On the importance of education.

The role of education in economic growth has been clearly established. This address is concerned with several issues: What are the benefits and costs of education? Where does the United States stand in educational attainment in historical perspective and relative to OECD nations? What can NABE as a group do to improve education of business economists? What can NABE individual members do? Business Economics (2012) 47, 90-96.

doi:10.1057/be.2012.5

Keywords: education, productivity, economic growth, competitiveness. educational attainment

Today I would like to discuss a topic that is near and dear to my heart--a topic that consumes a great amount of my waking hours in one form or another--and that is the current state of education in the United States. I realize that you are more familiar with presidential addresses that enhance your understanding of complex macroeconomic events, globalization, and public policy that aid association members in their day-to-day work. However, education is an area where I have comparative advantage. My passion is education, and thus, education is the theme of my comments. Truth be told, education is one of the primary reasons I was chosen to lead this organization.

Before there is a mass exit for the doors, please let me expand on my plans for the next few minutes. I do not plan on abandoning macroeconomics, globalization, or the role and importance of NABE in my address. Rather, my plan is to discuss education in that context.

Specifically, my presentation will follow this outline:

1. Education in the growth framework

2. The importance of economic growth

3. Benefits and costs of education

4. Trends in U.S. educational attainment

5. U.S student achievement

6. Global position of the U.S. education system

7. NABE educational initiative

8. What you can do

9. Conclusion

I have heard and/or read presidential addresses of the past, and some thoughts presented here draw directly from those speeches. In particular, I will refer to Frank Schott's address from 1978 [Schott 1979] and Duncan Meldrum's 2004 presidential comments [Meldrum 2005], both of which discuss education in the NABE context of professional development, mentoring, and certification--topics that I will address further at the end of my address.

I think the time is right for NABE to discuss education and how it relates to our organization now and in the future. Membership organizations nationwide have struggled to bring in and retain new and younger members. Our educational initiative, along with several other efforts such as "get connected" and "mentoring," is designed to deliver more value added to our younger members.

Call me old or sentimental but I often say in my public speeches that I want to leave a better economy to the next generation. It is clear to me that that will not be as easy as it seemingly was in the past.

1. Education in the Growth Framework

We are all familiar with the standard growth model. In an increasingly competitive world, we are always seeking ways to increase productivity.

We know the key ingredients for growth are increases/improvements in:

* Physical capital ... capital deepening or increased capital per worker

* Human capital ... increased levels of education and skill formation

* Technological progress ... Innovation, creation and diffusion of new ideas, and entrepreneurship

While education is only mentioned specifically under human capital, it plays a significant role in product processes and product innovation, as well. Clearly, a strong and complex interrelation exists among education, capital intensity, technological advances/innovations, and efficiency gains, which makes it difficult to assess the precise productivity contributions of each factor. That said, academic research has credited education with up to one-third of the productivity growth in the United States from the 1950s to the 1990s [Jones 2002].

2. The Importance of Economic Growth

Economic growth has led to tremendous increases in real per capita income in the United States over the past 190 years. As examples, income per person in 2007 was double that in 1971, income per person in 1971 was double that in 1940, and income per person in 1940 was double that in 1896. In fact, real income today is about 25 times greater than in 1820 [Maddison 2008]. Historically, long-run income trends have dominated short-run cycles--something we tend to forget in times like these.

In addition to a financially higher standard of living, economic growth has led to a higher quality of life through longer life expectancies and greater quantity and quality of products [The White House 2011]. In my mind, it is a fair question to ask if this time is different. Can we sustain the historical growth rates of the past? If that is to happen, the role of education in all forms must become increasingly important.

3. Benefits and Costs of Education

The benefits of education can be measured at the individual and societal levels. Academic research shows that at the individual level a strong relationship exists between level of education and earnings [Card 1999]. This "earnings premium" appears at all levels of education. Even one additional year of postsecondary education yields higher earnings [The White House 2010]. During the 1960s, the earnings premium of college graduates compared with that of high school graduates was approximately 50 percent. Today, the average college graduate earns more than twice the amount of a noncollege graduate [The White House 2010]. Figures 1-3 illustrate these trends. Other personal benefits of educational are valuable but more difficult to quantify. Included in this list is better health, which is brought about by making more informed health care decisions or more knowledge of the health care system [Grossman 2005].

Society benefits from a more educated citizenry. For example, educated individuals commit fewer crimes and have higher voter participation rates [Dee 2004; Lochner and Moretti 2004]. In addition, there are positive education spillover effects to other workers. However, when referring back to the pillars of economic growth, perhaps the most important societal benefit is the education of the next generation of researchers and entrepreneurs to help attain the goal of technological progress [The White House 2009].

Costs of higher education have been rising rapidly, as shown in Figure 4. Since 1981 tuition has risen at an annual rate of 7.1 percent, and room and board has increased 5.3 percent, compared with 3.2 percent for the CPI. Critics attribute these higher costs to access to public money that has been too easy and a lax work environment, an antiquated tenure system, and administrative bloat in colleges and universities. On the other side, academics like me bemoan the loss of state support that helped keep tuition prices affordable. at least at public universities [Archibald and Feldman 2010a].

In their hook Why Does College Cost So Mitch?" Archibald and Feldman [2010b] maintain that three seasons explain the increases. First, education is a service, and the cost of services has risen more rapidly than for goods. Second, education employs a highly educated workforce, and salaries of educated workers have risen more rapidly than those of less educated workers. Third. in the case of education, technological advances have increased costs more than they have lowered costs, as colleges and universities must continually invest in the newest and highest level of technology available.

Whatever the reason, the cost of education is rising at a rapid rate. Assuring access to all should be a goal of both the individual and the society.

Education is an investment; and when comparing costs to benefits, the result should he more participation. Research conducted as recently as 2005 has shown that the income premium associated with education is far greater than the costs, both financial and opportunity, and has been growing over the past decades [Barrow and Rouse 2005].

4. Trends in U.S. Educational Attainment

Many believe that the United States is the world leader in higher education, making it accessible to a large part of the population, unlike other areas of the world. U.S. secondary schools have been free and generally accessible since the early 20th century. The expansion of state colleges and universities led to higher levels of educational attainment for the United States compared with other parts of the globe [The White House 2010]. Indeed, the average years of schooling at age 30 rose by more than six years between 1900 and 2000 [The White House 2011]. In the second half of the last century, with educational attainment rising worldwide, the United States became the leader in graduate education, as shown in Figure 5 [The White House 2010].

However, after decades of growth, the percentage of high school students directly transitioning to a two- or four-year college has stayed at approximately 66 percent for the past 15 years. Moreover, enrollment does not equal graduation. Over this same period, a significant and persistent gap has appeared between the number of students receiving a degree and the number who entered four years earlier. In fact, the data support a completion rate of approximately 50 percent. Poor college completion rates can be related to many factors; however, a lack of preparation appears to be a significant one. Survey research suggests that nearly half of high school graduates thought there were gaps in their education. Similar results were found when faculty were surveyed, reporting that 42 percent of their students were not adequately prepared [The White House 2009]. In the 2007-08 school year, one in five first-year college students took remedial courses, an extra cost borne both by the student and society. Studies also show that the need for remedial work is also a warning sign that the student is more likely to drop out without completing his or her degree [Adelman 1998].

A key point here is that while educational attainment has slowed, the demand for educated workers has continued to increase because of technological advances and other factors. According to the Bureau of Labor Statistics, 14 of the 30 fastest-growing occupations in the United States require at least a bachelor's degree, with seven others requiring either an associate's deg' ee or a postsecondary vocational certificate or award [U.S. Bureau of Labor Statistics 2009]. A recent study by Georgetown University's Center for Education and the Workforce states that the shortage of educated workers will total at least 3 million by 2018 [Carnevale and others 2010].

5. U.S. Student Achievement

On a slightly more positive note, even though educational attainment has stagnated, educational achievement is improving. The National Assessment of Educational Progress assessment [U.S. Department of Education 2010] indicates that the performance of 9-year olds and 13-year olds has been improving over last 35 years, as shown in Figures 6 and 7. However, despite this pi ogress, only 31 percent of 8th graders are proficient in reading and only 34 percent in math [The White House 2010].

Of particular concern is that achievement lags in science, technology, engineering, and mathematics (STEM) fields. All of these areas show high wage returns to training and underpin future innovation, as shown in Figure 8. Perhaps even more disturbing is that the trend is worsening over time with fewer U.S. graduates in the STEM areas as a share of total graduates in 2008 than a decade earlier, as shown in Figure 9. Moreover, the 2009 Program for International Student Assessment showed that American students placed 17th of 34 developed countries in science and 25th in mathematics [The White House 2011], even while in the United States STEM-related industries continue to report difficulty finding employees. Other countries report higher STEM skill levels, as U.S. 15-year olds are below the Organization for Cooperation and Economic Development (OECD) average as of 2006 [The White House 2010].

Figure 9. U.S. Degrees by field of Education

                            1998   2008

Business & Administration  21.6%  21.6%
Humanities & Arts          14.0%  15.6%
Education                  12.9%  12.2%
Health                      9.0%   9.3%
Science                     9.2%   8.8%
Engineering                 7.0%   6.1%
Math                        1.0%   0.9%
Other                      25.2%  25.5%

Source: OECD 2010.

Note: Table made from pie chart.

6. Global Position of the U.S. Education System

Despite the educational attainment issues we face, U.S. universities continue to dominate world rankings.

* In the Times Higher Education rankings for 2010-11, the United States boasts 15 of the top 20 universities in the world.

* According to U.S. News and World Report, 20 of the top 50 universities, and 31 of the top 100, are in the United States.

* The U.K.'s the Guardian ranks 45 of the top 100 universities in the United States.

* Based on enrollments, the United States is the most popular foreign student destination.

* Since 1960, 63 percent of Nobel Prize-winning research has been performed in the United States, mostly at universities. The diversity of the nation's colleges and universities is a great strength: 31 percent of the U.S. Nobel Prize winners since 1960 were foreign-born, and 44 percent of these immigrants received their graduate degrees in the United States [The White House 2011].

However, over the past few decades American leadership in education has slipped. Although we remain preeminent in graduate education, we are no longer the most educated country in the world. For the demographic cohort that graduated in the 1970s, the United States leads the world in the share of college degrees. However more recently, while U.S. graduation rates (associate's degrees or higher) have remained constant, at roughly 40 percent, other countries have passed us. Currently, rates are higher in nine other countries, led by Canada and Korea at 56 percent. These educational patterns are similar for high school [The White House 2010].

7. The NABE Educational Initiative

We know that the rapidly changing world in which we live requires not just attaining a degree but continuing to update one's skills. It is important that as a professional organization NABE do its part to facilitate lifelong learning in the business economics profession. Our efforts over the past several years, which have been championed by the past three presidents, have really taken shape. This year we offered additional courses. In the next year, we hope to roll out the Certified Business Economist designation. While mentoring, student chapters, and the NABE Foundation are technically not part of the education initiative, all are contributing to the development of the next generation who will practice business economics.

8. What You Can Do

I mentioned at the beginning that I was going to discuss what you can do to address the educational issues that I have raised.

At the macro level, I ask that you engage in the education process. This is obviously more complex but here are some suggestions.

* Support your schools

* Mentor students

* I would be thrown out of the "Deans Club" if I didn't say donate, but scholarship support for someone who cannot afford an education is a lifelong gift. Education is, after all, the great equalizer.

At the NABE level,

* Participate or send staff to our programs

* Mentor young economists

* Interact with our student chapters as a guest speaker

* Offer experiential learning opportunities (internships)

* Contribute to the NABE Educational Foundation

9. Conclusion

My conclusion therefore is twofold:

On an economy-wide level, we should not be complacent about education. Higher education is a privilege, not a right; but in a globally competitive world with structural change, education is more important than ever before. We as economists and citizens should be doing whatever we can to improve the quality and quantity of education for both selfish and selfless reasons. In the absence of that commitment, I believe it will be difficult to maintain the income growth that we have experienced in the past, and the society will trend to a more bimodal distribution of income.

On an industry-specific (read NABE) level, we need to emphasize that education should be a career-long process, particularly in the field of business economics, where our methods are constantly being improved and the variables in the scope of our forecasts broadened. I am sure many of us have heard the joke that concludes with the economist saying "Assume a can opener." We simply cannot assume away real-world factors that complicate our analyses. Constant currency exchange rates, political stability, and a healthy financial system make forecasting easier but are not always realistic. Let's be honest, ceteris paribus is a term for the intellectually lazy in the field who don't want to get their hands dirty. Business economists, more so than academic economists, should avoid using this crutch. Our employers and customers are making decisions that are too important.

So we must continue to seek knowledge that cannot be found in our academic textbooks. We must understand the intricacies of a wide range of fields and how they impact the economy--energy, politics, finance, and education, to name a few.

As business economists and members of society, we must all maintain our zeal for learning, our quest for knowledge, throughout our careers. We must share our thoughts and conclusions and teach each other. This is how we enhance the profession's primary function: informing decision making. NA BE can fill this role, and NABE should fill this role. NABE has always been a forum for the exchange of ideas as this conference has illustrated. NABE should also be the primary resource for continuing education in our field.

In short, NA BE should provide the business economics profession with the skills and knowledge to stay relevant to our employers and clients. Without this education, we are relegated to using yesterday's techniques, which may do little to inform forward-looking decision making.

Quite honestly, our clients and customers--be they public or private, be they internal or external, be they students or CEOs deserve better from us.I hope you will join me and NABE to assure that this happens.

REFERENCES

Adelman. C. 1998. "The Kiss of Death? An Alternative View of College Remediation." National Crosstalk.6(3): 11.

Archibald, R.13., and I).1-1. Feldman. 2010a. The Real Cost Equation: Why Does College Cost So Much? Retrieved from Inside Higher Ed website: http://www.insidehighered.com..

--.2010b. The Real Cost Equation: Why Does College Cost So Much? Oxford University Press.

Barrow, L., and C. Rouse. 2005. "Does College Still Pay?" Economists' Voice, 2(4): 1-8.

Card, D. 1999. "The Causal Effect of Education on Earnings," in Handbook of Labor Economics, Vol. 3 edited by 0. Ashenfelter and D. Card. Elsevier Science, 1801-63.

Carnevale, A., Nicole Smith, and Jeff Strohl. 2010. Help Wanted: Projections. of Jobs and Education Requirements Through 2018. Georgetown University Center on Education and the Workforce.

Dee, T. 2004. "Are There Civic Returns to Education?" Journal of Public' Economics, 8(9-10): 1697-720.

Grossman, M. 2005. "Education and Nonmarket Outcomes." Working Paper 11582. National Bureau of Economic Research (August).

Jones, C. 2002. "Sources of U.S. Economic Growth in a World of Ideas." American Economic Review. 92(1): 220-39.

Lochner, L., and E. Moretti. 2004. "The Effect of Education on Crime: Evidence from Prison Inmates, Arrests and Self-Reports." American Economic Review, 94(1): 155-89.

Maddison. A. 2008. Historical Statistics of the World Economy: 1-2008 AD. Gronigen Growth and Development Centre.

Me'drum, D.H. 2005. "NABE: Looking for Balance between Services and Professionalism." Business Economics, 40(1): 15-21.

Organization for Economic Cooperation and Development. 2010. Graduates hr Field of Education, http://www.oecd.org/.

Schott, F.H. 1979. "Continuing Education in Business Economics--Toward a More Systematic Approach." Business Economics, 14(1): 5-9.

The White House. President's Council of Economic Advisors, 2009. "Economic Report of the President. January 2009," U.S. Government Printing Office. Chapter 8.

The White House. President's Council of Economic Advisors, 2010. "Economic Report of the President, February 20W," U.S. Government Printing Office. Chapter 10.

The White House. President's Council of Economic Advisors, 2011. "Economic Report of the President, February 2011." U.S. Government Printing Office. Chapter 3.

U.S. Bureau of Labor Statistics, 2009. Current Population Survey, Average Income by Level of Education (Total wage and salary income - 2009 dollars), http://www.bls.gov/.

U.S. Department of Education (Institute of Education Sciences, National Center for Education Statistics). 2010. "2010 National Assessment of Educational Progress," The Nation's Report Card.

NA BE Presidential Address, presented at the NABE Annual Meeting in Dallas, TX, September 13. 2011.

* Richard L. Wobbekind was the president of the National Association for Business Economics for 2010-2011. He is Executive Director of the Business Research Division and Senior Associate Dean for Academic Programs at the University of Colorado Boulder. He joined the faculty at the Leeds School of Business in 1985, and has served as Associate Dean since 2000. His responsibilities include developing an annual consensus forecast and performing various economic impact assessments of the Colorado economy. Wobbekind also produces the quarterly Leeds Business Confidence Index for Colorado, participates annually in the Kansas City Federal Reserve Bank Regional Economic Roundtable, and is a contributor to the Western Blue Chip Economic Forecast newsletter. He is a member of the Governor's Revenue Estimating Advisory Committee, the Denver Regional Council of Governments' Forecast 2035 Advisory Committee, and other state and local councils and has won awards for his teaching, research, and community service. Wobbekind teaches MBA students in macroeconomics, public policy, entrepreneurship, and managerial economics. He received a BA in economics from Bucknell University and an MA and Ph.D. in Economics from the University of Colorado at Boulder.