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Relationship Between Education and Economics

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There is a fascinating relationship between education and economics, one popularly explored in research paper writing. Experts have shown that educational barriers exist between shifting economies between labor-based ones to knowledge-based ones, and that the United States may be in the middle of such a shift. This is a sample research paper discussing this unique relationship and is one of the professional writing services offered by Ultius.

Relationship between education and economics 

Although experts can agree that patterns have shifted from a labor-based economy to a knowledge-based one, there is no magic wand to predict how that future will look. The United States economy has experienced symptoms of the changes that need to be made in education, and the trick is to achieve a balanced mix of fortifying positive and effective changes in education in the knowledge-based economy while the movement towards a settlement in the knowledge-based economy becomes more concretely entrenched. It is no secret that educational opportunities and training directly coincide and bear an important correlation to the economy. Opportunities and challenges will come. The problem arises in how to align such changes between the educational sector and the knowledge-based economy with the consideration of at least two key aspects: 

  1. Looking at international competition in terms of labor technology
  2. Giving young people the adequate skills to compete by making education less expensive and more productively efficient while meeting the demands of market requirements.

Overlapping issues in education and economics

Europe is trying to create high-skill economies and that issues around younger people's educational causes stakeholders to perceive that the current academic agenda does not support an improvement pertaining to either occupational aptitude or mitigating struggles to resolve issues. However, this complex issue cannot so neatly be broken down into isolated compartments. The approach herein shall revolve around five basic issues which obviously have some overlap in the worlds of economics and education. The commentary looks at the areas of:

  • Economic theory
  • Practice in terms of human capital
  • Preparation or transformation of education
  • Competition
  • Today's young people as an implication of their education and knowledge-based economy skill set preparation.

Hopefully in this way, tiny inroads might be made into further understanding these issues and connecting the dots to a fruitful contribution to the literature and respecting the partnership and critical roles that both economics and education play in the scenario at hand. 

What characterizes a working definition of a knowledge-based economy?

To discuss how to define exactly what a knowledge-based economy is calls for the inclusion of mentioning the economic good, and from an economics standpoint the importance of measuring the knowledge economy. Obviously there has always been a form of knowledge-based element to even the industrial or manufacturing/labor-based economic situations which dominated past decades. When the existence of a knowledge-based economy is promulgated, the skills required in information technology – whether products or services driven – coupled with the infusion of competition, more educational problem-solving skills and knowledge are needed for any type of job performance, no matter the industry. According to Carnevale and Desrochers:

"The fact that the educational skills demanded has changes require a greater need to supplement certain cognitive styles in place and that such has a direct bearing upon job earnings in the United States wherein occupational preparedness and technical learning access will ultimately lead to how education determines our nation's economic competitiveness.”

Those who are educated and already skilled can perhaps more easily jump on the bandwagon to flow with the transformation of the new-age technology-oriented knowledge-based system of a globalized economy, but there remains a real concern for those who perhaps have faced the challenges of illiteracy, lack of higher educational and attainment of skills which represent a real-life impediment for the advancement of the knowledge-based economy at large.

Education is paramount

Perhaps one way to clearly convey the situation is by utilization of economics as a discipline which recognizes the importance of measuring the knowledge-based economy. According to the article, “The Missing Middle: Aligning Education and the Knowledge Economy”, ill-educated workers are increasingly left behind in attainment of better paying job opportunities, displaying a stagnating effect on the growth of the job market in the U.S. It reveals that six out of ten jobs were held by university-educated laborers and that correspondingly the wage premium increase for such workers has increased by some 70 percent since the 1980s. The majority of workers who are falling by the wayside, in the deterioration mode of low-paying jobs, do not have a postsecondary educational experience. Furthermore, given the big-business nature of agri-business farm workers have nearly literally and figuratively fallen to a flatline situation of distribution in terms of drawing conclusive connections between work and the education of knowledge-based skills to stimulate the economy. 

The role of economics

What might this mean in terms of competitiveness for the United States as compared to other countries? The answers are clear. Especially when you consider literacy as a baseline from which to build economic growth in a fast-changing globalized economy. Economic theory is one thing, but carefully recorded statistical data presented in scholarly economic writing is not arguable, placing the need for more comprehensive remedies to occur in the practical realm of human capital.

Economic theory and macromodelling of knowledge-based economy 

Over time, economic theorists lend observations about various microeconomic and macroeconomic analytical dimensions. However, one main concern in considering the entire scenario is what will happen in the long term. The survivability and competitive fortitude of future American generations is quite realistically at stake. To this end, it may be helpful to turn to expert economists from the Institute of Econometrics and Statistics at the University of Łódź in Poland who conceptualized growth models by measurements. Welfe considered knowledge-based economies according to their:

  • Growth development
  • Input of new technologies
  • Human capital impact

Considering these elements, Welfe was able to derive an explanation of a “total factor productivity” (TFP) which also included a discussion of new models to that coupled with the research.2 

A knowledge-based economy

Although economic growth has enjoyed some level of sustainability, there is a new burgeoning and emergent face triggering challenges to the new global marketplace that ties directly into the notion of a knowledge-based economy. As such, this newly entrenched economy has an awareness of the new knowledge-based economy functioning in terms of:

Obviously measuring an intricately involved plethora of features and complexity of nuances cannot be easy, however, the working assumption that Welfe researchers interjected into the mix was based upon Research and Development (R&D) issues, educational expenditures, and such. 

Further studies

One consideration about their theory is they actually made several analogies and theories of arrangement into sub-models. While it is true that delving into explicit details can get rather complicated, Welfe incorporated both foreign and domestic knowledge-based capital concerns in terms of fixed capital and human capital, while doing a cross-section over time. Results based upon various output indicators did show that the role of R&D impacted expanding knowledge capital. Nevertheless, researchers admitted that the concept and influence of human capital concerns and roles remain highly controversial. 

Human capital in economics

They revealed that measuring these human capital growth dynamics require “an extended scope of research,” which one may take to be a reflection of their idea of long-term macromodelling. In any case, they claim that a mere comparison of employees with a higher education does not paint the entire picture accurately. This makes sense as some non-degree holding youths are highly effective users of technology-oriented skill sets despite not pursuing higher education as they cannot cope with the increasing costs involved. This suggests that human capital can be shown as a weighted sum of persons who are active contributors to the economy. 

Managing the process

Changes in education from a labor-based economy to a knowledge-based involve considering:

  • The upwardly mobile trends in technological advances
  • International competition
  • Youth aptitude or occupational preparation

However, there needs to be a word on the management process positing how will things get implemented into an engagement of getting workers to trust and build effective bridges of collaboration with managers and employers. Chan Kim and Renée Mauborgne, authors of the article “Fair Process: Managing in the Knowledge Economy” as published in the Harvard Business Review, examine this notion in terms of an unrecognized problem that deals with:

  1. Sharing ideas
  2. Corporate performance
  3. Linking trust
  4. Solidifying decisional commitment and integrity

The logic is simple: organizations only run with the cooperation of people. 


People being motivated and willfully making useful contributions they genuinely feel will benefit the company rests upon the acceptance of whether the process of decision-making is deemed as fair. As far as economists theorize, people maximization calculations are driven by self-interests and can be thus measured by utility, but this assumption can be challenged if results are solely based upon the outcome. Real-life experiences need to be evaluated and re-evaluated by digging deeper than outcomes that can be numerated on paper. An organization's culture or climate can have a tremendous effect on the willingness of workers to do their best and feel as though they trust the decisions of management. 

The ends not justifying the means

Kim and Mauborgne utilize an example in which a desired outcome has been achieved, but the process was not deemed fair. Elco Elevator's industrial domestic product replacement and update improved product being transformed in record time with a corresponding manufacturing layout. To employees, however, the process felt suspiciously invasive as strangers showed up at the plant:

“wearing dark suits, white dress shirts, and ties? They weren't customers. They showed up daily and spoke in low tones to one another,” avoiding interation with employees while “hovering behind people's backs.”

While this degree of micromangement and supervision proved effective to the overall task, the employees were alienated and left feeling uneasy.


Persisting problems with the accessability of higher education continues to plague American economics. Attitudes and behaviors are critical to strategies that contribute to high-level functioning of any business environment. The human factor in the successful continuation of knowledge-based economy opportunities and workable solutions is very important.  It is never simply about economic theories alone. Human capital is crucial in:

  • Real-world management skills
  • Sensitivity to the needs and feelings of employees
  • A sense of fairness of team efforts

Without these elements, a business or project can be derailed before it even begins.

Transforming Education in Knowledge-Based Economies

Preparation And Transformation Of Education In The Knowledge-Based Economy 

There are many implications and elemental components to the concept of what preparations and transformations need to be addressed, what are being addressed, and in which jurisdictional authorities they may lay under the auspices of. Rather than to take too broadly an approach is to approach a possible position higher education might take in terms of the knowledge-based economy, and an overview of how business and university relations connect to the new knowledge-based economy. One peer-reviewed journal article entitled “Positioning higher education for the knowledge based economy” written by economist Elizabeth George highlights the fallacy that fiercely competitive strivings among colleges is the way to go. The observation is that among higher educational institutions in developing countries this competitive method falls short and that it is more important to focus upon global sustainability in terms of worldwide knowledge-based economy to manage strong relationships between States and educational institutions while forming 'neo-liberal' so-called “models of development.”7 

So how is this proposed to work? Good question. The paper having proposed a menu of encouragements of what to do suggests that a blanket approach to any uniformly unidirectional homogenization of all universities across the planet perhaps the best way is to think about an efficient use of resources and proceed to advance the country's economic growth. The interesting thing is that the George document arose out of research into the Vietnam system of what is characterized as a neo-liberal model of educational management – as a direct quote – and does not actually recommend any specified formulaic answer but seeks to address questions and options involved. If you think about it this approach makes perfect sense especially if you re-wind back to the opening statement in the introduction that reminds the reader there is no crystal ball to accurately predict how a knowledge-based economy will look like, and function like, down the long hallway of time. Once again it is viably crucial to consider the long-term suitability to any choices designed to serve as a workable framework for development in this area. 

The sheer beauty of George's offer is that it is not by muscle and brawn that effectively placed models will form seamless functionality between higher education institutions and the State, but rather by a cooperative attitude and meeting of the mind. These collective knowledge-based economies are perceived as the rise of new systems formats that operate in real-time, for the real-world and simultaneously brings key growth points to every national economy. The commentary includes a discussion of globalization but actually provides a case study of the Vietnamese experience which has promised to wield an investment in knowledge generation.8 Innovation brought forth a consideration of a myriad of reports, collaboration of organizations from tertiary educational institutions to the World Bank whose revised policy framework for higher education was revisited. 

Content must be king as opposed to any sort of regulated structure that universities must adhere to. George inspires a cooperative effort when she commands a basis for consideration that “industries of the future will rely primarily on individuals who are able to adapt to rapidly changing situations, who are creative, independent and who have broadly based skills that can be used as a basis for specific job skills training.” Bravo! In any case Quality Of Improvement Grants were also discussed in terms of loans to both address accountability and quality of competition. 

Now when it comes to merging possible ideals and solutions pertaining to the knowledge-based economy with university and business J. Stanley Metcalfe has penned an erudite article which accepts that all modern economies are knowledge-based but that there may be a need to distinguish one from another in terms of knowledge variety engagement, resources that contribute to such knowledge dissemination, and the purpose of such knowledge in the face of all industries both public and private.9 The idea herein this tidbit of exploratory investigation into the knowledge economy pro-actively involves all business entities. Metcalfe conveniently ties these three directions into a package that focuses upon roles, progressive pursuit of relationships, and policy initiative guidance.10 In this way he proceeds to discuss quite a detailed approach for contexts, systems, international market processes and so on. Brilliant, right? Yet nothing is perfect and this scholar does manage to point out that an “uneven division of labor” has important considerations surrounding an organization's internal knowledge in conjunction (or opposition to) any external knowledge. However fundamentally he agrees with what others have suggested about the need to retain ongoing management of innovation processes and the need for continued R&D. 

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Are Competition Issues And The Experiential Approach Mutually Exclusive?

Perhaps it is best to begin this section with the reporting of an actual procedural study about the knowledge economy performed by researchers Zboon, Suliman, and Saleem conducted in 2009 which looked at rationales of a shift towards a knowledge-based economy in Jordan. Obviously the purpose of their study was to identify measured rationales in knowledge-based economy in education as “perceived by educational experts,” with variables with utilization of a random stratum sample but it is truly refreshing how researchers further clarified a definition of a knowledge economy.11 They hold to the concept of its definition as inclusive of a respect for the human mind and its creativity to coordinate the capitalization seen in the “information explosion brought about by the recent communications and technology revolution.”   

In other words Zboon et al., believe that a scientific study with analytical data-driven inferences is vital but that the educational component linked to the concept of a knowledge-based economy need not be connected to, or dependent upon, that of elite educational institutions. The idea of competition is reduced too as the focus is actually on community – moreso deliberately honing attention upon the local community – coupled with redirecting educational goals, provision of support, and development of preparation which commences during early childhood.12 With this type of intelligent, yet intellectual approach it does not seem like there need be a mutual exclusivity between the notion of competition and experiential or experimental approaches. 

Veronica Donahue DiConti focuses upon whether or not it is appropriate to reexamine the liberal arts agenda within a knowledge-based educational experience. In noting the shift from a manufacturing base to the knowledge-based foundation she notes that purposeful goals seem to be in conflict.13 In the modern world of today most people of the present generation would not stop to think about the philosophy of education as DiConti astutely mentions when expressing that “Education, once an age-specific rite of passage, is now a vigorously monitored and carefully assessed investment by a variety of sources, including students and parents.”14 The point is that undergraduate level university students want to make a connection of relevancy between what they are studying and how it will support their economic lives in the real-world. And who can blame them? It is a very, and more often than not and sometimes disturbing, world of rapidly changing conditions we live in that is pregnant with unpredictable outcomes. 

Basically DiConti characterizes this quest for relevance to be captured in a revamping of the liberal arts discipline to be more flexible, incorporate better skill set training, and to challenge students with the responsibility to take a more hands-on interest and engagement in their educations. It is further suggested that the internship program can play a vital role to this end. When one considers how rich, for example, a study-abroad program can be for students one can see the wisdom in this approach. In the knowledge-based economy it all boils down to current and long-term relevancy, with flexibility in between to bridge any shaky bridges over the abyss of ignorance. 

Young People's Implication Of Education And Knowledge-Based Skill Sets 

The World Bank report “Expanding Opportunities and Building Competencies for Young People: A New Agenda for Secondary Education” has extensively set forth a historical background, structural definitions of secondary education, the importance of investment and challenges to schooling at this level. In recognition of increasing worldwide demands for youth to be adequately educated to the end of appropriate training for the current and future knowledge-based economy quality and relevance are the twin burdens to overcome.15 Changes are acknowledged as a result of democratization in some of the “poorest countries of Africa, the Middle East and North Africa, Latin America, and Asia” concluding that reform efforts are being made. 

Although not specifically addressed in the report, many charitable and religious organizations have also made efforts to bring education to poorer sectors of the globe. However it is this writer's belief that greater resources can be garnered from governmental resources based in greater financial access, budgets, and ability to facilitate modernization in all aspects. Overall the knowledge-based economy is a bit much for just a single sector, or entity to address, and will take the focus and effort of collaborative nations, businesses, and universities to get the job done. 




Carnevale, A. P., and Desrochers, D. M. (2002). “The Missing Middle: Aligning Education and the Knowledge Economy.” Journal for Vocational Special Needs Education, 25(1), 3-23.

DiConti, Veronica Donahue. (2004). “EXPERIENTIAL EDUCATION IN A KNOWLEDGE-BASED ECONOMY: IS IT TIME TO REEXAMINE THE LIBERAL ARTS?” JGE: The Journal Of General Education 53, no. ¾: 167-183.

“Expanding Opportunities and Building Competencies for Young People: A New Agenda for Secondary Education,” The World Bank, last modified 2005, http://siteresources.worldbank.org.

George, Elizabeth. 2006. “Positioning higher education for the knowledge based economy.”Higher Education 52, no. 4: 589-610.

Kim, W. Chan, and Renée Mauborgne. “Fair process: Managing  in the knowledge economy.”Harvard Business Review 81, no. 1 (2003): 127-136. 

Metcalfe, J. 2010. “University and Business Relations: Connecting the Knowledge Economy.”

Minerva: A Review Of Science, Learning & Policy 48, no. 1: 5-33. Academic Search  Premier, EBSCOhost (accessed May 2, 2013). 

Welfe, Wladladyslaw. 2008. “A Knowledge-Based Economy: New Directions of Macromodelling.” International Advances In Economic Research 14, no. 2: 167-180. 

Zboon, Mohammad Saleem Al, Suliman Diab Ali Al Ahmad, and Saleem Odeh Al Zboon. 2009.“RATIONALES OF A SHIFT TOWARDS KNOWLEDGE ECONOMY IN JORDAN FROMTHE VIEWPOINT OF EDUCATIONAL EXPERTS AND RELATIONSHIP WITH SOME VARIABLES.” College Student Journal 43, no. 2: 571-591.



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