The Socio-Economic Costs of Underfunding Education. A Multi-Country Case Study Approach

Underfunding education represents a major challenge in terms of both social and economic consequences that negatively impacts workforce’s competitiveness, economic growth, and social cohesion. Although numerous studies have underlined the advantages of increasing investment in education, the full extent of the negative effects caused by insufficient funding remains quite underdeveloped mainly in former soviet countries now benefiting from EU-27 membership. Thus, this study aims to fill this gap by assessing whether educational investment provides sufficient real outcomes in terms of smooth workforce integration into the labour market from seven European countries: Bulgaria, Czechia, Greece, Romania, Denmark, Norway, and Sweden. Towards this objective, a two-steps approach is performed: the analysis of secondary data in terms of stationarity, cointegration, and causality tests, as well as a comparative analysis, to evaluate the relationship between education underfunding, unemployment rate, and other relevant variables. The central question of our study investigates the extent to which underfunding of education contributes to socio-economic inequalities and long-term stagnation. The most striking finding emphasizes a stark contrast between Nordic countries’ stable unemployment rates and Eastern Europe’s higher volatility linked to funding levels, with countries allocating a higher share of GDP to education also benefitting from a more competitive economy, a more skilled workforce, and reduced social inequalities. Hence, this paper makes a significant contribution to the body of knowledge by extending prior work on former Soviet EU states in terms of the analysis of the complex relationship between digitalization, education, and sustainable economic growth. Future research directions could include expanding the analysis to a global level, using a longer timeframe, and developing future projections to identify potential economic gaps and effective intervention mechanism for optimizing education’s impact on the economy.