Public Higher Education Spending and Labor Market Outcomes in OECD Countries : Evidence from Pooled Mean Group (PMG) Analysis

Sammanfattning

This study examines the relationship between public higher education spending and labor market outcomes across 29 OECD countries over the period 2008–2022. While higher education investment is widely viewed as an important driver of productivity, employability, and economic performance, empirical evidence regarding its labor market effects remains mixed, particularly concerning the timing through which these effects materialize. The study adopts a multidimensional approach by examining employment, unemployment, and labor force participation as indicators of labor market outcomes. Government Share of Expenditure on Tertiary Education serves as the primary explanatory variable, while GDP per capita and Gross Fixed Capital Formation are included as conditioning factors. Using panel unit root tests, cointegration analysis, and the Pooled Mean Group (PMG) estimator, the study distinguishes between short-run dynamics and long-run relationships across OECD countries. The findings provide evidence of stable long-run relationships among the variables and indicate that higher education spending contributes positively to employment and labor force participation while reducing unemployment over time. However, the short-run effects differ from long-run outcomes and suggest temporary adjustment pressures consistent with a weak-link hypothesis, where labor market responses may initially move in the opposite direction before long-run gains emerge. The results support Human Capital Theory and Labor Market Matching Theory and suggest that higher education investment should be viewed as a long-term strategic investment rather than a short-term instrument for immediate labor market improvements. The study contributes to the literature by adopting a multidimensional labor market framework and emphasizing the importance of distinguishing between short-run adjustment processes and long-run equilibrium effects within a dynamic panel setting.