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Formal education is designed to impart information. This information is used to create a better, more skilled worker. This will in turn create a stronger labor market that is more apt to compete on a global scale. The economy of a nation typically relies on the ability of this labor market to compete. Don't teach people how to do things well, and they will make bad products. Teach them to be efficient and skillful, and they will do things well, and faster.
I definitely believe that the purpose of formal education as it is today is to impart knowledge. I do not think that the way formal education operates today is that its purpose is to prepare workers for the labor market. I think that there should be more of an emphasis though on that.
We as a society require people to be knowledgeable in more than a specific area. Everyone needs certain general knowledge. If people were only educated to prepare them for a job or career, they would be so specialized as to be ignorant of anything else. Trade schools and certain college degrees exist for this purpose. Elementary school, and high school should be reserved for general knowledge on a broad selection of topics.
Mere knowledge is something you can attain anywhere thanks to widely accessible technology, libraries, etc. Formal education at an institute is solely to prepare you for the labor market because a degree is what employers want, not pure knowledge. What good is someone who knows a lot if he doesn't possess the skills you learn and hone in college?
Formal education does not teach us to follow our dreams or to try to make a living doing what we love. It does not teach us to find our passion and make money from it. Formal education teaches us basic skills to prepare us to work for someone else for the rest of our lives. It teaches us basic knowledge on how to do every day things in a normal workplace setting.