April 22, 2009 Global Markets Institute

Global Markets Institute

Learn More, Earn More:
Getting Ahead in America
Getting ahead in America, and the world Sandra Lawson
Education affects lifetime earnings power, health, productivity, (212) 902-6821 sandra.lawson@gs.com
Goldman, Sachs & Co.
competitiveness and social mobility. Investments in education today can
strengthen the international competitiveness of the US economy for the
Amy C. Semaya
future. (212) 902-7009 amy.semaya@gs.com
Goldman, Sachs & Co.
Women are driving gains in access to education
Educational attainment in the United States has improved remarkably in
recent decades. Much of this is due to women, who are now the majority in
both college and graduate school, and who have driven 80% of the growth
in master’s degrees and a remarkable 99% of growth in professional and
doctoral degrees since 1970. Women’s gains have not come directly at
men’s expense: the decline in men’s education began well before women
made significant inroads into universities.

It pays to go to school
At the individual level, education is associated with higher wages, better
jobs, lower unemployment and greater social mobility. On average, high-
school graduates earn one-third more than high-school dropouts each
year; college graduates earn two-thirds more than high-school graduates;
and those with professional degrees earn nearly twice as much as college
graduates. Better-educated people are more likely to work and to hold
higher-skilled jobs. Education also helps to reduce income inequality and is
a critical driver of social mobility, by improving the likelihood of rising to a
higher income category.

Preparing the workforce of the future

Two-thirds of the fastest-growing job categories in the United States
require some form of post-secondary education. Demand for skilled labor
has risen even faster than supply; technological change and globalization
suggest that this demand will continue to increase. But US schools do not
seem to be adequately preparing students to meet this demand.
Standardized test results are discouraging, and the United States scores
only slightly above average among OECD countries, despite spending
much more on education per student. Moreover, employers increasingly
value hard-to-teach qualities like judgment, problem-solving and flexibility.

The reality of the recession

Higher federal spending on education will be welcome, but it is unlikely to
fully offset the broader impact of the economic downturn. Shrinking state
and local budgets, constrained credit markets, withering endowments and
a slowdown in donations – all at once – will pose major obstacles to
improving both access to and the quality of education.

The Global Markets Institute is the public policy research unit of Goldman Sachs Global Investment Research. Its mission is to provide
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Table of contents

I – Learn more, earn more: the role of education 3

II – Going to college: a better-educated labor force 4
III – It pays to go to school: the benefits of higher education 13
IV – Getting out of school: the workforce of the future 20
V – Paying for education: the reality of the recession 26
VI – Conclusions: investing in education 28
Disclosures 30

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I – Learn more, earn more: the role of education

Public and political attention in the United States is understandably, and necessarily,
focused on near-term challenges of economic stabilization and recovery. But many
decisions being made today will affect the US economy over the long term, particularly its
international competitiveness and role in the world economy. Competitiveness is a
complex topic, so we focus here on one critical issue – education – that affects national
competitiveness, productivity growth, income inequality and social mobility.

The United States has seen significant gains in educational attainment since the early
1970s, primarily driven by women. Women have surpassed men in college education and
overwhelmingly dominated the growth in advanced degrees. At the same time, men’s
educational attainment has declined. This is not a story of women’s gains coming directly
at men’s expense – in fact the decline for men began in the 1950s, long before women
began to make serious inroads into higher education.

At the individual level, education is associated with higher wages, better jobs, lower
unemployment and greater social mobility. This is especially important as globalization
erodes moderate-skill jobs and the demand for skills in the labor force continues to rise.
Education is critical in an economy where two-thirds of the fastest-growing job categories
require some form of post-secondary education. At the national level, education is
associated with higher productivity growth, lower income inequality and greater
competitiveness within the global economy.

Gains in education have come as the US economy is becoming increasingly stratified into
highly skilled, highly paid managerial and professional jobs on one end, and labor-
intensive, low-skilled and low-wage service jobs on the other. Moderately skilled jobs that
once paid middle-class wages have been “hollowed out,” either disappearing or lagging in
wage growth. These jobs have been displaced in part by global trade, and more
importantly by technological change.

Unfortunately, despite the tremendous gains in access to education, the quality of US

education often falls short. The US educational system is not truly preparing its students to
meet the demands of the 21st-century workforce. Literacy and numeracy standards are low,
and the United States scores only slightly above average in international comparisons with
other OECD countries, despite spending significantly more on education. Moreover, the
attributes that employers increasingly value – judgment, motivation, problem-solving – are
difficult to “teach” through traditional forms of classroom instruction.

Investments in education can take years to pay off, but the effects of under-investment can
also linger for years. Thus the $50 billion earmarked for education spending in the
proposed 2010 federal budget is welcome news, though only part of what is needed. With
education a high government priority, and with an increasing focus on national
competitiveness, it may be just the time for a rethink of what United States schools are
teaching, how they teach it, and how access can be broadened at the same time that the
curriculum is updated to meet future challenges.

In this paper we first highlight the improvements in educational attainment since the early
1970s, particularly women’s tremendous gains in access to higher education. We then
analyze the links between education and employment, wages and intergenerational
mobility. We evaluate ways in which the current educational system is falling short in
preparing students for a globally competitive workforce. Finally, we look at the impact of
the economic downturn on education and conclude with some policy recommendations for
strengthening the educational system and preparing for a 21st-century workforce.

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II – Going to college: a better-educated labor force

Educational attainment in the United States has risen considerably in recent decades, most
notably in the share of high-school graduates going on to college and in the remarkable
increase in women at all levels of advanced education.

The dark spot: progress in high school has been underwhelming

Before reaching the good news about college enrollment, we must begin in the area where
progress has been underwhelming – high school. The headline news is good: nearly 90%
(88%) of young adults today have a high school degree or its equivalent. But digging into
the details shows that the headline overstates the situation. The graduation rate from
public high schools is just 75%, well below the OECD average of 83% (see Exhibit 1). While
the United States rate is higher today than in the 1990s, it is only in line with the rate of the
1980s and actually slightly below that of the 1970s.

The gap between the 88% headline figure and the 75% public high-school graduation rate
is split roughly evenly between graduates of private high schools and people with high-
school equivalency degrees. Equivalency degrees, typically the General Educational
Development (GED), are easier to secure and are generally considered less rigorous than a
four-year high school curriculum.1

Despite a decline in the overall high-school dropout rate below 10% from 15% in 1970 (see
Exhibit 2), dropping out remains a persistent problem, which we discuss in detail in the
box on page 6.

Exhibit 1: Graduation rate from US public high schools

% of freshman class that graduates 4 years later

80

78

76

74

72

70

68
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Source: National Center for Education Statistics.

1
Some research suggests that the GED in fact yields no direct economic return, once differences in
ability are taken into account. See “Bias Corrected Estimates of GED Returns,” NBER Working Paper
12018, 2006. Nonetheless, many who take the test indicate that they do so to pursue careers or job
opportunities that require a high-school diploma or equivalent, including the military.

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Exhibit 2: US high-school dropout rate has fallen significantly since 1970

status dropout rate %*

16

15

14

13

12

11

10

8
1970 1976 1981 1986 1991 1996 2001 2006
* Status dropouts are 16-to-24 year-olds who are not enrolled in school and who have not completed a high school program, regardless of when they left school.

Source: National Center for Education Statistics.

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Exhibit 3: The persistent problem of high-school dropouts

Despite a decline in the overall high-school dropout rate to below 10% from 15% in 1970, dropping out remains a
persistent problem. This is rarely a sudden, one-day event, but is instead a complex phenomenon that is usually
several years in the making. Multiple risk factors exist at the individual, family, school and community levels, and
most dropouts cite a combination of factors.

Certain groups are more at risk than others. Low-income students are considerably more likely to drop out than their
middle- or high-income peers, while men are more likely to drop out than women. Students in the South and West are
more likely to drop out than are students in the Midwest and New England. City and rural students are more at risk
than those from suburbs or smaller towns.

Family background is extremely important. Students whose parents or siblings have dropped out are particularly at
risk, as are students who have children themselves. Low family socioeconomic status is a risk factor, whether
measured by parents’ education, income or occupation. In fact, low income tends to outweigh other factors that might
keep students in school, including good academic performance. High levels of stress in the household – including
family financial problems – also increase the risk. Critically, parents’ own attitudes toward education have a powerful
influence on their children’s likelihood of dropping out. One study indicates that eighth-grade students whose parents
did not expect them to graduate from high school are almost 14 times more likely to drop out than students whose
parents expected them to receive at least some college education. Conversely, students whose parents are better
educated – and who are thus likely to have relatively high expectations for their own children – are less likely to drop
out.

Students who will ultimately drop out begin to lag in school performance very early in their educational careers; in
fact poor performance as early as first grade has been found to influence the risk of dropping out a decade later. In
high school, the gap between future dropouts and students who stay in school widens each year, with future dropouts
earning fewer credits in the critical fields of English, math and science. Catching up can be a daunting challenge,
leaving many of these low-achievers wondering “why bother?” Repeating grades is not an effective solution, because
in-grade retention itself is highly correlated with dropping out.

Exhibit 4: The gap between future dropouts and future graduates is visible from the start of high school

course credits earned

30

On-time graduates

25

20

12th-grade dropouts
15

10 11th-grade dropouts

10th-grade dropouts

0
Freshman Sophomore Junior Senior
Academic year

Source: National Center for Education Statistics.

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Surveys of dropouts cite a wide range of factors behind their choices. One-third said they needed to earn money;
one-quarter became parents (not surprisingly, this is a particularly acute problem for girls); one-fifth had to care for a
family member. School-related factors matter too: half say classes are boring, others say the coursework is irrelevant.
The vast majority want schoolwork that is more relevant to their lives and to see clearer links between school and
good jobs.

What can be done? Given the complex set of issues behind dropping out, a multi-faceted approach makes the most
sense. Important measures include:

• Early warning systems to identify potential dropouts long before high school, as early as elementary schools in
some high-risk areas;

• Efforts to engage parents in their children’s education and to raise their expectations for their children;

• Broader (and probably better-financed) support services at school;

• Changes in compulsory school-age rules, requiring teenagers to remain in school until age 18; and

• Stronger career and technical education (also known as vocational training). These programs are less
academically rigorous than the traditional curriculum, but they can be helpful for students who feel that
conventional education is not relevant to their future. Good programs have been associated with higher grades,
lower dropout rates, higher college attendance and, for men, steadier work, longer hours and higher earnings.

Gains have been far more impressive in college

Despite sluggish progress in high-school graduation rates, high-school education is so
widespread that much of the variation in educational attainment today comes from
differences in college education. Here, the progress is consistent and clear.

In recent years, roughly two-thirds of high-school graduates have gone on to enroll in

college (see Exhibit 5), up from just 45% in 1960.2 The majority (roughly 60%) of today’s
college students are full-time students enrolled in four-year degree programs. Among the
rest, full-time two-year programs are more popular than part-time enrollment. In fact, two-
year programs, which result in associate degrees, have driven much of the growth in
college enrollment. In 1970, there were three bachelor’s degrees granted for each associate
degree. Thanks to nearly three-fold growth in the latter, this ratio has since fallen to two-to-
one.

The rapid growth in college enrollment that marked the 1970s and 1980s began to level out
in the early 1990s, and future gains from here are likely to be modest. The enrollment rate
is currently rising at slightly more than 1% per year. This is down sharply even since the
late 1990s, but it comes off what is now a high base.

2
For high-school graduates who do not enter college directly after graduation, prospects are darker.
Once people leave the educational system, it is difficult to bring them back. Only 15% of high-school
graduates who are not enrolled in college in the first year after high school do go on to enroll in the
second, according to the US Census Bureau.

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Exhibit 5: Share of high-school graduates enrolling in college has risen, with biggest gains
among women

%
75

70

65

60

55

50

45

40

35

30
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004

Total Male as a % of male HS grads Female as a % of female HS grads

Source: National Center for Education Statistics.

The number of post-graduate degrees has soared

Post-graduate education has experienced even more dramatic growth (see Exhibit 6). While
the number of bachelor’s degrees awarded has risen by about 75% since 1970:

• The number of master’s degrees awarded has risen by more than 150%, with
pronounced growth in engineering, security services and fitness;

• The number of professional degrees awarded has risen by 130%, though these remain
just a small fraction of overall advanced degrees. Law degrees are half of all
professional degrees, a figure that is basically unchanged over the past 15 years, while
medical degrees are slightly below 20%; and

• The number of doctorates awarded has risen by 75%, reflecting growth in fields such
as health, computer and information sciences.

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Exhibit 6: Growth in all fields of post-graduate education, especially master’s degrees

numbers in thousands
700

594
600

500

400

300
157%

231

200

100 88
132% 75%
56
38 32

0
Master's Degrees Professional Degrees PhDs

1970 2005

Source: National Center for Education Statistics.

The story of educational gains over the past 35 years is largely a

women’s story
At the start of the 1970s, men dominated higher education. At the time, 55% of male high
school graduates attended college, while 49% of female high-school graduates did. As a
result, men were close to 60% of all undergraduates and 70% of all graduate students.

Over the past 40 years, this gender gap has not only narrowed, but has reversed. Women
had become the majority among undergraduates by 1980, and among graduate programs
as well by the mid-1980s. Today, 58% of undergraduates and 62% of graduate students are
women (see Exhibit 7). Similar gains have been seen in most OECD countries and in many
major developing economies.

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Exhibit 7: Women are now the driving force in college and post-graduate education

% earned by women
70 70

60 60

50 50

40 40

30 30

20 20

10 10

0 0
1970 1975 1980 1985 1990 1995 2000 2005

Associate's degrees Bachelor's degrees Master's degrees First-professional degrees Doctorates

Source: National Center for Education Statistics.

Women’s gains in post-graduate education are even more remarkable. Women have driven
80% of the overall growth in MAs awarded since 1970, and a stunning 99% of growth in
both professional and doctorate degrees. Arguably, this overstates the case, because
women started from such a low level. (As recently as 1970, for example, women received
only 14% of doctorates and 6% of professional degrees.) But the fact that women now
significantly outnumber men in college and in master’s programs – and are virtually at
parity with men in professional degrees and doctorates – suggests that men have indeed
lagged (see Exhibits 8-9).

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Exhibit 8: Women overwhelmingly dominate growth in post-graduate degrees

Cumulative growth 1970-2005 %

2000

1800 1716%

1600

1400

1200

1000

800

600
499%

400
286%

200
72%
24%
4%
0
Master's Degrees Professional Degrees PhDs

Men Women

Source: National Center for Education Statistics.

Exhibit 9: Women move to parity with men, and beyond, in post-graduate studies

numbers in thousands
700
Men
Women
238
600

500

400

300

138

200

100 44

29
36 28
92 356 2 44 5 27
0
1970 2005 1970 2005 1970 2005

Master's Degrees Professional Degrees PhDs

Source: National Center for Education Statistics.

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Women’s educational achievements have been broadly based. The “catching up” process
has been visible across the spectrum of academic abilities, and across all socio-economic
levels. Notably, the gender gap in women’s favor is today highest in the lower half of the
socio-economic distribution. In fact, among low-income and minority students, women are
25% more likely than men to enroll in post-secondary education.

Educational attainment for men peaked with men born around 1950
Women’s remarkable gains have coincided with a striking decline in men’s educational
attainment. Overall, men born since the early 1950s have consistently been less well
educated than their female peers.

This is not a story of women’s gains coming at men’s expense. The decline in men’s
education is clear, above and beyond a shift of educational resources to women. The share
of male high school graduates continuing on to college fell from a high of 63% in the late
1960s to just 47% a decade later, and it did not recover its previous high until the late 1990s.
In contrast, although the share of women enrolling in college also dipped in the early 1970s,
the magnitude of the fall was only half as great, and women’s enrollment recovered much
more quickly than men’s (from 50% in 1971 to 43% in 1973 and back to 50% by 1976).
Today, just 42% of college students are male.

What explains the decline in men’s education? Part of the answer may lie with the “non-
cognitive skills” that are so important to success in an educational setting. Some research
suggests that the impact of non-cognitive skills on college enrollment is comparable to that
of cognitive ability and socioeconomic status. Girls have a clear edge in these skills; put
simply, they tend to be better at “going to school” than are boys. Boys are more likely than
girls to have behavioral problems, to repeat grades, to be in remedial classes and to spend
less time on homework. In contrast, by high school, girls typically have higher grades and
are more likely to be on an academic track. Girls have long been more likely than boys to
take foreign languages, which is a strong predictor of college education. And girls reached
virtual parity in high-school science and math enrollment – another key predictor – in the
early 1990s.

Boys who choose not to attend college are more likely than girls to say that they do not
need further education to pursue their chosen career path; that they would rather earn
money right away; and that they simply “don’t like school.” Given the nature of work
available to teenagers and young adults, the opportunity costs of continued schooling are
now probably higher for men than for women. On the whole, men are better-suited than
women for the sorts of low-skilled but relatively better-wage jobs available to those
without a college degree, like construction, while women have made few inroads into
skilled blue-collar work. As the economy turns down and jobs grow scarcer, however,
higher education may become more attractive to these “opportunistic” dropouts.

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III – It pays to go to school: the benefits of higher education

In previous work,3 we have shown how women’s education is one of the most important
and effective economic development tools today, with positive consequences for women
and their families, for the labor force and productivity, and for future generations.

In developed countries, the future gains to be had from education are less dramatic, largely
because educational access and attainment are already so widespread. But there are still
significant gains to be had, affecting lifetime earnings power, health, productivity,
competitiveness, and social mobility for both current and future generations. In the United
States, the returns to post-secondary education have risen steadily since 1980, as the
economy has embraced technology and the demand for skilled labor has risen. Thus it is
worth detailing the benefits of education, especially college education.

Learn more, earn more

Returns to post-secondary education have risen across the board, especially at the top end
of the scale. Returns increase with each additional level of education. As Exhibit 10 shows:

• It pays to stay in high school: graduates typically earn 37% more each year than high-
school dropouts.

• College graduates earn, on average, 67% more than high-school graduates.

• While some college is better than none, students are financially better off achieving an
associate degree (typically a two-year program) than dropping out of a four-year
college. In part, this reflects the fact that many associate degree programs provide
training for a specific occupation (somewhat akin to advanced technical schools).

• Professional degrees yield the biggest “bang for the buck” in terms of incremental
wages. Median earnings for professional-degree holders are a remarkable 90% higher
than median earnings for college graduates.

• Over the course of a working lifetime, earnings for people with professional degrees
can be more than four times higher than lifetime earnings for high-school dropouts,
according to US Census Bureau estimates (see Exhibit 11).

The educational premium is not a new phenomenon. One study finds that, between 1963
and 2002, real labor income for men rose by 78% for those with postgraduate degrees, 41%
for college graduates, 17% for those with some college and 11% for high school graduates
– but fell 10% for high school dropouts. Among women, wages rose at every education
level, with the highest gains at the postgraduate level and the lowest for those without
high-school diplomas. Another study finds that real wages for men fell in all educational
groups, except college graduates, from 1979 to 2002. At the same time, real wages for
women rose in every group except high-school dropouts. 4 There are many ways to
calculate these numbers, but the common theme is that the educational premium
continues to rise.

3
Women Hold Up Half the Sky, Goldman Sachs Global Economics Paper 164, March 4, 2008.
4
On the Evolution of Income Inequality in the United States, Federal Reserve Bank of Richmond
Economic Quarterly Volume 94, Number 2, Spring 2008; Highlights of Women’s Earnings in 2002,
Bureau of Labor Statistics, US Department of Labor, Report 972, 2003.

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Exhibit 10: Median annual earnings by educational attainment

constant 2007 US$

120,000

100,000*
100,000

87,164

80,000
70,640
66,608
62,192
58,341
60,000

50,202
45,199
40,085 39,149
40,000
34,772
30,551
27,173
25,074
22,357
20,664
20,000 15,373
14,474

0
Less than 9th 9th to 12th High school Some college, Associate's Bachelor's Master's Professional Doctorate
grade nongraduate degree (incl no degree Degree Degree
GED)
*$100,000 = maximum earnings level data Men Women

Source: US Census Bureau, Current Population Survey, 2008.

Exhibit 11: Estimated lifetime earnings by educational attainment

Not high school graduate $1.0mn Lifetime synthetic earnings for full-time workers

High school graduate $1.2mn

Some college $1.5mn

Associate's degree $1.6mn

Bachelor's degree $2.1mn

Master's degree $2.5mn

Professional degree $4.4mn

Doctoral degree $3.4mn

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

$mn (1999$)

Source: Congressional Budget Office.

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Data also indicate that the education premium is higher for women than for men at nearly
all levels. As Exhibit 12 shows, women gain relatively more than men, in terms of future
earnings potential, at almost all levels of tertiary education, and for graduating from high
school (where women’s relative gain is more than twice as large as men’s). The premium
is roughly the same for both genders at the professional-degree level (with a difference of
just 1% in men’s favor), leaving women trailing men only among high-school dropouts.

Academics generally agree that the college wage premium has been higher for women
than for men for some time. But it is as yet unclear whether the lifetime returns to college
are higher for women, in part because they are more likely than men to take time out of the
workplace for child-raising and other personal reasons. Recent studies of professional
women suggest that even a short break from the workforce can reduce women’s future
earnings dramatically.5

Exhibit 12: Wage premiums for each level of education

49% Men
Doctorate (vs. bachelor's)
59% Women

71%
Professional (vs. bachelor's)
70%

21%
Master's (vs. bachelor's)
28%

68%
Bachelor's (vs. high school degree)
75%

30%
Associate (vs. high school degree)
37%

Some college (vs. high school 15%

degree) 22%

High school degree (vs. some high 21%

school) 45%

Some high school (vs. no high 21%

school) 6%

%
0% 10% 20% 30% 40% 50% 60% 70% 80%

Source: US Census Bureau, Current Population Survey, 2008.

5
For example, a new study of MBA graduates from the University of Chicago finds that “the presence
of children is the main contributor to the lesser job experience, greater career discontinuity and shorter
work hours for female MBAs,” and that “the pecuniary penalties from shorter hours and any job
discontinuity are enormous for MBAs.” See Bertrand et al, “Dynamics of the Gender Gap for Young
Professionals in the Corporate and Financial Sectors,” NBER Working Paper 14681, January 2009.

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Exhibit 13: Seventy-four cents on the dollar

Wage discrimination offers one explanation for women’s greater presence in higher education. Because men still out-
earn women at every level of educational achievement, women may well be driven to acquire more education simply
to achieve comparable earnings power. Although the gap between male and female wages has narrowed since the
1980s, on an economy-wide basis women earn just 74 cents for every dollar that men earn.

Accordingly, to catch up with men, women generally need to obtain more schooling. Women with bachelor’s degrees
earn roughly as much as men with only some college; female high-school graduates earn about 90% of the median
earnings of male high-school dropouts. Exhibit 10 shows that this disparity persists across the spectrum; at the top
end, women holding doctorates earn 10% less than men with master’s degrees (and excluding those with professional
degrees).

Wage discrimination is probably part but certainly not all of the story behind unequal wages. Many industries remain
segregated by gender (teaching and nursing on the one hand vs. construction on the other), with women dominating
the less-well-paid sectors. Moreover, women are more likely than men to take time out of the labor force to raise
children, which sets back their earnings, in some cases substantially. Finally, there are as yet few senior women at the
top ranks of the highest-paying jobs. In 2008, for example, just 12 of the Fortune 500 firms had women as CEOs.

Nevertheless, for some occupations, the earnings gap is narrowing. In 2008, female chief executives earned about 80%
of what male chief executives made; this is up from about 72% in 2003. Other occupations where women have notably
reduced the gap in wages since 2003 are purchasing managers, computer and mathematical occupations, editors,
physicians and surgeons, bailiffs, correctional officers and jailers, and advertising sales agents.

Other important factors driving the (slow) convergence between male and female wages are experience and the
economy-wide shift toward technology and services jobs. With 76% of women aged 45-54 and 59% of women aged
55-64 currently in the labor force, men's relative advantage in experience has eroded, and should continue to do so.
Additionally, the ongoing shift toward service-sector jobs and the widespread use of technology have worked in
women's favor, and against men's, as the share of jobs requiring “brawn” has declined.

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Learn more, work more

Education increases the opportunity costs of not working. These costs rise with each level
of education – the flip side of the earnings premia described above. So it is not surprising
to see that labor-force participation rates rise in line with educational attainment. While
more than three-quarters of people with a bachelor’s degree are in the labor force (defined
as working or actively seeking work), only about half of people who never finished high
school are in the labor force (see Exhibits 14-15).

Exhibit 14: Labor-force unemployment rate by Exhibit 15: Labor-force participation rate by educational
educational attainment attainment

% %
12 90

80 77.5%
10 9.6% 71.5%
70
62.9%
8 60

50 47.5%
6 5.7%

4.8% 40

4 30
2.7%
20
2
10

0 0
Less than a high school High school graduate, Some college or Bachelor's degree and Less than a high school High school graduate, Some college or Bachelor's degree and
diploma no college associate degree higher diploma no college associate degree higher

Source: US Census Bureau. Source: US Census Bureau.

Education also has a particularly strong impact on the likelihood that women work. Close
to 80% of female college graduates are working, compared to half of women without high-
school diplomas; the gap for men is much smaller. Women with college degrees also tend
to have longer careers, in part because their jobs are usually less physically demanding
than the jobs generally available to women with less education.

On a related point, unemployment rates typically fall as educational attainment rises. Prior
to the start of the current economic crisis, at least, the unemployment rate for people with
BAs or higher degrees was less than 3%, notably lower than for people whose education
ended with their high-school graduations. Although the share of dropouts who are
unemployed has declined from 20% in 1980 to about 13% in recent years, this is actually
not such good news, because much of the decline has in fact resulted from people
dropping out of the labor force entirely, as Exhibit 16 shows. We expect that the current
cyclical deterioration in the labor market will hit the less-educated, and therefore least
flexible, population the hardest. Even in better economic times, high-school dropouts are
still particularly at risk from the economic impact of technology and globalization.

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Exhibit 16: The fate of high-school dropouts

% of dropouts
60

50

40

30

20

10

0
1980 1985 1990 1995 2000 2002 2003 2004 2005 2006
Employed Unemployed Not in labor force*

*Persons not in the labor force are defined as those who have no job and are not looking for one

Source: National Center for Education Statistics, US Bureau of Labor Statistics.

Better-educated people hold higher-skilled jobs

Better-educated people typically hold higher-skilled and higher-paying jobs. This is a fairly
obvious point, but one worth making since it underscores the handicap that limited
education imposes. College graduates and advanced-degree holders hold roughly half of
all business and finance jobs in the United States, as well as some two-thirds of
management and professional jobs. In contrast, people without a college degree hold more
than three-quarters of all service jobs, and half of workers without a high-school degree are
in low-wage jobs. In construction and transport, for example, 40%-50% of workers have
only a high-school degree – but only 1% of workers has an advanced degree. Put differently,
according to OECD figures, 68% of workers with a bachelor’s degree are in skilled jobs,
while 62% of workers with the equivalent of an associate’s degree are in semi-skilled
occupations.

While employer-provided training is to be one way of giving employees needed skills, in

practice this does not seem to work very well, particularly in blue-collar jobs. Employers
worry that employees will train and then leave, allowing competitors to reap the benefits of
their investments. The asymmetric information balance between employers and
employees also dulls the incentive for employers to make this investment. In addition,
wage rigidities often mean that employers cannot finance training via lower wages.
Moreover, according to OECD data, workers with high-school degrees on average receive
only about half as much training over the course of their careers as do college graduates.

Education can reduce income inequality and drive social mobility

The relationship between education and income inequality is complex. Education can
widen inequality if employers are willing to pay outsized compensation to reward the
highest level of skills. This phenomenon, dubbed “the CEO effect” (though it encompasses

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more than just CEOs), has been seen at the top end of the income distribution since the
early 1990s, as compensation in the senior-most levels of professional and managerial jobs
has jumped sharply. Thanks to this skew, the wage differentials within segments of the
income distribution have widened.

Differences in educational attainment in fact seem to have driven much of the growth in
wage inequality over the past three decades. While the returns to post-secondary
education have risen across the board, the rest of the wage structure has remained quite
stable. The relationship between experience and earnings, for example, is essentially
unchanged from the early 1970s.6

But education can also help to reduce inequality by narrowing the gap between the median
incomes at the lowest and highest levels. This also appears to have occurred in the United
States since the early 1990s. While inequality has widened at the top end of the spectrum,
it has declined overall when measured between groups. Women’s educational gains
appear to be responsible for at least part of this improvement. Women have driven income
growth at the bottom end of the distribution since the late 1970s. This coincides with their
gains in higher education and suggests that overall inequality has declined as women’s
income have narrowed the gap with men’s.

Accordingly, education is a critical factor associated with intergenerational mobility. It is

one of the most important ways in which parents’ economic status is transmitted to their
children – in ways both good and bad.

• Children of better-educated and higher-income parents typically receive more

education. This is in part because their wealthier parents are more able to buy houses
in good school districts, or to pay for private school, and because they can better
afford higher education. In addition, these parents typically have other attributes that
reinforce the importance of education – including their expectations for their children.
Thus, children can “inherit” some of the background needed to secure highly skilled,
highly paid jobs as adults.

• In contrast, children of lower-income parents are considerably more at risk of dropping

out of high school than are their better-off peers. Even high achievers are hurt by
growing up in poor households. They lose ground to wealthier high achievers as early
as elementary school, and this lag compounds over time. Ultimately, low-income high
achievers are less likely to graduate from college, less likely to attend the most
selective colleges and considerably less likely to receive a graduate degree (see Exhibit
17).

• Not surprisingly, given the data on education and income, education itself is also a
strong predictor of socioeconomic status. Poverty rates are notably higher among
families headed by someone lacking a high school education – even when compared
to families headed by a high-school graduate. And children (as well as siblings) of
parents who have dropped out of high school are themselves more likely to drop out,
perpetuating this cycle.

6
“Post-Secondary Education and Increasing Wage Inequality”, NBER Working Paper 12077, 2006.

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Exhibit 17: Even among high achievers, low income is still a drag on performance

28%
% of 1st grade high achievers
72%

Chance of remaining a high 56%

achiever in reading through
elementary school 69%

Chance of remaining a high 76%

achiever in math through
elementary school 84%

Chance of attending the most 59%

selective colleges 77%

Chance of graduating from 59%

college 77%

Chance of receiving a graduate 29%

degree (among college
graduates) 47%

0 10 20 30 40 50 60 70 80 90
%

Higher-income Lower-income

Source: Achievement Trap: How America Is Failing Millions of High Achieving Students from Lower Income Families, 2007.
Wyner et al, Report by the Jack Cooke Foundation & Civic Enterprises, with original research by Westat.

IV – Getting out of school: the workforce of the future

Broadening educational attainment, particularly among the “sticky” core of high-school
dropouts, is a policy imperative. But access alone is not enough. Individual employment
prospects and national competitiveness alike demand that the quality of education prepare
students to meet the needs of the 21st century workforce.

Higher-skilled jobs have grown from less than one-quarter of US total employment in 1980
to about 30% today, with demand outpacing the growing supply of highly skilled labor. The
ongoing process of skill-based technological change makes it likely that the United States
will continue to see rapid job growth in higher-skilled fields. Specifically:

• One-third of US job openings in the decade from 2004 will be “high-skill,” requiring a
bachelor’s degree or post-graduation education, according to the US Bureau of Labor
Statistics (BLS).

• About 45% of openings will be “middle-skill” jobs, down from 55% of total
employment in 1986, according to the BLS and the Brookings Institute. These jobs,
found in fields such as skilled construction, transportation, production and some
health care areas, require more than a high school diploma but less than a four-year
college degree. This is the demand that two-year associate-degree programs are best-
placed to meet.

• Low-skill jobs will be only 22% of new jobs created over that period.

• The US Department of Labor estimates that two-thirds of the fastest-growing job

categories in the United States in 2006-2016 will require some form of post-secondary
education (see Exhibit 18).

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Exhibit 18: US Labor Department estimates that two-thirds of the 30 fastest-growing

occupations (2006-2016) require post-secondary education or training

Cumulative
Occupation Growth (%) Degree of Education needed
Network systems and data communications analysts 53.4% Bachelor's degree
Personal and home care aides 50.6 Short-term on the job training
Home health aides 48.7 Short-term on the job training
Computer software engineers, applications 44.6 Bachelor's degree
Veterinary technologists and technicians 41.0 Associate degree
Personal financial advisors 41.0 Bachelor's degree
Makeup artists, theatrical and performance 39.8 Postsecondary vocational training
Medical assistants 35.4 Moderate-term on the job training
Veterinarians 35.0 First professional degree
Substance abuse and behavioral disorder counselors 34.3 Bachelor's degree
Skin care specialists 34.3 Postsecondary vocational training
Financial analysts 33.8 Bachelor's degree
Social and human service assistants 33.6 Moderate-term on the job training
Gaming surveillance officers and gaming investigators 33.6 Moderate-term on the job training
Physical therapist assistants 32.4 Associate degree
Pharmacy technicians 32.0 Moderate-term on the job training
Forensic science technicians 30.7 Bachelor's degree
Dental hygienists 30.1 Associate degree
Mental health counselors 30.0 Master's degree
Mental health and substance abuse social workers 29.9 Master's degree
Marriage and family therapists 29.8 Master's degree
Dental assistants 29.2 Moderate-term on the job training
Computer systems analysts 29.0 Bachelor's degree
Database administrators 28.6 Bachelor's degree
Computer software engineers, systems software 28.2 Bachelor's degree
Gaming and sports book writers and runners 28.0 Short-term on the job training
Environmental science and protection technicians, including health 28.0 Associate degree
Manicurists and pedicurists 27.6 Postsecondary vocational training
Physical therapist 27.1 Master's degree
Physician assistants 27.0 Master's degree

Source: US Bureau of Labor Statistics.

Heightened demand for education and skills reflects a fundamental shift in the nature of
the US economy over the past two decades. A high-school diploma today is rarely the
route to steady, well-paying employment with good benefits that it was a few decades ago.
The shift away from manufacturing and toward services, the decline of labor unions and
the widespread adoption of technology all mean that some post-secondary education is
increasingly a prerequisite to even moderately well-paid work.

Arguably the most important factor is one dubbed “skills-based technological change”
(SBTC). This phenomenon, which began in the 1980s, has increased the premium placed
on skilled workers and boosted the returns to advanced education.7 The impact of SBTC is
seen most vividly in broad adoption of technology and in some sectors outsourcing and
“offshoring.” The premium for skills has continued to rise in recent years, with the demand
for skilled labor rising even faster than the supply. Over the past 15-20 years, countries
including the United Kingdom and Germany have undergone similar changes.

Are schools preparing students for the workforce of the future?

Unfortunately, the US primary and secondary educational system was designed to feed a
very different labor market. The demands of today’s skills-based economy are changing
more quickly than many schools can keep up.

7
Additional factors driving changes in the labor market include the decline of labor unions, the erosion
of the minimum wage and higher rates of immigration. The academic jury is still out as to which
weights to assign to various factors, but most agree that skills-based technological change has been a
major force.

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Even in traditional subjects, standardized testing indicates that many US schools are not
teaching to the standards needed for today’s workforce. Almost 30% of high-school
graduates score only at the “basic” level on literacy tests and a further 13% score “below
basic” (see Exhibit 19); in quantitative literacy (numeracy), 42% score at the “basic” level
and a further 24% “below basic” (see Exhibit 20). Not surprisingly, the situation is
considerably worse for high-school dropouts. Two-thirds of adults who have not
completed high school score at “basic” or below in literacy tests, while nearly 90% do in
quantitative literacy.

Exhibit 19: Even with a high-school degree, more than 40% of adults score at “basic” or
below in literacy tests

(%)
60

53
52

50

45

40

30
30 29 29

25

20

13 13

10

5
4
2

0
Below basic Basic Intermediate Proficient

Less than high school completion GED High school graduate

Source: National Center for Education Statistics.

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Exhibit 20: Even with a high-school degree, two-thirds of adults score at “basic” or below
on numeracy tests

(%)
70

64

60

50

43
42

40

30 29
28
26
25
24

20

10
10
5
3
1
0
Below basic Basic Intermediate Proficient

Less than high school completion GED High school graduate

Source: National Center for Education Statistics.

On international comparisons, the United States fares poorly in comparison with its OECD
peers. Although it is at the top of the rankings for the share of students who enroll in
universities, the US college dropout rate is considerably higher than average. On balance,
then, US college graduation rates are only in line with the OECD average. On international
standardized tests8, US students score far below average in math and relatively poorly in
science. On the math test, more than half of US students score in the bottom half of the
distribution (including 10% that score “below” the lowest level), compared to 43% in the
OECD on average and 32% in Japan. The US also fares poorly at the top end of the scale,
with just 1.3% scoring at the highest level, less than half the OECD average (see Exhibits
21-23).

OECD research has concluded that “in most studies, the US performance varies between
middling and poor” and says that US students are generally almost a year behind their
peers in the countries that score best on these international tests. Similarly poor results in
tests of adults indicate that this underperformance is not a recent problem, but is instead a
longstanding result of the US educational system.

8
Two widely-used international standardized tests are the PISA (OECD Programme for International
Student Assessment, which tests math, science and reading) and the TIMSS (Trends in International
Mathematics and Science Study, which tests science). It is obviously difficult to design and apply a
standardized test across multiple educational systems and languages, and both the PISA and the
TIMSS have been subject to criticism. Nonetheless, they are useful guides to relative performance and
to changes within individual countries over time. See “Primary and Secondary Education in the United
States”, OECD Economics Department Working Paper 585, March 2008.

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Exhibit 21: US students score below the OECD average on the PISA 2006 math test

% of students at each proficiency level

30

26%

25 24%
23%
22%

20 19%
18%

15%
15
14%

10% 10%
10

8%
6%

5
3.%

1%

0
Below Level 1 Level 1 Level 2 Level 3 Level 4 Level 5 Level 6

US OECD average

Source: OECD.

Exhibit 22: US students’ performance in the PISA math test worsened relative to the OECD
average from 2003-2006

% change in student scores at each percentile

10

US
5%
OECD average
5

2% 2% 2%

0
-0.1%

-4%
-5
-5%
-6%
-7%

-10

-13%
-13%
-15
-15%

-20
5th 10th 25th 75th 90th 95th

Source: OECD.

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Exhibit 23: US students also generally score below the OECD average on the PISA 2006
science test

% of students at each proficiency level

30

27

25 24 24 24

20
20
18

17

15 14

10

8 8 8

5
5

2 1

0
Below Level 1 Level 1 Level 2 Level 3 Level 4 Level 5 Level 6

US OECD average

Source: OECD.

This relatively poor performance comes despite the fact that, on a per student basis, the US
outspends the OECD average by about 70%. The largest gap is at the tertiary level, where
the US spends twice as much per student as the OECD average. This suggests that some
re-orientation of spending priorities toward primary and secondary schooling could help as
the United States seeks to strengthen its educational system. We note, however, that this
may be difficult to do, given that primary and secondary schooling in the United States is
principally funded by local property taxes, while university-level education draws on a wide
range of public and private sources of finance.

The weak US performance may in part reflect the nature of the curriculum. In a major
speech on education in March 2009, President Obama compared the United States to other
countries by saying “It’s not that their kids are any smarter than ours – it’s that they are
being smarter about how to educate their kids. They are spending less time teaching things
that don’t matter, and more time teaching things that do. They are preparing their students
not only for high school or college, but for a career. We are not.”

For example, on an overall basis, students take as many science classes in the United
States as elsewhere. But US students are far more likely to study “general science,” while
less than 20% are required to study physics and less than 30% to take chemistry –
compared to an OECD average of 60% for each. Even including additional students who
choose to study these subjects, the overall figures are still below the international average.

The No Child Left Behind (NCLB) Act of 2002 has set tougher performance targets for
reading and math, and evidence of its impact is beginning to emerge. However, this
legislation gives states wide latitude to set their own standards, with the result that these
standards can, and do, vary widely from state to state. This Act has been highly
contentious among educators and politicians. The proposed 2010 federal budget includes

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provisions to improve standards and assessments, and a heated political discussion about
reforms to NCLB and about education more broadly is now brewing in Congress.

An encouraging development is the emergence of the Advanced Placement (AP)

curriculum as a de facto national curriculum. The AP program offers a set curriculum in
about 35 subjects, along with teacher training and standardized exams. The AP program
initially targeted high-achieving students in the best high schools, but enrollment has
doubled between 1995 and 2005, with the program now aimed at all students going on to
college. Given the rigor of the AP curriculum, some school districts are experimenting with
“backward mapping” to develop a robust and structured curriculum for younger grades
that will prepare students to do well on the tests as high-school seniors.

Moreover, changes in the economy and labor force are demanding that schools help
students develop a new set of skills. Numerous studies have showed that formal education
is only part of the preparation for today’s highly skilled and highly paid jobs. In addition to
formal and traditional qualifications, employers are seeking – and rewarding – attributes
like problem-solving, judgment, persistence, motivation and a general ability to “put it all
together.” These skills cannot really be “taught” in a traditional classroom structure, but
they can be cultivated through collaborative projects and creative work.

Is immigration policy undercutting the returns from investing in

higher education?
Preparing the workforce of the future includes attracting the best students from all around
the world. The US educational system is a magnet for the best talent in many fields,
especially science and engineering. Foreign citizens received about 35% of the doctoral
degrees awarded in the United States in 2006; in science and technology, they averaged
45%, and in engineering, nearly two-thirds of the total. These graduates were the direct and
indirect beneficiaries of public spending on education, through state funding of public
universities, scholarships and grants for sciences and other fields. This includes a
substantial portion of the National Science Foundation’s $6 billion budget, which supports
about 200,000 scientists and funds roughly 20% of all federally supported basic research at
US universities.

Roughly three-quarters of the foreign citizens who received PhD degrees between 2000 and
2006 intended to remain in the United States after graduation; more than half had definite
plans to do so. But US immigration policy is not always welcoming toward these graduates.
Immigration issues become even more politically charged in difficult economic times, such
as now. New restrictions on financial firms’ ability to obtain H-1B visas for employees are
one example of building political pressures. Nonetheless, by making it difficult for US-
educated foreign citizens to stay and work here, the United States is forgoing some of the
dividends of its expensive investment in their educations. This may be a boon to the
graduates’ home countries, but it is a clear loss for the US economy.

V – Paying for education: the reality of the recession

It is impossible to discuss education in today’s economy without addressing the
challenges that the recession has brought. While the ultimate scope of the slowdown
is not yet clear, its effects are already being felt in education. Shrinking government
budgets, constrained credit markets, withering endowments and a slowdown in donations
– all at the same time – will make financing college education considerably more difficult
than during the boom years from the mid-1990s to 2007. Both belt-tightening and creativity
will be needed.

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Universities are likely to suffer on several fronts

• Finances of state universities are likely to be pinched as state and local governments
experience falling tax revenues and higher demand for social services. With the
municipal bond market still constrained, and the adjustable-rate municipal (ARM)
market unavailable, conventional sources of funding will be harder to come by.

• Universities, including many of the most prominent private universities, have already
felt the impact of plunging endowment performance and have been hurt by illiquidity
in their investment portfolios – just when endowment funds are needed most. Many
leading private institutions have already announced budget cuts. Although many have
pledged to protect their current faculty and existing financial aid programs, curricula
and facilities are likely to be hit harder. While this may not affect the numbers of
students educated, it may affect what they learn. And financial aid itself could come
under pressure if the economy continues to deteriorate.

• Philanthropic giving is likely to decline. Charitable contributions to US colleges and

universities, both public and private, reached nearly $30 billion in 2007, the most
recent year for which data are available (see Exhibit 24). Over the decade to 2007,
donations to education rose at an annual rate of 6.5%. In recent months, however,
there have been plenty of anecdotal reports of sagging contributions, and continued
growth at that historical pace seems unlikely to be sustained in the current economic
climate. Any meaningful fall-off in contributions will further exacerbate the burden on
already-strained endowments.

Exhibit 24: Voluntary support to US higher education in 2007: $29.75 billion

Other Organizations
$2.2 (7.2%)
Religious Organizations
$0.4 (1.3%) Alumni
$8.3 (27.8%)

Foundations
$8.5 (28.6%)

Nonalumni Individuals
$5.7 (19.0%)

Corporations
$4.8 (16.1%)

Source: Council for Aid to Education.

• Universities could also suffer from constraints on funding from the National Science
Foundation (NSF), which is the major source of federal support for many fields,
including math and social sciences. The proposed 2010 federal budget would boost
NSF funding from $6 billion to $7 billion, which would be a welcome support for the
country’s long-term competitiveness. If the NSF budget is cut, however, this could
compel universities to divert spending from other programs, in order to support

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ongoing scientific research. The NSF also funds science and engineering education for
elementary and high-school students, meaning that any cuts here could have a long-
lasting impact on future science. In a positive development, the Obama administration
has also expanded the grant-giving ability of the National Institutes of Health, which
will benefit medical schools and other graduate-level education and research.

• Students will feel the pinch directly. Tuition is generally still rising above the rate of
inflation, and financial aid budgets are increasingly squeezed. Competition at well-
regarded state universities (where tuition is typically considerably lower, at least for in-
state residents) is likely to increase significantly. The federally-supported student loan
program is currently in flux, and is becoming the subject of a heated political debate.
(Briefly, the Federal Reserve’s TALF (Term Asset-Backed Securities Loan Facility)
program includes support for securities backed by student loans, but the
administration’s proposed budget envisions shifting student loans into a direct lending
program. The Obama administration estimates that direct lending would generate
savings of more than $4 billion per year, which would be reinvested in further student
aid.)

With unemployment rising rapidly – we forecast it to reach 10% by late 2010, up from 8.5%
today and just 4.6% at the start of 2007 – the opportunity costs of remaining in school are
falling. This may induce some students to remain in high school. Typically, low
unemployment rates encourage students to leave school early, while high unemployment
discourages this. Graduate schools are also likely to benefit from higher interest among
young people facing a difficult job market.

On the other hand, financial pressures will almost certainly dissuade some students from
advancing to college. Household financial challenges may drive some students out of
school. Working for more than 20 hours a week significantly raises the risk that students
will drop out of high school, or enroll in college but not graduate. Integrating work and
school more effectively, perhaps through flexible scheduling and greater institutional
support, may help universities to retain students under financial pressure.

Higher education will not be the only sector to feel the costs of the recession. In the United
States, public primary and secondary schools are chiefly funded through local property
taxes. As house prices continue to tumble – our US Economics Research team expects that
the national housing market will fall about 20% further from current depressed levels – and
the local tax base dwindles, these schools too are likely to suffer. Funding from the federal
fiscal stimulus bill is designed to offset some of this burden, but it is unlikely to make up
for the magnitude of the decline, particularly in areas worst-hit by the housing downturn.

VI – Conclusions: investing in education

Education is a highly complex subject, full of concerns about equality and fairness, and one
where beliefs are held passionately and views often expressed emotionally. We do not
wish to wade into debates about such contentious issues as voucher systems or standards
for teachers. We see these issues as the “how” of education; from an economics
standpoint, we are more concerned about the “what” and the “who”. “What” is being
taught will matter tremendously as the United States competes in the global economy in
coming decades. “Who” has access will affect society at large.

Whatever the “how” turns out to be, strengthening the US educational system is a long-
term project, and the full results will likely not be seen for a decade or more, when today’s
students enter the labor force. But its importance cannot be overstated – education will
drive productivity growth, national competitiveness, improved living standards and lower
income inequality. The $50 billion earmarked for education in the proposed 2010 federal
budget will be welcome, and putting it to use in refurbishing classrooms and replacing

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textbooks should help to stimulate the economy in the near term. Over the longer term, it
is important that this money be spent thoughtfully. Important efforts should include:

• Stemming the long decline in men’s education. This is a complex issue, one that
touches on many fields beyond education. But one helpful step would be to stress the
importance of skills and education in the workforce of the future. Men who drop out of
school often cite their belief that they do not ‘need’ more formal education to get a job.
While that may be true in the short-term, it is almost certainly not true over the long
run for today’s students.
• Protecting low-income students from being disproportionately hurt by the recession.
Household financial pressures and university budgetary constraints may squeeze out
some low- and middle-income students as the economy worsens.
• Keeping young mothers in school. As we have shown in our previous work on
women’s education in developing countries, the link between mothers’ education and
their children’s future is especially strong. This is true in developed countries as well.
Children of educated women tend to have better health and nutrition, and are more
likely themselves to be educated. This self-reinforcing cycle means that women’s
ascendancy in higher education may pave the way for solid gains in human capital and
productivity among future generations. Greater social and financial support may be
needed to help young mothers complete high school, while colleges would do well to
focus some of their resources on helping these women continue their education.
• Improving support for people who would otherwise drop out of high school, and
encouraging graduates to make the transition to college. Stressing the flexibility that
education and skills give, and drawing clearer links between school and the world of
work, might help to reduce the numbers of opportunistic dropouts, especially among
men. The Obama budget proposes a new, five-year, $2.5 billion Access and
Completion Incentive Fund to support state efforts to help low-income students
complete college.
• Steering appropriate students into a two-year associate degree rather than a four-
year program. From an economic perspective, the wage disparity between recipients
of a two-year degree and those who complete only “some college” – including those
who drop out of four-year schools – is more than 10% per year. Attending a four-year
program on a part-time basis is a less effective alternative, because part-time students
are less likely to graduate than are full-time students. For students who do not
anticipate that they will be able to complete a four-year program, whether for financial,
family or other reasons, it may well be better to acknowledge this early and enroll in an
associate degree program. For students who have a specific career in mind and want
to acquire the necessary skills, an associate degree is also probably the best choice.
• Reworking the curriculum, not only to improve basic skills like math and reading, but
also to foster the development of attributes valued by the higher levels of the labor
force – among them problem-solving, creativity and persistence.
On a broader scale, thought should be given to the fundamental question of how to
measure education. Typically education is measured in inputs – number of teachers, hours
in the classrooms, subjects taught, funds per student. But what really matters is the output
– how much students learn and how well they are prepared for work and citizenship.
Standardized testing, at the state or national level, provides one way to measure the output.
But, as the contentious experience of the No Child Left Behind Act shows, designing a
system that is robust enough to be useful yet flexible enough to accommodate community
preferences is challenging, to say the least. The success of the Advanced Placement
curriculum over the past decade is one helpful step, and it suggests that standards that are
adopted voluntarily are more likely to work than ones that are rigidly imposed.

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Disclosures
This report has been prepared by the Global Markets Institute, the public policy research unit of the Global Investment Research Division of The
Goldman Sachs Group, Inc. (“Goldman Sachs”). As public policy research, this report, while in preparation, may have been discussed with or
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April 22, 2009 Global Markets Institute

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