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Higher Education and the Economy

Today in Austin President Obama renewed his call for America to regain the world lead in college graduates by 2020.  He tied doing so to our future economic competitiveness.

The statistical backdrop for the president’s remarks is that we have fallen from 1st to 12th place internationally in the percentage of young adults with postsecondary degrees.  This is not because our rates have gone down (they have been rising) but because other countries have leapfrogged us.  Improving the education of our citizens is a worthy goal, and the president is to be applauded for using his bully pulpit to push our aspirations higher.

A presidential address is not the place to address subtleties, but policymakers and practitioners in higher education will need to do so if our increased emphasis on attaining college degrees is to pay the expected dividends.  In that sense, focusing on the horserace may be counterproductive.

The relationship between years of schooling and economic output at the national level is complex, to say the least.  A small but consistently positive relationship between long-term growth and years of schooling is found in econometric studies, but there are many caveats and exceptions that are relevant to designing higher education policy in the U.S.  For one thing there is tremendous variability in the relationship.  For example, Germany has a stronger economy than France but half the percentage of young adults with a college degree.  Further, France has increased its percentage of young adults with college degrees by 13 percentage points in the last 10 years whereas Germany’s output of college graduates has hardly budged, yet the economic growth rate of Germany has exceeded that of France over this same period.  Obviously increasing educational attainment is not a magic bullet for economic growth.  Education credentials operate within boundaries and possibilities that are set by other characteristics of national economies.  We must attend to these if more education is to translate into more jobs.

A growing body of research suggests that policymakers should pay more attention to the link between job opportunities and what people know and can do, rather than focusing on the blunt instrument of years of schooling or degrees obtained.  In international comparisons, for example, scores on tests of cognitive skills in literacy and mathematics are stronger predictors of economic output than years of schooling.  Within the U.S. there is evidence that for many young adults the receipt of an occupational certificate in a trade that is in demand will yield greater economic returns than the pursuit of a baccalaureate degree in the arts and sciences.   

A single-minded pursuit of regaining the world’s lead in college graduates may blind us to the fact that one size does not fit all nations or all young adults.  One of the distinctive feathers of the U.S. higher education system is its diversity.  We have over 6000 institutions of all manner and stripe serving students of many ages and needs.  In contrast, the higher education system is most of the countries with which we compete is centrally managed and homogenous.  We should make diversity our strength by establishing national policies that encourage institutions to adjust quickly to changing needs in the marketplace for learning.  A good place to start would be creating much better information on the graduation rates and employment outcomes associated with particular degree and certificate programs at particular institutions.  If we’re to win the international horserace we will need to create the conditions for horse races among postsecondary institutions in this country with finish lines of productivity and employment.