Monthly Archives: January 2018

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Can Higher Education Solve America’s Economic Crisis?

Part 3: The Relationship between a College Education and a Well-Paying Job; Reconciling a Liberal Arts Education with the Needs of Employers

Historically, the universities of medieval and Renaissance Europe, and the colleges of Colonial Age America, had almost nothing to do with preparing young men for the world of work. (There were almost no women in college until well into the 19th century). Rather, the universities served to introduce the next generation of society’s expected leaders to classic Greek and Roman writers and thinkers, and to sharpen their skills in grammar, logic and debate.

To be sure, some students became lawyers, doctors or theologians, but for the most part the traditional college or university education focused almost entirely on teaching people how to reason, analyze and communicate.

Things began to change after the Revolutionary War, with the establishment of the first public universities. But even these were relatively scarce until the Morrill Act of 1862 established land grant colleges that were specifically devoted to agriculture and engineering — applied fields in which the acquisition of certain skills and knowledge connected an area of study to a particular line of work.

No longer were college students limited to the sons of wealthy merchants and landowners. Some now prepared for jobs in industry (as the Industrial Age came into its own) — and some college students were women!

In 1870, Johns Hopkins University, established on the German model, introduced the idea that graduate education and research should be within the scope of what universities do. The resulting production of students at the graduate level provided the faculty needed to allow new colleges to be established, and to permit existing institutions to grow.

Even with these changes, however, most college students still majored in the liberal arts, and many colleges taught only the liberal arts (as some do to this day). Liberal arts colleges, and liberal arts faculty, continued to emphasize the non-economic purpose of higher education: to instill a love of learning, and a life of the mind, as one of society’s loftiest goals—and a goal that needed to be nurtured and protected.

However, by the beginning of the 20th century, it had occurred to business leaders that people who had attended college must be quite smart, and they began preferentially hiring college graduates. They hired them not necessarily for what they knew, but because they had demonstrated that they were bright and could learn and reason with ease. Businesses were content to train these young graduates in the specifics of what they needed to know to contribute to the business, recognizing that they learned quickly and were likely to stay with the company for their working lives.

Liberal arts faculty and liberal arts colleges looked askance at such blatant commercial use of the education they had provided to their students, but since neither the colleges nor the businesses asked anything more of the other, both were content to let matters run their course.

Increasing educational opportunity

With the passage of the GI Bill in 1944, and the work of the Truman Commission on Higher Education for American Democracy in 1946/47, the doors of colleges and universities were flung open to people from all walks of life. These new students from the working class were far more successful than many believed they would be, and higher education in America was forever changed. The percentage of adult Americans with a baccalaureate increased from 5 percent in 1945 to more than 30 percent today.

Growth in the economy allowed the ready absorption of newly minted college graduates into that economy, and growing numbers of college graduates in turn contributed to economic growth — a kind of virtuous circle, where supply and demand for college graduates stayed roughly in balance, even as the economy grew and the nation prospered.

What should be the focus of education?

But everything changed with the Great Recession that began in 2008.

Almost immediately, demand for newly minted college graduates plummeted, even as the production of graduates continued, throwing the balance between supply and demand out of equilibrium. Those few businesses that were hiring could limit their search to individuals not only with a college degree but also with relevant experience — something that the typical new college graduate did not possess.

Businesses promptly canceled their training programs for new employees because newly hired but experienced employees needed very little training. Almost overnight, new college graduates — especially in the liberal arts — found themselves with few job offers, and obliged to accept temporary or part-time jobs. The college graduate working as a coffee shop barista became the image etched in the minds of the parents of college-age young people everywhere, and they wondered aloud whether a college degree was still the ticket needed to join the middle class — or even whether a college degree was worth the price.

Conservative governors of several states openly challenged the notion that public (i.e., taxpayer-supported) institutions should engage in producing liberal arts graduates with no marketable skills (conveniently forgetting, of course, about the “soft skills” possessed by the typical liberal arts graduate, such as the ability to think, reason, synthesize, collaborate and communicate, among others). We need more STEM graduates! We need more graduates in the trades! Even President Obama questioned  the wisdom of students who elected to major in art history.

The liberal arts faculty pushed back hard. Hundreds of years of history were on their side. As I have noted, the traditional college education was never about preparing people for careers. Businesses chose to hire college graduates and then train them. Now, they were saying that businesses no longer wished (or needed) to shoulder the expenses of training, so the task of preparing students for the workplace must, by default, fall on the colleges.

In the intervening years, the job market has improved and more colleges have seen the virtue of students’ combining a liberal arts education with specific skills in one or more of the professional schools (and/or of gaining relevant experience while an undergraduate through internships or other examples of project-based learning). [1] So the tension between the wishes and expectations of the businesses and of the parents of college students on the one hand, and the liberal arts faculty on the other, has diminished — but not vanished.

Neither side has relinquished its position. We await only another recession for a resumption of hostilities.

In the meantime, here are two things to consider:

First, a powerful case can be made that the best reason for obtaining a college education today is because of the strong interrelationship among being well educated, getting a great job and living a great life. [2]

Thinking about a college education only in terms of how it prepares you for a job can cause you to undervalue the other factors in living a great life, as well as tempt you to try to “time” the market — that is, to choose a major based on the needs of the job market at the moment. The problem is that the job market is constantly changing and what is “hot” today might be ice cold tomorrow. Getting a good educational foundation on which additional education can be built as and when needed is the better strategy.

Second, lifetime earnings in different job sectors broadly overlap. Engineers generally have higher lifetime earnings that English majors, for example — but some English majors earn more than some engineers. The point is, median salary for a particular major does not tell you the range of salary for that major, nor does it predict the actual salary of any one individual. [3]

The takeaway is that college students should not abandon their commitment to an area of study that ignites their passions to make themselves into something they are not in hopes of a potentially bigger paycheck. Lifetime salaries by major are not chiseled in granite, and the future is too uncertain.

But failing to appreciate what employers are looking for in a new hire is an equally serious mistake. To repeat, the better response is to combine the strengths of professional study with the breadth that comes from the study of the liberal arts by balancing your major (primary interest) with a minor in a completely different area that extends your skill set. For example, majors in graphic design or dance may be very well served by taking a minor in marketing or management.

Graduates in professional fields tend to be hired quickly (assuming that their area is in demand when they graduate), whereas liberal arts graduates often drift from job to job for several years before getting on track. Liberal arts graduates with some defined professional skills, on the other hand, tend to get started on their careers more quickly, because those skills are attractive to employers — and their liberal arts skills allow them to be successful once hired, and to advance their careers.

Final point: The traditions of the academy should be respected, if only because their ultimate value is proven by virtue of their longevity. Only certain religions can claim a longer history than can the oldest of our universities (in marked contrast to the relatively rapid turnover of businesses and corporations, for example).

But it’s true that, as our society evolves, certain factors that support our society must evolve along with it. Higher education today plays a very different (and arguably much more important) role in supporting and strengthening our society than it did four centuries ago. And we in higher education should not be so in love with our traditions and history that we blind ourselves to the need for us to adapt to current demands and expectations of our society. Our challenge is not to reject these demands outright but to respond to them even as we honor the values and traditions that are the basis of what we do.

Next time: How many Americans should have a college degree — and how (and by whom) is that question answered?

[1] “From Liberal Arts to Making a Living,” The Chronicle of Higher Education, Oct. 22, 2017

[2] Great Jobs, Great Lives. Gallup Organization, 2015

[3] “Six Myths About Choosing a Major,” The New York Times Education Supplement, Nov. 5, 2017

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Can Higher Education Solve America’s Economic Crisis?

Part 2: Massive Tax Cuts or More Educated Workers? Which Is the Better Choice for a Broken Economy?

In late December 2017, the House of Representatives and the Senate, urged on by President Trump, approved a dramatic restructuring of the tax code. The primary goal of this restructuring was to reduce the tax burden on corporations to allow them to retain more of their earnings in the expectation (or, more correctly, the hope) that with more dollars in corporate pockets, some of those dollars would be spent creating new jobs for additional workers and/or augmenting the wages of current workers.

Grover Norquist, the founder and president of Americans for Tax Reform, claims that the proposed tax reform is in reality a jobs bill [1] — and since everyone favors adding jobs, everyone should support the bill. (Ironically, the six largest U.S. banks collectively eliminated 8,000 jobs just before the tax bill passed, despite the fact that banks were among the industries most favored by the tax cuts.) [2]

Even though the tax bill will result in a $1.4 trillion loss in tax revenue over the coming decade, the gamble is that the growth in the number of jobs and job-related income (annual increases in GDP of 4 percent or more each year) will provide such a boost to the economy that the growth in overall tax revenue will make up for the lost $1.4 trillion. (Not factored into the expectation of large GDP increases, however, are the plans of the Federal Reserve Bank to continue to raise interest rates to prevent inflation and an overheated economy. The Fed and Congress are effectively pulling on the same economic rope — but in opposite directions.) [3]

We can analyze whether a tax cut was the best possible economic stimulus that Washington had available to it by looking at the assumptions that form the basis of the tax reform legislation:

  1. Corporations today lack the financial ability to add jobs or to pay their workers higher wages. The primary reason for the “bull” stock market of the last eight years is that corporate America has been doing very well, on the whole, and earnings have typically met or exceeded analysts’ projections — and when that happens, the price of a share of stock rises, making investors very happy, further driving up share price. The Dow Jones Industrial Average has increased from about 6,500 in March 2009 to over 26,000 today — quadrupling in just over eight years. Corporate America is strong, and the companies that survived the Great Recession are generally far more robust today than they were in 2008. Corporations already have all the money they need to hire more workers.

 

  1. But it’s still the case that, at 35 percent, corporate tax rates are too high, much higher than in most of the nations with which we compete, and a lower rate (21 percent) would make corporate America more competitive. While it is true that our posted corporate tax rate is high, what the corporations actually pay averages just under 19 percent. [4] Stories abound of how major corporations, especially those doing business internationally, establish headquarters in offshore tax havens where earnings can be retained without being subject to the U.S. tax code. Other strategies that push against the boundaries of the law have the cumulative effect of dramatically reducing the actual tax bill for these corporations. The point is: Using the posted tax rate as the argument, rather than the rate of tax actually paid, gives a misleading impression of the tax burden American corporations really face. A reduction in the posted rate should have been accompanied by a comprehensive reform of the various techniques and loopholes now used by corporations to avoid paying anything close to the posted tax rate.

 

  1. But what about all those new jobs that will be created? The underlying assumption of the tax bill is that a dramatic reduction in taxes will allow corporate America to hire many more employees and pay them well, but as I noted earlier this outcome is more correctly characterized as a hope than an expectation. We have been hearing for some time that corporate America cannot find skilled and experienced workers. The demand for workers exists now, but the supply of those workers is insufficient to meet that demand [5]. Giving corporations more money to hire more employees won’t work if the prospective employees don’t exist. Moreover, for corporations, their workforce represents an expense — and corporations are very cost-conscious. Every dollar not spent on salaries is a dollar that can be put into stock dividends, or used for corporate stock buybacks, a strategy that increases the price per share — both outcomes that are much appreciated by shareholders. (Increases in share price also help corporate leaders meet the provisions of their employment contracts, resulting in their being granted bigger bonuses.) Of course, in theory they could just give their workers that money, as a sign of corporate benevolence. Unfortunately, when the interests of the workers are pitted against the interests of the owners, the owners almost always win — and the migration of money from labor to capital over the past three decades has been a primary contributor to the growth America has seen in income inequality. In short, the idea that corporate tax reduction will result in higher wages or more jobs is fanciful, and not supported by any evidence.

So is there an alternative approach to enhancing the economy?

As we noted in Part 1 of this series of essays, there is a huge imbalance in the job market — and it is expected to continue and possibly worsen — between the collective skills and abilities actually possessed today by American workers, and the skills and abilities employers say they need for the jobs they currently have available. A recent report from Georgetown University’s Center on Education and the Workforce [6] showed that, of all the jobs created since the beginning of the Great Recession, fully 73 percent required at least a bachelor’s degree — twice the actual percentage of college graduates now in the workforce. Consequently, huge numbers of people are eligible only for the small number of jobs that require limited skills, and since those jobs are not abundant, employers see no need to pay generously — and that’s why the inflation-adjusted income of people in the bottom quintile of family income has actually declined in recent years.

Conversely, there is abundant demand — and often a shortage in supply — for many jobs requiring specialized skills, which is why the inflation-adjusted income of people in the top quintile of family income has increased significantly as the Great Recession has faded into memory.

The solution seems obvious: More people need more education to rebalance supply and demand between workers and employers.

A greater supply of skilled workers — workers prepared for the jobs of today and tomorrow, not the jobs of yesterday — will allow corporate America to grow their businesses, and that, in turn, will enhance the American economy even as it improves median income. Similarly, fewer people seeking low-skill jobs will put pressure on employers to increase salary levels for those positions, in order to attract and keep these workers. That outcome will also improve median income and possibly bring some of the workers who have sidelined themselves, convinced they could never find a decent job, back into the job market, an outcome that would benefit everyone.

How might that outcome be achieved?

A report from the American Academy of Arts and Sciences [7] offers an intriguing possibility. The report provides two models stemming from a proposed federal investment designed to improve college graduation rates. The optimistic model assumes that an increase in higher education spending to 125 percent of current levels would raise current graduation rates by about 50 percent. The pessimistic model assumes that spending might have to be at 150 percent of current levels to achieve that outcome.

The models are complex, and the report runs for 35 pages. But in sum, an investment that is less than the $1.4 trillion cost of the tax cut, spread over the next 20 years, would begin to show net positive revenues around 2042, and these numbers would become increasingly positive thereafter. By 2046, the share of the adult population with at least a bachelor’s degree would rise from 32 percent to 46 percent; unemployment rates would fall by another half percent; earnings would increase by more than 3 percent; and the gross domestic product would be 2.5 percent higher than if we did nothing at all.

Sadly, this alternative economic stimulus was never considered in Washington. The tax cut would happen immediately, while the higher education investment would require a much longer time horizon — well outside the election-cycle thinking that seems to determine almost all of Washington’s actions.

But if the American people had been given a choice for improving the American economy between a gamble that reducing the corporate tax burden might, through corporate largesse, find its way into the pockets of workers and indirectly create more jobs — or directly investing in higher education institutions to increase their capacity and create more of the workers corporate America says it needs, thereby empowering the workers themselves — I would have supported choice No. 2.

Corporations or people? A gamble or an investment? Why can’t we do a better job as a nation of making the right choice? Why won’t our political leaders even give us a choice?

Next time: The role of higher education in preparing America’s workforce.

[1] “Anti-tax advocate defends GOP cuts,” Providence Journal, November 11, 2017

[2] “Big U.S. banks slashed 8,000 more jobs before tax-cut windfall,” Providence Business News, January 18, 2018

[3] “Fed Expects Tax Cut to Give Economy ‘a Modest Lift,’” The New York Times, December 14, 2017

[4] “The Right Way to Cut Corporate Taxes,” The New York Times, November 13, 2017

[5] “In Trump Country, College Is a Leaky Lifeboat,” The Chronicle of Higher Education, March 3, 2017

[6] “America’s Divided Recovery: College Haves and Have-Nots” 2016

[7] “The Economic Impact of Increasing College Completion” 2017

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Can Higher Education Solve America’s Economic Crisis?

(And if It Can, Then Why Does America Still Have an Economic Crisis?)

Many of America’s most serious problems are linked to the state of its economy. Consider: income inequality has been increasing for the past three decades; too many of today’s jobs pay far less than did the jobs that disappeared during the Great Recession; most family incomes are flat or declining, leading to a sense of economic deprivation that promotes depression, family strife, and alcohol and drug abuse. The stridency and deep political divisions we have seen in recent years owe, at least in part, to the seemingly irreconcilable differences of opinion regarding the right path forward for our nation, specifically whether that path should consist of more, or fewer, hands-on programs by the federal government aimed at strengthening the economy.

The thesis underlying this collection of eight essays is that our country’s economic problems are solvable, that the malaise in which we find ourselves today need not be permanent, and that the driver of the new economy, the change agent that we need to employ, is higher education — but not higher education as we have traditionally known it. Rather, we need to think about creating public-private partnerships on a far larger scale, with institutions of higher education working with business, industry, and non-governmental organizations (NGOs) on the one hand, and local, state, and federal governments on the other, to develop shared expectations of outcomes in which all of the partners are winners. The highly disaggregated and inequitable system of higher education practices we have today, wobbling precariously on a flimsy base of tradition and complacency, must be replaced with something far more integrated, one grounded on a solid foundation of evidence, and with a clear and realizable purpose.

But I’m getting ahead of myself. Let’s begin at the beginning.

Part 1: 

What Are the Factors Creating Our Economic Crisis? Analyzing Opposing Opinions and Reconciling Contradictory Conclusions

Is America still in crisis economically? Or have we now recovered from the hangover of the Great Recession?

In a world where contrary information is promptly labeled as “alternative facts” or “fake news,” it is difficult to identify a common data set on which all can agree — and, absent such an agreement, it is impossible to answer those questions, let alone to develop a consensus path forward. But at least some of the confusion can be eliminated by a careful analysis of what is being said. The old adage of the blind men describing an elephant is useful to us here.

Employment is up/workforce participation is down

Both statements are true.

In 2016, the United States added 2.2 million new jobs, and 1.4 million additional jobs were added in the first eight months of 2017.[1] The unemployment rate has fallen markedly over the last eight years, and now stands at 4.1 percent, the lowest rate of unemployment since 2001[2]. But the percentage of people of working age who are actually employed has fallen dramatically since the Great Recession, and this drop is especially acute for those with no college degree. Among men aged 25 – 54, 94.5 per cent were employed in 1980, but only 88.5 percent are employed today.[3] This is one of the lowest percentages among economically developed countries. The comparable figure in Japan today, for example, is 95.5 percent. So we have the apparent paradox of a low level of unemployment coupled with a historically low percentage of employed people.

And the problem is not just that there are many more people of employment age who are not working today, as compared to 2008. One-third of these non-working people are receiving disability payments, and an equal number are estimated to be using prescription pain medications, most of which are opioids.[4] The absence of a job detracts significantly from the quality of life for these people, and burdens society with Medicaid and welfare costs much higher than they were a decade or two ago — and the inability of prospective workers to pass drug tests keeps them unemployed[5].

Incomes are rising/incomes are stagnant

Both statements are true.

In inflation-adjusted dollars, median individual income peaked in 1973. Median family income, because women continued to join the workforce, did not peak until 1997—but since then, the percentage of women in the workforce has declined, as increasing numbers of women of working age have left the workforce to care for aging family members.[6]  In the last two years, the median family income has increased by 3.2 percent, to $59,059, but is still 2.4 percent lower than in 1999, and 1.6 percent lower than in 2007.[7]

But it is also true that median income does not capture the full story. Incomes have actually fallen for much of the workforce — notably, those toward the bottom of the income scale — even as they have risen, often dramatically, for those near the top of the scale. For example, over the past decade, and measured in inflation-adjusted dollars, median household income has fallen by $571 for families in the bottom quintile of income, and risen by $13,479 for families in the top quintile.[8] Moreover, the traditional bell curve of incomes, in which most workers were near the middle of the range, has inverted such that incomes are clustered toward the ends of the curve, with far fewer workers in the mid-range.

So some workers have seen a significant increase in earnings in recent years, even as others have waited in vain for salary increases, or have been forced to accept jobs paying significantly less than their pre-Great Recession jobs.

Whether incomes are seen as improving or not is very much an individual perspective.

The economy is barely growing/the economy continues to improve

National economic growth is measured quarterly, and is always subject to subsequent revision as more comprehensive data later become available. Thus, it is not unusual to see a particular figure announced (to widespread gloom or fanfare, depending on the number), only to see that figure adjusted upward or downward months later.

The point is, making statements about the state of the economy based on the latest quarterly number is risky and ultimately not particularly helpful. (For example, quarterly increases over the past eight quarters have ranged from 0.2 percent to 3.1 percent.[9]) On the other hand, historic data over many quarters reveal a much more useful picture of how well the economy has been doing. As measured in that way, the growth of the American economy over the past decade has been tepid at best (only five of the 52 quarters in the past 13 years grew at 4 percent or better[10]), and growth has not yet returned to levels typically seen following the end of a recession.

The takeaway is that our economy has fundamentally changed since the Great Recession of 2008, because the nature of the jobs available has changed. Low-skill, service jobs have proliferated, but they pay poorly. (For example, the Bureau of Labor Statistics estimates that there will be 4-million new jobs in health care over the next decade, and more than 400,000 of those jobs will be for home health aides — but the median salary of home health aides, a job requiring only a high school diploma, is just $22,600.[11]) Certain well-paying high-skill jobs will continue to be abundant — but millions of mid-level jobs in the trades and especially in manufacturing have disappeared, and are not coming back.

The economy is divided into haves and have-nots — and there are far too many of the latter for our economy to be called “robust.” Too many Americans are living at or near poverty levels, a circumstance that should not be acceptable to anyone who cares about the quality of life of the American people. For these unemployed or underemployed members of our society, the economy is still very much in crisis. Our collective challenge is to prepare workers for the jobs of today and tomorrow, rather than waiting in vain for yesterday’s jobs to return.

America needs a change in the status quo, in terms of educational attainment levels, and Americans cannot assume that our current educational models are up for the task. (If they were, we wouldn’t be still having the problem of far too many marginally employed people.) And all Americans must collectively own this responsibility, rather than idly standing by, waiting for someone else to assume it for us.

How might this task best be accomplished? Next week: Tax cuts or education stimulus?

[1] “Incomes Jump, Adding Twist To Tax Battle,” The New York Times, September 13, 2017

[2] “Yellen’s Legacy: Progress, But a Sense of a Job Unfinished,” The New York Times, November 3, 2017

[3] “Labor Shortage Gives Workers an Edge,” The New York Times, September 20, 2017

[4] Ibid.

[5] “Workers Needed, but Drug Testing Takes a Toll,” The New York Times, July 25, 2017

[6] “The Weight of Elder Care on Women,” The New York Times, December 20, 2017

[7] “Incomes Jump, Adding Twist to Tax Battle,” The New York Times, September 13, 2017

[8] Ibid.

[9] “Economy’s 3% Spurt Emboldens Tax Cut Supports (and Critics),” The New York Times, October 28, 2017

[10] Ibid.

[11] “Without changes in education, the future of work will leave more people behind,” The Hechinger Report, October 31, 2017