x Abu Dhabi, UAESunday 23 July 2017

High wages can lead to a lower value for education

Is there a social cost to a resource boom, whether in Australia or the UAE?

When academics talk about Dutch disease or the "resource curse", the image that comes to many people's minds is oil-rich Gulf states such as the UAE. Rarely are countries like Australia included in this category, but what is driving the strong Australian economy is an unprecedented resource boom fuelled by the demand for minerals from China in particular.

Australia may not be as rich in oil or gas as the GCC (although it has hydrocarbon resources), but it has minerals like coal, gold and bauxite in abundance. Recent figures show that mining has created thousands of jobs over the past few years and it is estimated that, in Western Australia alone, another 240,000 jobs in the mining sector will be created in the next six years. Unemployment is at the lowest levels in decades with rates lower than 3 per cent in some states.

But is there a cost to this resource boom? In particular, what are the implications for young males who make up the majority of the mining workforce? Are there important similarities between Australia and the UAE in this regard?

In my home town in Australia, where a gold mine has recently begun operations, a number of young men in my family and their friends have gone to work at the mines. These men completed high school but did not go to university or complete a trade degree, and were lured into the mines by the extremely high salaries on offer. Most of them work as drivers or in low-skilled jobs in a workshop, and all were earning 80,000 Australian dollars (Dh293,000) a year or more.

To put this in context, university professors with PhDs earn from $60,000 to $100,000 depending on their field and the university. A study in the US on the coal boom and bust in the 1970s and 1980s found that a long-term 10 per cent rise in the earnings of low-skilled workers decreased high school enrolment rates by 5 per cent to 7 per cent. When salaries for low-skilled labour rise, young people are more likely to quit school early. And, as was seen in the US when the boom ended - as is always the danger with resource-led growth - low-skilled workers were faced with long-term unemployment.

In the UAE, we know that as many as 20 per cent of boys in some emirates drop out before completing secondary school. Many are quick to blame the attitudes of young people, arguing that they are lazy, they don't want to study and the like.

But if a study from the US finds that just a 10 per cent rise in low-skilled job salaries can significantly decrease high school enrolment, then what about a 70 per cent increase in the salaries of the high-skilled UAE public sector which we saw in 2007 and 2008? It should be no surprise that young men are quick to drop out of school or forego further education when there are clear rewards for doing so.

When education becomes disconnected from pay scales, then fundamental distortions arise in the labour market. If you are a young man in the UAE or Australia and you have the chance to earn a lot of money without an education, then chances are that you will think that you can quit school. However, if you know that you need an education to get a job with a good salary, you will be much more likely to pursue one.

Not everyone has to earn a university degree, but I believe young people need to find a vocation, a career that gives pleasure and meaning to life. The young men who go to work in the mines in Australia and the young men in the UAE who enter the public sector do so without knowing about other options or long-term consequences. Their first thought is how to get a good salary as fast and easily as possible (something that most of us are guilty of).

The responsibility of governments is to ensure that young men and women are not left uneducated and unfulfilled. If natural resource prices fall, then these young people will be left without options and the society at large will bear the cost.

Education is not just about employability. It is about making good citizens, parents, children and members of society in general. When Australia or the UAE offers high salaries far in excess of young people's educational qualifications, there may be problems down the line. Whether it is an increase in alcoholism and violence, as is the case in mining communities in Australia, or something else, is a function of the society and culture.

But it begins with young people opting out of education. If high paying jobs are offered to them, governments need to ensure that they also equip young people with skills that they can take with them through their whole lives. They need to give them financial literacy skills so they know how to save and not spend all their money on alcohol, gambling, cars or other depreciating assets. They need to be encouraged to gain qualifications while they work and to think about what they would like to do when they stop working in the mines or the police or the army so that they will find productive and meaningful ways to spend their time later down the line.

The Gulf states and Australia have all been blessed with a wealth of natural resources, but this should not be a curse for future generations. Statistics for drop outs for Norway in 2002, another resource driven economy, are among the lowest in the world at under 5 per cent compared to Australia's 18 per cent for the same year and comparably high rates here in the UAE.

Young men and women need to see a return on education in order to invest in it. Until that happens they will continue to opt out, and in the long term that is bound to be a curse.

 

Dr Natasha Ridge is a research fellow at Dubai School of Government