The Economic Case for Investing in Children

There’s a new report out entitled The Competition that Really Matters from The Center for the Next Generation and the Center for American Progress.  The report focuses on an exceptionally important topic:  The economic case for investing in children. The fact is that in today’s data-driven economy, the ability to work with data and information technology is at the heart of global competitiveness.  These abilities require increased investment in education, starting with pre-K, moving up to K-12 and higher education.  The danger is that the U.S. will lose its edge in precisely the industries that are propelling growth.

The poll that was released at the same time asks the always interesting question: Who is in favor of raising taxes and cutting spending,  if the funds were dedicated to education at different levels?  There’s a very dramatic split by political affiliation.  I’ve reproduced a representative table below.

Now, there’s a lot of different ways to ask this question. But the poll appears to say that Democrats favor investment in education at a much higher rate than independents and Republicans. If that’s really true, it’s very sad.

One added tidbit: A wonderful  infographic on helping our kids compete globally. Could be a great ceiling-to-floor wall poster.

The State of Young College Grads 2011

I started writing about tough times for young college grads in 2006, when I was at BusinessWeek. Seems like a different day and age, doesn’t it?  Since then things have only gotten much much worse.  By my latest calculations:

• Real earnings for young male college grads are down 19% since their peak in 2000.
• Real earnings for young female college grads are down 16% since their peak in 2003.

These figures are for full-time workers, ages 25-34, with a bachelor’s degree only. See the charts below.

I want to ask an economic question, a political question, and a policy question.  First, no one has given me a good explanation yet of why young American college grads should have been hit so hard. Is there increased competition with young college grads around the world?  Are new college grads lower quality than their predecessors? Has information technology reduced the need for young grads? I really would like to know.

Politically, Obama captured the imagination of this group in 2008. Are young college graduates going to sit out the next presidential election in disgust?  Is there any candidate that can excite them?

Finally, if  we were going to design some economic policies to help young college grads, what would they be?

 

An Interesting Education Spending Chart

As I was revising my intro economics textbook, I came on an odd education fact. I don’t know quite how to interpret it, but it seems interesting.  The chart below shows the share of consumer spending on education, by income class.

What’s interesting that the top 20% of households have dramatically increase the share of their spending that they devote to education, from 1.8% in 1999 to 3.1% in 2009. Meanwhile, the other income quintiles have seen a much smaller increase in education’s share. For example the third quintile–the “middle class” –has  only increased education spending from 1.1% to 1.5% of their budgets.

There are of course all sorts of potential explanations. The top quintile are more likely to send their kids to expensive private colleges; the middle income quintiles are more likely to get financial aid;  the middle income quintiles don’t have the resources to send their kids to college, and so forth. Take your pick.  

But even if we don’t know the reason, we know the implication: Education spending is increasingly concentrated in the high-income backet. The top quintile accounted for 56% of all consumer spending on education in 2009.  That makes education spending one of the most ‘top-heavy’ spending categories.  Is this a sign that high-income households are the only ones who can afford to pay for college? Or is a sign that higher-income households are being soaked?  Your choice.

Young College Grad Unemployment

This morning’s jobs report saw the unemployment rate for all 25-34 year olds drop to 9.3%, the lowest level since March 2009.  Good news, for sure. But that comes after a year where the unemployment rate for young workers barely  budged.

In particular, the unemployment rate for young college graduates did not fall at all from the end of 2009 to the end of 2010. Take a look at the chart below, which reports the unemployment rate for young workers, age 25-34, by education. I compared  the fourth quarter of 2009 with the fourth quarter of 2010 (not seasonally adjusted). (The data is not yet available for January 2011, so I’m lagging by one month).

What’s striking here is that young workers with a bachelor’s degree only faced an unemployment rate of  5.2% at the end of 2009, and a statistically identical unemployment rate of 5.3% at the end of 2010.  No wonder young college grads felt like they were on a treadmill to nowhere in 2010 (for a good story on this topic, see my old comrade Peter Coy’s cover story in BusinessWeek this week, the Youth Unemployment Bomb).

However, I suspect that the decline in the young worker unemployment rate in January foreshadows a much much better 2011 for young grads. Here’s hoping!

One View of State Budgets and Higher Education

I start out with the belief that investment in higher education is in general a good thing. However, I’ve been worried by the decline in real college grad wages.

 I came upon this 2009 Brookings paper, “The Causal Impact of Education on Economic Growth:Evidence from U.S.”, by P. Aghion , L. Boustan , C. Hoxby, and J. Vandenbussche. Let me take two excerpts from the beginning and end of the paper: 

Should countries or regions (generically, “states”) invest more in education to promote economic growth? Policy makers often assert that if their state spends more on educating its population, incomes will grow sufficiently to more than recover the investment.

 //giant snip//

We find support for the hypothesis that some investments in education raise growth. For the U.S., where all states are fairly close to the world’s technological frontier, we find positive growth effects of exogenous shocks to investments in four-year college education, for all states. We do not find that exogenous shocks to investment in two-year college education increase growth.

This suggests that the money would used equally productively elsewhere. We find that exogenous shocks to research-type education have positive growth effects only in states fairly close to the technological frontier. In part, this is because research-type investment shocks induce the beneficiaries of such education to migrate to close-to-the frontier states from far-from-the-frontier states. Put another way, Massachusetts, California, or New Jersey may benefit more from an investment in Mississippi’s research universities than Mississippi does. Finally, we show that innovation is a very plausible channel for externalities from research and four-year college type education. Exogenous investments in both types of education increase patenting of inventions.

What conclusion should I draw from this paper?  Should we put more money into research-related education spending and four-year schools, and less into two-year colleges? Or are we missing something important here?

VisibleDeficits: News and Education

A year ago I started a venture dedicated to one goal:  Producing news  that is also educationally sound.  Or, if you like, producing educational materials that also have real news value. 

News is typically fast-paced, timely, and engaging—but not always consistent or well-explained.  Education is systematic, consistent, and well-explained—but not always timely or engaging. We—myself and colleagues Damian Ghigliotty, James Fair, Charli James, and Judy Scherer—believe that combining the best features of news and education can create an innovative and compelling view on the world.

Most of our output up until now has been nonpublic–news/education videos for textbook companies and nonprofits (feel free to contact me at mmandel@visibleeconomy.com if you are interested and want to hear more).  

But in our spare moments,  as it were, we put together our first public site, VisibleDeficits (http://www.visibledeficits.com).  VisibleDeficits is a prototype site that shows, I hope, one way of combining the best features of news and education. We picked state and local budget deficits as our opening topic–the ‘seed’ –because of the broadness and relevance of the issue. We will regularly update and expand the material on the site. 

Going forward, we intend to roll out other ‘seeds,’  under the general rubric of News and Education TV.  Seeds can either be news topics, like innovation, unemployment or immigration; or educational topics, like political science, sociology or how to find a job.

We’re very interested in hearing comments, negative or positive, about VisibleDeficits.   And if anyone would like to contribute either news or educational pieces on state and local budget deficits, or suggest potential seeds, that would be great as well.

Finally, great thanks to Damian, James, Charli, and Judy, the people who have actually done the hard work of putting together VisibleDeficits, as well as reporting and producing many other news/educational videos over the past year. They have all done great innovative and original work, breaking new ground in journalism and education.

Better Education for Innovation?

I suggest that people take a look at the new report out from the Information Technology and Innovation Foundation entitled
“Refueling the U.S. Innovation Economy: Fresh Approaches to STEM Education.”   I’m not sure I agree with everything in the report, but it’s very interesting. The authors, Rob Atkinson and Merrilea Mayo argue against the idea that everyone needs a little bit of science/math etc, and in favor of the idea of more targetted science/math/engineering education for the students who are really motivated: 

This report lays out a blueprint that transforms a weak “Some STEM for All” approach into a more powerful, less costly, and more socially equitable “All STEM for Some” approach. It is based on working to actively recruit those students who are most interested in and capable of doing well in STEM (including currently under-represented groups) and providing them with the kind of educational experiences they need to make it through the educational pipeline and come out able and willing to contribute to growing the U.S. innovation economy.

Worth taking a look.

Interpreting the OECD Education Results

Today’s big news: According to a new OECD study, Shanghai’s 15-year olds turned in top scores globally:

The province of Shanghai, China, took part for the first time and scored higher in reading than any country. It also topped the table in maths and science. More than one-quarter of Shanghai’s 15-year-olds demonstrated advanced mathematical thinking skills to solve complex problems, compared to an OECD average of just 3%.

That’s very impressive. Very.  The U.S. was around the OECD average in reading and science, and just below average in math.  All other things being equal, it would be better if our scores were higher, much higher.

This will take a long time to fix. However, the  short-run implication is clear:  American kids coming out of college right now are facing ever-toughening global competition. The question: What sets of skills are most likely to be in global and U.S. demand?

Teacher Firing Prevention Fund?

In his letter to Congress on June 12,  President Obama called for a “Teacher Firing Prevention Fund.” Now, I’m as much in favor of teachers as the next person. My mom was a teacher. I sometimes travel around the country speaking in favor of better funding for early childhood education, which I think is very important.  I run a business, Visible Economy, that combines news and education. Human capital, and especially education, is essential for the U.S. economic future.

But, boy, if Obama wants to make a case for more money for elementary and secondary education, calling it a Teacher Firing Prevention Fund is just not the way to go. Why not a Factory Worker Firing Prevention Fund? Or a Journalist Firing Prevention Fund?   After all, everyone’s pay contributes equally to the macroeconomy–doesn’t everyone’s jobs deserve protection?

Recession Hits Harder at College Grads Without an Advanced Degree

I’m sure many of you read the  NYT article about the 26-year-old college grad with almost $100,000 in student loans.  The article was fascinating and horrifying, but it didn’t mention a key factor–since the girl in the article graduated in 2005, the  real wages of college grads without an advanced degree have fallen substantially.

 Take a look at this chart.

I’ve plotted median usual weekly earnings of fulltime workers, adjusted for inflation, and indexed to 2001Q1 =1. The dark blue line shows the weekly wages of workers with an advanced degree, while the lighter line shows weekly wages of workers with a bachelor’s degree only.

The real wages for college grads with a bachelor’s have  been in a downswing since 2004.  That offers at least a partial explanation of her problems…she got caught by a weakening labor market for bachelor’s degrees.  

To put it another way–college grads who are clothed with the protection of an advanced degree have on average managed to hold their own during the financial crisis, and even gain ground. Since mid-2007, their usual weekly wages are up by 3.7% in real terms, putting them at their highest level for the past ten years.

‘Naked’ college grads–that is, those without advanced degrees–have not fared nearly so well during the recession. Their real weekly earnings are down 0.7% since mid-2007, and they are well below their 2004 level.

Is this simply supply and demand,  a function of which industries were hit, or is there something else going on?