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Failing U.S. Education Will Dumb Down Economic Growth

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.

Meanwhile, even as the share of workers with at least some college education rose from 28 percent in 1973 to 59 percent in 2007, the wage premium for advancing up the educational ladder has held up for a long time. For instance, the wage gap between men with a college degree and those with a high school degree was 20 percent and 27 percent, respectively. The gap is now around 44 percent for men and 49 percent for women.

A Shortage of Educated U.S. Workers?

The demand for well-educated workers is only growing, and the effect is cumulative. Powerful economic forces such as the rise of brutal global competition and the spread of sophisticated information technologies will continue to push employers to value better educated workers who are comfortable working in teams, quick to adjust to new tasks, and well-schooled in the latest high-tech gear. At least that's one conclusion to draw from a recent paper by Anthony Carnavale, director of the Georgetown University Center on Education and the Workforce. He projects that the economy will create 47 million job openings from 2008 to 2018, made up of 14 million new jobs and 33 million jobs replacing current workers who have retired, become disabled, or died.

The key finding: Most of the jobs demand some postsecondary education, with about 30 million openings requiring at least some college education and 21 million an associate's, bachelor's, or graduate degree. If educated workers aren't readily available, companies will automate the tasks or find educated employees overseas. After all, with many developing economies devoting more resources to university education, America's share of the world's college-level workers has shrunk from some 30 percent to about 15 percent, according to Carnevale and two Georgetown University colleagues, Jeff Strohl and Nicole Smith.

Sad to say, the ranks of poorly educated Americans are growing. The growth in high school graduation rates has slowed since the 1970s. The nation's four-year high school graduation rate hovers around 69 percent, according to the Alliance for Excellent Education, a Washington (D.C.) organization that advocates better high school performance. Some minority groups do even worse, with a 56 percent dropout rate for Hispanics and 54 percent for African Americans.

Tougher Road for Dropouts

The Center for Labor Market Studies at Northeastern University calculates that the average high school dropout will have a lifetime negative net fiscal contribution to society of some -$5,200. The average high school graduate generates a positive lifetime number of $287,384. The sharply lower figure for dropouts aged 18 to 64 reflects lower annual federal, state, and local tax payments, higher cash and in-kind transfers, and the costs of incarceration relative to a high school graduate. (The comparable figure for a college graduate with only a bachelor's degree is $793,079.)

Following the Great Depression and World War II, it appeared that the U.S. and other major industrial nations had banished the well-known phenomenon of mass unemployment. Most workers, including those who labored on a factory floor, lived a middle-class lifestyle, and the unemployment rate largely moved up and down with the business cycle.

But the specter of mass unemployment once again haunts the U.S. The Great Recession is exposing the cumulative effect of a three-decade shift toward high-education jobs and a failing education system. The trend has always been morally wrong—and financially stressful for low-income households. But now the swelling numbers of less educated unemployed-and-underemployed working-age adults is starting to call into question whether the U.S. can mount a sustained, robust economic recovery. Years of subpar growth and high unemployment would be a bitter lesson for Americans, college-educated or not.

Farrell is contributing economics editor for Bloomberg Businessweek. You can also hear him on American Public Media's nationally syndicated finance program, Marketplace Money, as well as on public radio's business program Marketplace.

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