The United States must consider new strategies to fortify its labor market. Major investments are necessary from the federal government to boost the American economy. For there to be any chance of recovery in the coming years, states and the federal government would be wise to invest funds in training and education.
More spending on schools may sound at first counterintuitive. After all, many states are cutting back on public services to balance budgets. Funding is being slashed for education in many areas. Ohio recently slashed funding by $775 million, targeting education. Georgia, for instance, cut spending by 14 percent for all state agencies, including schools. Yet it cannot be understated: education and retraining in key skills are instrumental to a competitive labor force and national economy.
For over 60 years, economists have demonstrated how education leads directly to major economic returns in salary and GDP. Education additionally plays a vital role in many countries’ economies, as well as the general health of labor markets and overall employment. Indeed, employment tends to go in lock step with increasing education standards. This is true both for individuals and large economies.
In many states, the increase in income from better math skills is almost half a million.
It is worth considering the current state of public education in 2020 thus far. In addition to skyrocketing unemployment, COVID-19 has caused school closures for 60 percent of the global student population. While young people around the globe are shifting to online learning, this unprecedented challenge has increased precarity for those living in resource-stricken areas–or for those without access to computers or Internet connections.
In the U.S., while the majority of students may have access to online learning, nearly half of middle school and high school students report not tuning in to newly web-based courses. Others may opt out of class due to obligations to instruct their younger siblings and relatives, who are also stuck at home. Negative effects have already been visible in interrupted learning, and reduced opportunities for economically disadvantaged students.
There is hope however. When a country’s education system improves, labor force skills increase and incomes rise. Boosting the American education system, then, presents a key opportunity for a robust recovery for both policymakers and individuals. To better understand the benefits of educational investments, the Learning Agency conducted a study to look at how Americans’ incomes would grow as a result of better skills and education.
The approach for this economic white paper draws from a 2015 National Bureau of Economic Research (NBER) study, “Returns to Skills around the World: Evidence from PIAAC.” In that paper, the NBER demonstrated workers could expect impressive percentage increases from relatively nominal increases in skills through education. Improved math skills, for instance, led in theory to a 28 percent increase in wages, while improved reading skills in education would produce a 27 percent improvement in wages.
For the Learning Agency’s analysis, NBER’s percentages were translated into an exact numeric wage increase per year, based on current employment statistics, and wage estimates. That is to say, we calculated the increase in monetary gains created by developing further math and reading skills.
The study’s findings are as follows:
Better math skills can increase salary by $21,000 per year. If a student had improved reasoning ability with data, statistics, graphs, and spatial relationships — as measured by a standardized exam — the total expected increase in earnings would be an additional $21,000 per year for an 35-54 year old, full-time U.S. worker. The total accrued amount in earnings for an individual for better math skills over two decades would be $400,000.
The analysis only included careers requiring at least a high school-level of math knowledge, such as financial operations, computers, engineering, the sciences, healthcare, manufacturing, management, and administration. In California, further education in math would lead to a $25,000 yearly increase in wages, or $31,000 in Washington D.C. In New York, over a 20 year period, the increase in income would come close to $500,000.
Note that the analysis assumes a single standard deviation increase in math scores. This is the equal to a 200 point increase in SAT scores.
Improvement in reading and writing skills could spark an $11,000 increase in annual salary. This estimated and approximate $11,000 in individual gains would aggregate to a $421 billion increase in wages annually for the U.S. workforce as a whole, with a boost of $8.4 trillion over 20 years. While most workers already have basic reading and writing abilities, improved reading and writing skills lead to a substantial increase in wages.
Though the numbers for gains from reading skills were not as impressive in total as those from increasing math skills, the foreseeable impact would be wider, since more Americans work in fields where reading and writing are a necessity, and a wider variety of professions stand to benefit.
As part of the analysis, we considered all full-time workers in the U.S. Again, the analysis assumes a single standard deviation increase in reading and writing scores. This is the equal to a 200 point increase in SAT scores.
Graduating with a high school diploma is equivalent to an additional almost $7,000 in annual salary. In the final component of this analysis, we found similarly impressive wage increases for the value of completing a high school diploma. The basis of this calculation was Census Bureau’s 2018 American Community Survey data. According to the data, workers currently without high school diplomas stand to earn an additional $6,700 per year if they completed their degree, as compared to the earnings of non-high school graduates.
The takeaway is that workers without degrees who currently earn on average $24,500 per year, would increase their salaries to $31,300 annually. If half of all adults 25 and over, who did not graduate from high school, finished their degrees, the earnings would accrue to $88 billion in increased annual income nationally. Over 20 years, this increase would be a boost of $1.8 trillion in wages for the American economy.
National and state-level economic impact of more education is more than $200 billion. It is clear that not only workers stand to benefit economically from a boost in educational outcomes since wages form the basis of the economy, and so we analyzed the overall impact of salary increases.
According to our estimates, about 11 million workers in the U.S. would benefit from improved math skills, and their additional earnings would total $235 billion annually. Ultimately, the U.S. could expect a $235 billion increase for the national economy per year, by only improving math education. During a 20 year period that amount would amass to $4.7 trillion. Keep in mind, this analysis was relatively conservative, examining only the case of full-time adult workers, in the midst of their careers.
The original study undertaken by the NBER assumed a single standard deviation in test performance. A single standard deviation is equal to a 200 point increase in SAT scores.
In the context of the study, we made the further necessary assumption that all current wages for the American workforce would increase in exact proportion to increases in level of education.
This assumption does not account for the likelihood of diminishing returns, even in the case that the population’s level of education magically increased. The improvement of education outcomes would likely not affect all salaries at the same level.
Economic returns for a completed high school diploma were calculated with a straightforward model: by estimating the boost non-high school graduates would receive if paid according to the earnings of workers who graduated high school, compared to current income. For this analysis, we looked at workers aged 25 years and over.
We looked at full-time workers aged 35 to 54 for the cognitive skills analysis since NBER generated their findings with this population. For the purposes of the study, 83 percent of the workforce were estimated to have full-time jobs, and 31 percent of that number are expected to be between 35 and 54.
Approximately 3 in 10 U.S. workers have a profession in the STEM (Science, Technology, Engineering and Mathematics) fields, where workers earn on average $36,000 more, on a yearly basis, than their counterparts in non-STEM professions. In certain states, gains in wages according to improved math skills were more noteworthy. Nonetheless the implications of this study are optimistic for the American economy caught in the midst of a downturn from the global pandemic.
Better math skills increase salary by $21,000 per year. Improvement in reading and writing could bring an $11,000 increase.
Simply put, more education leads to much more income. What’s more, an improvement in education would help kickstart the American economy. Schools are the primary environments in which people develop cognitive skills, and research shows countries with improved cognitive skills over time experience faster rates of economic growth. This boost is due to the impact of cognitive skills on an individual’s earnings.
To put it more exactly, better-skilled workers are more equipped to manage a range of situations in their work environment, improve their technical and domain expertise, and strive for higher positions within their current place of employment and elsewhere. Cognitive skills also improve a worker’s efficiency and productivity, making them more attractive to employers.
More educated workers can also compete more effectively for high-paying and high-skilled jobs. In other words, the more knowledge someone has, the more effective they are finding work. The nation currently faces a shortage of skilled labor in a number of technical areas including machine learning and data science.
To be sure, improvements in education are not easy. In fact, the dropout rate between grades 10 and 12 even increased from 2007 (3.5 percent) to 2017 (5.4 percent). Similarly, math and reading performance have also declined in recent years among fourth- and eighth-grade students, according to the latest data from the National Assessment of Educational Progress, also known as the “Nation’s Report Card.” Not surprisingly, this means that U.S. education achievement generally has lagged behindthat of other countries, coming in 30th in global comparative math assessment.
Graduating with a high school diploma is equivalent to an additional almost $7,000 in annual salary.
Our analysis leads us to the following recommendations:
Boost funding for education. Budget cuts are undermining public education. Too many states and local agencies are cutting funds for schools, and today most states are spending less on education than they did a decade prior.
This is short sighted. Lower spending levels lead to lower results. After the Great Recession, a 10 percent cut in school spending was shown to reduce NAEP test scores by 7.8 percent, and graduation rates by 2.6 percent. Similarly, greater spending leads to greater results. Court orders for increased per pupil spending have been proven to produce higher graduation rates, as just one example.
The issue goes beyond overall spending. The nation’s education system is marred by extreme inequities, and the wealthiest districts in America spend 10 times more on education than the poorest. Students in Mississippi for instance generally have 40 percent of the per-pupil funding available for school kids in New Jersey, while Alabama students get about 50 percent of the funding available to students in Connecticut. Increased spending means not only a better academic environment but also often improved health, nutrition and emotional support – which in turn affect students’ ability to succeed.
The point is education requires investment. Improved funding will improve outcomes, and given the pandemic, policy leaders should invest — not cut — school funding.
Invest in what works to boost outcomes for students. School funding efforts are not all equal. Some expenditures improve education more than others. This leads to our next recommendation: Policymakers should invest in programs that work and raise outcomes for children as well as create systems to further understand what works.
Randomized control trials have demonstrated that early childhood education produces real results. Research has also shown that investments in thoughtful ed tech programs like ASSISTments can make a difference. There’s also a wealth of evidence around focused school reform programs like Success for All. These are the types of programs that require additional investments and scale.
One of the most promising and evidence-based reforms is tutoring. Online tutoring can help low-performing students catch up, according to several studies. What’s more, tutoring programs can also put people back to work. In this case, tutoring programs can employ twenty-somethings who are not returning to college or the many people who have been laid off from work due to the pandemic.
Policymakers should also look to support programs that create a “virtuous cycle” of evidence, creating infrastructure that allows for richer research. The ASSISTments program, for instance, has opened up its backend to allow for additional research. This “instrumentation” approach could lay the groundwork for major improvements in students’ learning and should be expanded.
Education requires investment. Improved funding will improve outcomes, and so policy leaders should invest — not cut — school funding.
Education plays a decisive role in economic performance. Those in society with more education earn higher salaries over their lifetime as well as contribute more in taxes. An educated population also leads to economic growth at a national level. Better education has even been shown to create more cohesion in democratic countries and a heightened sense of trust between citizens.
In this regard, increased funds for public education generate a positive feedback loop for the economy. As education improves the economy improves, and as the economy improves education improves even more. In some countries, education has become the driving force of the economy.
In the coming years, there is a threat not only of COVID-19 but a high likelihood that what’s known as “Industry 4.0” will make many jobs obsolete through automation. Improving skills through education will be key for the U.S. workforce to survive despite these dramatic trends.
This analysis is a call to individuals, who should continue to focus on improving their knowledge and skills. It’s just as important a call to policymakers to improve U.S. education in order to rebuild the economy. The study shows that every state would see a dramatic increase in outcomes due to more education. Similarly, virtually every area of economic activity in America stands to benefit from greater investment in education. The nation must act now and reinvest in its future.