Viewpoint June 24, 2010, 9:39PM EST

Failing U.S. Education Will Dumb Down Economic Growth

Government and business leaders have worried about the economic impact of declining U.S. education. The day of reckoning may be here, says Chris Farrell

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The American economy is starting to mend from the Great Recession, the nastiest downturn since the 1930s. The return to growth and better economic numbers is welcome, although a number of nerve-wracking problems lurk in the global economy, especially Europe's sovereign debt crisis and China's slowdown.

Yet assuming that the expansion remains intact, it will still take a long time for the worst labor market in 60 years to show signs of vigor. The unemployment rate is steep at 9.7 percent, based on Labor Dept. data for May 2010. The government's broadest measure of unemployment and underemployment, which includes the officially unemployed, people who want to work but aren't working, and in part-time jobs for economic reasons, is even higher at 16.6 percent.

The future looks a bit better, but unemployment will remain elevated. The consensus opinion of economists surveyed by Bloomberg is that the jobless rate for 2010 will be 9.6 percent, moderating to 9.1 percent in 2011 and 8.0 percent in 2012.

The Less Educated Bear the Brunt

That's bad news for the job and income prospects of most workers, but it's especially ominous for members of the labor force who do not have college degrees. The unemployment rate for those with only a high school degree is 10.9 percent. That's more than double the 4.7 percent rate for workers with a bachelor's degree or more. A jobless recovery is disastrous for less educated, low-income workers. The unemployment rate of workers without a high school diploma is 15 percent, and over the past decade the unemployment rate for this group hasn't fallen below 6 percent.

It's hardly surprising that less educated workers have been disproportionately affected by the downturn. But now it appears that the swelling ranks of unemployed and underemployed workers with less than a college degree are themselves a "headwind" slowing the recovery. The U.S. economy has increasingly emphasized college-educated workers, with job losses concentrated among those without degrees. Business is creating job openings, but most require at least some postsecondary education even to apply for a job, let alone get an offer from management.

It's something of a vicious cycle: Business looks for educated workers; job openings go begging; incomes stay low; unemployment remains high; the rebound stays subdued; and so on. Business leaders, think tanks, government agencies, and other blue chip institutions have worried about the economic impact of too many poorly educated Americans. The day of reckoning may be here.

A Sluggish Rebound?

That is a concern raised by a recent report by economists Daniel Hartley and Beth Mowry of the Federal Reserve Bank of Cleveland. In "Could Low Educational Attainment Be Slowing the Recovery?", they note that employment in low-degree industries, such as manufacturing and housing, is down sharply over the past 15 years. Manufacturing employment has dropped to about 75 percent of its level in 1995. Construction employment jumped during the late 1990s as the housing boom gathered momentum, but with the subsequent bust, it's down to 1.15 times its 1995 level. Strong job gains have been recorded over the same period in such high-degree businesses as education and health care, a category the Bureau of Labor Statistics says is up 48 percent. The structural shift from a low-degree to a high-degree economy has the scholars wondering if "we may be in for a period of lower productivity, lower wages, and higher unemployment."

They may be optimistic. Downturns often accelerate critical underlying economic transformations. Certainly, the shift to jobs that reward a college education is among the most widely publicized trends in the U.S. economy over the past three decades or so. In 1973, 72 percent of the workforce had a high school diploma or less. By 2007, the comparable figure was 41 percent. Similarly, in 1973 only 38 percent of office workers had some kind of postsecondary education vs. 69 percent in 2007. Even factory jobs require more education, with some 36 percent of workers in manufacturing having at least some time in college, triple the number of three decades ago.