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Ensuring the quality of the labor force of the future.

In order to provide qualified candidates for the jobs that will be available in the decade ahead, business expertise must be brought to the education business. College opportunities are provided to high school graduates that want them, but school must be made more attractive to elementary and secondary students. Personal and corporate involvement is necessary to achieve this objective.

FOR MANY YEARS these addresses by NABE Presidents tended to alternate between personal views of the economic outlook and the state of the business economics profession. No one seems to recall the most memorable of the former while the consensus is that the two outstanding variants on the latter theme were the presentations by Don Conlan in Seattle in 1982 and by Nick Filippello in Atlanta in 1984.

NABE president Jerry Jordan started a new trend in New Orleans in 1987 in which the talk was aimed at what the speaker felt was a major issue. This trend is being confirmed by this presentation, the fourth in the new genre.

Much of the economic coverage by the media of the past few months and much of the discussion at this conference have revolved around the question of whether the United States economy is now or will soon be entering the ninth recession since 1945. While my position on this question is the same as that of Alan Greenspan, viz., we are not in a recession now but the dangers of falling into one are real, this question is not really very interesting. The American economy will certainly experience a recession sometime in the future and that recession will just as certainly be followed by yet another expansion, which will inevitably lead to another recession. No one, not even the Congress of the United States, has learned how to repeal the business cycle, and it is most unlikely that the cycle will ever cease to exist.

Over the past 110 years, real growth in the United States has averaged 3.1 percent a year through booms, busts, wars, recessions, and a couple of Great Depressions. If you think the current period of financial fragility is something new and unique, you should look back at the panic of 1873 and the ensuing sixty-five month decline in the economy, which makes the forty-three month decline from August 1929 through March 1933 look short. In October 1873, a total of 1,415 banks failed, which is surely an all time record. [1]


My purpose here today, however, is to focus on a long-run structural problem that must be solved if the twenty-first century is to see the kind of long-run average improvement in the living standards of American citizens that have been characteristic of our history from 1789 to date. This issue is how we can make sure that we have qualified candidates to fill the millions of jobs that will become available in the United States during the next decade and beyond.

When economists, demographers, and other analysts first started looking at the unprecedented number of babies born in the United States during the boom years 1946-64, the primary concern was how in the world we could possibly create jobs for all of them. That concern was even before we learned another potentially alarming fact, that the labor force participation rate would rise beyond anyone's expectations. This ratio ranged only from 58.8 percent in 1948 to 60.1 percent in 1969, but has risen steadily to 66.5 percent today. Obviously, if this had not happened and we had seen similar job growth, the U. S. economy today would look like that of Japan, with the number of job openings much larger than the number of applicants.

Indeed, we can see this phenomenon in a few states right now. In my home state of North Carolina, only 123,000 people were unemployed in August compared with 3,247,000 employed, giving an unemployment rate of 3.6 percent, which is by far the lowest among the eleven largest industrial states. My old company, Sears, Roebuck, opened a major telemarketing center in Greensboro in February with the announced goal of hiring 1,000 people by june. To date they have only been able to find 450 qualified people, in spite of raising the starting wage three times, to a level well above the local average.

More and more companies are already confronting this problem or they soon will. In addition, it is estimated that companies are spending $30 billion a year on direct training programs. [2] This sum is more than 10 percent of pretax corporate profits.

Much of this spending is of a remedial nature, in order to bring newly hired individuals up to basic skill levels in reading and mathematics. Obviously, this sum is large enough to get many corporate executives thinking about how to reduce it.

The most straightforward solution is to bring business expertise to the education business. Education is one of the largest industries in America. We spend over $700 billion a year on education in the United States or about 13 percent of GNP, which makes education expenditures even larger than those for health care.

President Bush has said he wants to be known as the education President," and he has taken very important steps in that direction by organizing all fifty of our country's governors to focus on this issue. A major goal of this effort is to come up with ways to raise the proportion of students who enter high school that wind up graduating to 90 percent. That will take some doing, as we currently see about 500,000 young people a year drop out of high school, which means only about 72 percent graduate in a timely fashion. [3]

At the same time, the number of jobs available to people without a high school diploma continues to decline. In the "good old days" young people could drop out of school and find ample employment opportunities on the farm, in the factories or in the armed forces. jobs on farms have been declining for over 60 years now, factory jobs peaked in 1979, and, as we heard from Defense Secretary Dick Cheney yesterday, the all-volunteer armed forces are made up almost entirely of high school graduates.

Even more stress on the importance of staying in school can be found in Murray Weidenbaum's excellent book, Rendezvous With Reality, which is newly available in paperback. Murray writes:
 "More often than not, all it takes for a person to
 move out of poverty is three things: (1) completing
 high school, (2) getting and staying married (even
 if not on the first try), and (3) staying employed,
 though at modest wages like the statutory minimum
 wage." [4]

Murray also points out that in 1986, less than 5 percent of all black males and less than 10 percent of all black females who were high school graduates were living below the poverty level. [5]

We do an excellent ob in the United States of providing college opportunities for those high school graduates that want them. Fully 50 percent of our high school graduates go on to higher education, a rate unmatched by any other country in the history of the world. Our real problem is to make school more attractive to our elementary and secondary students. A related problem is to make sure those that stay in school actually learn something.


Well, what can you do about this? Some of our members get deeply involved by serving on local boards of education and working to improve the system from within. This is admirable and useful, but, as everyone who has done it will tell you, so time consuming that it is not a viable alternative for most NABE members.

Something you can do that is easy and very useful is to volunteer to talk to the economics class at your local high school. Such a talk was what caused me to decide to become an economist, and it is a very valuable experience. You will find that the students are eager to find out what economists do, are hungry for information about how the business world really works, and are most appreciative of your efforts.

Some companies have taken even more dramatic steps to get really involved in improving the quality of education in local schools. In Rochester, New York, Eastman Kodak and other companies have helped raise teacher salaries, increase accountability, and get deeply involved in educational programs. In Chicago, Baxter International, Sears, Roebuck, Quaker Oats, and McDonald's have started their own school for inner city poor children as a demonstration laboratory. Similar efforts have been backed by the Minnesota Business Partnership and the California Roundtable. [6] BP has taken the initiative for such efforts in the United Kingdom and BP America is also involved in Ohio. [7]

We spent $3,310 to educate each child from preschool to the senior year of high school in 1985, which was second only to the $3,683 of Switzerland. [8] Is it any wonder that businesses are getting more involved?

Every NABE industry survey shows that shortages of skilled workers affect a significant fraction of the employers of the respondents. If we do not improve the educational situation in the United States, we will not be the world competitive leader in the twenty-first century that we have been in this century. Furthermore, we will never reduce poverty to the lowest possible levels.

So go back to your offices and see what you can do to help. If your company is one of those working to improve education in the communities where it does business, then make sure you are included in these efforts. If your company is not involved now, then try to change that situation.

Volunteer to go talk to a local high school economics class. Howard Keen is our NABE representative on the board of the joint Council of Economic Education, and he can provide you with lots of information on ways you can help.

I believe that the United States economy will continue to be a shining beacon of opportunity to our citizens and to all the world for many years to come. We need to improve our educational system in the ways suggested above as well as with innovative approaches such as the new Milwaukee voucher plan to make this come true.

We have faced many difficult problems in the history of the United States and gotten through all of them to keep providing rising living standards for the vast majority of Americans. We'll do it in the future, as well, but you can help this prediction come true through your efforts to improve the American educational system.

* James F. Smith is Professor of Finance, University of North Carolina Business School, Chapel Hill, NC. This Presidential Address was presented at the 32nd Annual Meeting of The National Association of Business Economists, September 23-27, 1990, Washington DC.


[1] Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crisis, 2nd Edition, (New York: Basic Books, 1989), p. 128.

[2] EIizabeth Dole, "Educating Workers," USA Today, September 20, 1990, p. 34,

[3] Ibid.

[4] Murray Weidenbaum, Rendezvous With Reality: The American Economy After Reagan (New York: Basic Books, 1988), p. 200.

[5] Ibid., p. 197.

[6] Steven A. Holmes, "school Reform: Business Moves In," New York Times, February 1, 1990, p. C1.

[7] David Thomas, "Corporate Initiatives: Oiling the Wheels of Education," Financial Times, December 1, 1989, p. 13.

11"Report Blasts Public Schools for Wasting Taxpayers Money," Durham Morning Herald, May 14, 1990, p. A4.
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Title Annotation:author's presidential address during the 32nd Annual Meeting of the National Association of Business Economics, September 23-27, 1990
Author:Smith, James F.
Publication:Business Economics
Article Type:transcript
Date:Jan 1, 1991
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