the pandemic will be provided in isolation. To summarize, this paper analyzes how different actors respond to specific economic competition. Does competition in high-skill sectors increase skill shortages and stimulate investments in ALE? Conversely, does competition in low-skill sectors make skill shortages redundant, driving to stagnant or even declining investments in upskilling? By combining data on public investment and participation rates in ALE, these questions are answered for both the macro and micro level.