The failings of the German education system
The last few years have shown the decline of German proficiency based on standardised student tests. If the country can address this problem within its education system, it may unlock massive economic growth over time.
When talking about the state of the German education system, one can almost exchange the talking points from 2001 for those of 2026 one-for-one. An article from 2001 lists teacher shortages, insufficient support for children from non-German-speaking families, and limited early childcare centres as some of the reasons for the poor results in the first battery of tests under the Programme for International Student Assessment (PISA). The study surveys 15-year-olds across OECD countries, and results show that Germany placed 21st for reading and 20th for maths and sciences against 31 other countries. Comparing these to the latest PISA outcomes, Germany’s results have become even worse.
Despite the “PISA-Schock” – a nation-wide call to improve the education system that led to a marked improvement in test scores after the first PISA study – not much has happened following the release of the 2022 results. Economists argue that human capital, or the level of education in an economy, is one of the main driving forces for high GDP growth – something that is currently missing in Germany. How much better would the country fare if it were to improve the quality of education? While there are massive gains to be realised, these would need a few decades before it bears fruit, time that politicians are not eager to wait for in resolving this thorny issue.
Declining learning outcomes
On average, the German education system is unable to produce students with adequate skills to tackle the real world. This fundamental problem, on top of the highly unequal quality of education a student receives (largely dependent on their family’s financial capability), is seen across other performance measures.
The 2001 PISA study inspired Germans to self-reflect and take steps towards progression which, at least for the next decade, yielded positive results. Unfortunately, the country took a step back once more and lost roughly half of that progress in 2019, as evidenced by declining test scores. By 2022, these scores fell below 2001 levels.
Graph 1 shows the average performance of German students over time. In 2022, Germany’s PISA results were only barely above the OECD average. For a mature country like Germany, this is insufficient. Results across all three subjects have been worsening over time since 2012. This decline is likely to continue unless substantial interventions are introduced.
Further, parental background is highly predictive of how good a child will perform in school in Germany’s context. Statistics show that 80 per cent of children with at least one parent who went to university will head on to attend university. Meanwhile, 12 per cent of children whose parents do not have a professional qualification will likely follow the same path. There is likewise evidence that learning outcomes are directly correlated to household income with average scores higher for students coming from more affluent backgrounds, as shown in Graph 2. The pattern holds for OECD countries, although average scores are much higher in peers like Estonia and Japan. This shows that Germany has a lot of catching up to do.
The measures needed to advance Germany’s existing education system appear relatively straightforward. To modernise schools, expand early childcare, and hire more teachers, the country needs to invest roughly EUR 130 billion (USD 150 billion) or about 0.5 per cent of GDP per year until 2030. Beyond the amount spent per student, it matters more to the OECD where the money goes. This applies to Germany, where almost everybody agrees to reforms towards supporting early childcare.
Education and economic growth
One could ask how these reforms in Germany’s education system could support economic growth. The obvious answer is through the increase in labour productivity and technological progress. Moreover, providing full-day childcare services would free up labour supply – which, coupled with more inclusive education, would ease the shortage in skilled labour. This would also alleviate strain on the pension system.
According to a study, a 25-point increase in the PISA test score could potentially lead to a GDP growth of 0.5 percentage points more per year. For Germany, improving minimum language requirements by 50 per cent and increasing top performance by 30 per cent would lead to a 40 per cent increase in GDP over an 80-year span. The duration is, of course, no surprise given that the gains need to accumulate over time.
The real question is if these reforms would actually be enacted. This depends mostly on public attention to the topic. Germany still performs quite well regarding its vocational system and its universities. Regardless, Germany’s scores fell deeper than those in other countries. Thus, it will be interesting how the country will fare in the next PISA round later this year as it will also show how much attention this issue will receive.
We see that Germany is enacting reforms, albeit sluggishly. The German federal government and states have agreed on strengthening mathematics and reading in primary school. They will also dole out EUR 20 billion (USD 23 billion) over the next decade for 4,000 schools with disadvantaged learners, which accounts for 10 per cent of students in the country.
Nonetheless, the hurdles in the way of better education seem strikingly German: as the 16 states are tasked to oversee educational institutions, the federal government has limited opportunities to enable change through funding or imposing standards. Ideally, individual states would therefore compete in offering the best education systems. However, special interests such as those from teachers’ unions and parents, coupled with a lack of independence of schools, inadequate research due to data privacy concerns, and little political will, stands in the way of even the most basic reforms. Until these are addressed, Germany’s level of productivity and therefore economic growth will continue to struggle.
This original article has been produced in-house for Lundgreen’s Investor Insights by on-the-ground contributors of the region. The insight provided is informed with accurate data from reliable sources and has gone through various processes to ensure that the information upholds the integrity and values of the Lundgreen’s brand.
