School's Out

Recently, it was my good fortune to be able to testify before the House Committee on Education and the Workforce. But it was my great misfortune to have to follow the Almighty One: Alan Greenspan.

Our nation's chief economist just sucks all the air out of the room. After his two hours of testimony and discussion with committee members, he (and almost everyone else) got out of there. I'm telling you, the guy raises his hand to illustrate a point, and 50 cameras go off.

So I should warn you: Today's column is steeped in the petulant tone of a mid-level wonk who was totally eclipsed by the Man. Feel free to bail on this rehash of what we each said. No hard feelings.

But read on if you want to hear the radical and surprising conclusion that, in contrast to what Greenspan claims, more education isn't the answer to everything that ails us.

The topic was the role of education in a "knowledge economy." Greenspan's testimony offered eloquent, if conventional, wisdom leading to this punch line:

"As history clearly shows, our economy is best served by full and vigorous engagement in the global economy. Consequently, we need to increase our efforts to ensure that as many of our citizens as possible have the opportunity to capture the benefits that flow from that engagement… one critical element in creating that opportunity is the provision of rigorous education and ongoing training to all members of our society."

True. Education is surely critical. It's just not the only policy solution to our short- and long-term challenges -- and sometimes not even a particularly useful one.

First, the collapse of job creation in this recovery cannot plausibly be blamed on the supposed educational or skills shortcomings of our workforce. The problem isn't the lack of skilled workers; it's the lack of jobs. Don't blame the supply side for the failure of the demand side.

Our most highly educated workers are having a historically tough time in the current job market. In fact, the employment rate for college graduates hit its lowest level in 25 years at the end of 2003. This trend is even more pronounced for recent college grads, whose newly minted skill sets should be most in demand. Their real wages have fallen slightly as well, both in 2002 and 2003. That doesn't sound like evidence of a skills gap.

Few will disagree with my contention that more education can't help us in the short run. But what about longer-term issues? For example, a more highly educated workforce has been offered as the solution to a new problem: the offshoring of white-collar jobs. (Trotting out this argument was a main reason for the hearing.)

When global competition was confined to manufacturing, our non-college-educated workers were placed in competition with less-skilled workers from countries with far lower wages and similar value-added. Our comparative advantage, it was argued, resided in our large relative stock of skilled workers and our greater ability to produce an increasing flow of such workers.

However, some less-developed countries have been sharply increasing their own supply of skilled workers, giving offshoring trends the potential to erode our comparative advantage both in terms of stock and flow. India, for example, is adding about twice as many college graduates to its workforce per year as we are (2.5 million in India versus 1.2 million in the United States). Of these Indian graduates, over 250,000 were "engineering degree and diploma holders" in 2002, compared to 70,000 bachelor's degrees in engineering awarded here. What's more, the 2003 entering class for Indian engineers has reportedly jumped to 375,000, suggesting that the Indian population is responding to the signals of forthcoming global demand in this market.

This supply shock threatens to significantly depress the earnings of skilled workers here, who enjoy a very substantial wage advantage over workers with similar skills in less-developed economies.

The education solution assumes that we can increase our skills even further, forever engaging in more highly value-added work. This, the solution implies, will rejustify existing wage differentials in a global labor market with far more skilled workers than were available to American firms just a few years ago.

The plausibility of this endeavor depends on how high the bar is raised. If, as has been reported, our firms already outsource radiology, financial analysis, and programming jobs to low-wage counties, can we conclude that our displaced workers need better skill sets? The presumptive logic crumbles when we realize that such workers are already among the most highly educated in our country, if not the world. To accept the notion that they need to re-skill raises the bar for education requirements far beyond anything we've contemplated in this debate.

Finally, there's an interesting development confounding the "educationists" in our current economy: surging productivity growth. Greenspan's testimony stresses the widely accepted mantra among economists that our economic progress is constrained by a skills mismatch between the workforce our schools produce and the skilled workers our employers need.

But the growth rate of the labor force's productivity accelerated sharply in the mid-1990s, and it hasn't slowed since -- to the contrary, it has sped up further. The acceleration of this most important economic indicator suggests that the knowledge of our workforce in tandem with capital investment and technological innovation may have given rise to a new golden age of accelerated productivity growth. An insufficiently skilled workforce could not have produced these gains.

None of this should be taken to imply that our education system is free of any problems. It's just that those problems don't stem from a national lack of quality, but rather from inequities in the distribution of that quality.

So, the moral is: don't follow Greenspan. Well, you knew that already. The real moral is that the education solution, as appealing as it sounds, is not the best way out of every jam. This time in particular, we'd better start exploring some other policy options. In future columns, I'll elaborate some potential ways forward.

You'll probably just want to hear Greenspan's testimony, but Bernstein's is also available at www.fednet.net/archive.

Jared Bernstein is a senior economist at the Economic Policy Institute (EPI) in Washington, D.C. He and Lawrence Mishel, the EPI's president, each write a biweekly economics column, "Econ Chamber," for the online edition of The American Prospect. Their column appears here every other Thursday.

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