All of society's major groups have hiked their enrollment and graduation rates. For instance, the percentage of women 25 to 29 years old with a bachelor's degree or higher rose from 25% in 1980 to 34% in 2000. The comparable figure for blacks was 17% and 21%, and for Hispanics 13% and 15%.
These students and their parents have absorbed one of the most critical economic messages of the past quarter century: Despite its steep price tag, a college education pays off big in income and employment. The demand for educated workers is strong in an economy that increasingly values knowledge, flexibility, an ability to communicate, and a willingness to learn.
WIDENING GAP. Yet it's disturbing that the return on a large investment in higher education remains so unequal. A recent report authored by Katherine Bradbury, economist at the Federal Reserve Bank of Boston, emphasizes that the payoff from a college education for blacks and Hispanics falls short of the gains achieved by non-blacks and non-Hispanics.
The benefit of having a college degree rose for both black and non-black men from 1979 to 2000. But Bradbury calculates that the wage gap between college-educated black and non-black men widened to $144 a week from $118 a week, adjusted for inflation (see her report, "Education and Wages in the 1980s and 1990s" ).
A number of forces account for the differences in returns on education. The most worrisome factor is the long-term impact from poorly performing elementary and secondary public schools, especially in the nation's major urban centers. Inner-city schools leave too many minority children behind. They also handicap the achievements of those students that end up going to college. Some economists argue that at least part of the wage gap between college-educated whites and blacks reflects the odds that minority high-school graduates attend colleges with less financial resources and lower average student achievement (measured by test scores) than the nation's elite universities.
TOUGH PRESCRIPTIONS. What's needed is more choice and competition in public-school systems, above all in inner cities. State governors and city mayors should outmaneuver teacher-union activists and school officials to welcome Edison Schools, charter schools, and other independent operators with sophisticated management systems into their area. The federal government and state governments also need to pony up billions of dollars more for public education, and target the funds at a region's weakest schools.
None of these prescriptions are new or easy to implement. But reform is more important than ever as economic wealth and employment increasingly depend on knowledge and information.
Certainly, other factors influence the return-on-education gap. Although gender discrimination is on the wane, it still exerts a negative influence on compensation levels. And the federal government has scaled back its commitment to breaking down discriminatory barriers in the labor market, too.
ECONOMIC PROGRESS. Although the labor market has reached a better balance in recent years, the demand for skilled employees is still greater than the supply. The numbers illustrate the trend. In 1999, men and women college graduates pocketed 58% and 92% more, respectively, than their peers with only a high-school diploma. This compares to a much smaller gap of 19% for men and 52% for women two decades ago.
Blacks and Hispanics have made enormous economic progress over the past two decades. Incomes are up, homeownership rates are improving, and poverty is down substantially. Still, the troubling earnings gap between comparably educated whites and minorities may stay stubbornly wide until the public-school system, the nation's largest bureaucracy after the military, is radically overhauled. Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over National Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BusinessWeek Online