Reforming U.S. Education for the 21st Century
How should the U.S. education system be updated to keep up with a changing world economy?
May 24, 2005
Globalization has been an enormous force of change to our societies, our economies and our daily lives.
Yet, it has not been the only force shaping this century’s economic environment.
In fact, the revolution in information and communications technology would undoubtedly be high on any list of the fundamental drivers of the economy’s evolution over the last decade — including the most recent business cycle.
Cheap hardware, sophisticated software and extensive networking capabilities began transforming business processes in earnest in the latter half of the 1990s.
History tells us that such technological revolutions do not produce smooth economic evolutions — and this case has been no exception.
Nonetheless, the application of new information technologies brought real economic benefits. As these technologies were introduced into organizations and infused into business processes, productivity accelerated measurably.
At the same time, these technologies spawned unrealistic expectations that were manifested in a stock market bubble and overinvestment in new capital.
When the bubble burst and the investment boom deflated, aggregate demand decelerated rapidly, ultimately driving the economy into recession.
But in the end, the technology is still there. As a result, productivity continues to rise rapidly in the United States. Output growth is robust and we are embarked on a new period of sustained expansion.
Even more noteworthy is the fact that the growing deployment of next-generation technology has transformed the way we do work — not only its speed.
The technology revolution interacted with — and has been an important contributor to — the first force of change driving the evolution of our economic structure, namely globalization.
By slashing communications costs, new technologies have made markets more globally integrated. It has placed enormous pressure on firms to cut costs and to improve efficiency in the interests of self-preservation.
The U.S. worker is not a passive observer in this process. The innovations that have accelerated productivity and contributed to higher levels of growth also require the development of our human capital.
The changing nature of our economy means that workers must be smarter, more adaptable. They will have to continually gain new skills.
At the same time, technology and competition from abroad have risen to a point where demand growth is declining for the lowest skilled workers and increasing for higher skilled, more educated workers in the U.S. workforce.
This is demonstrated by increasing wage differentials between higher-skilled and lower-skilled workers.
In other words, while highly skilled workers enjoy increasing incomes, real wages for less-skilled workers generally have remained flat.
In this new world, the income earned by a worker depends importantly on his or her skills and education.
Over the years, the fact that more than 94% of the U.S. workforce has been employed indicates that U.S. workers apparently have been sufficiently skilled and motivated to learn the new tasks that enable them to earn, on average, an ever-rising real wage.
Yet even now, it is becoming increasingly difficult for some members of our workforce to satisfy the ever-changing demands of the knowledge economy.
Many of those currently unemployed — and even some currently holding paying positions — need to be equipped with the skills and knowledge to compete effectively for the new jobs our economy will create in the 21st century.
This is a long-term process, but it will address a long-term need.
The development of people’s capabilities in mathematics, writing and verbal skills is key to their ability to learn and apply other additional skills — and thus to earn higher real wages over time.
In short, education is a critical need in this world of high-tech manufacturing and services.
That is why our first recourse as a nation must be to look to our education system. In some dimensions, our educational institutions are up to the task. Our universities are the envy of the world and higher education has been an export industry for some time in the United States.
Unfortunately, the same cannot be said about our primary and secondary educational system. Many of our students languish at too low a level of skill and leave school inadequately prepared.
And the more technical knowledge that our students acquire in our education system does not stand up well to international comparisons.
The result has been an excess supply of labor into the slower-growing or declining areas of our economy.
Accordingly, we have quite a distance to go before we catch up to other countries in technical training, including math and science. And our level of literacy needs considerable work.
This is not just an assertion, or a sense of the market. Evidence supports this conclusion. According to a report released by the Educational Testing Service, literacy among American adults ranks 12th among 20 industrialized countries.
The report presented some alarming conclusions. A staggering 45% of Americans exhibited an inability to read or write at the high school graduate level. Almost half of those, 20% scored at a literacy level below that of a high school dropout.
Our future prospects seem troubling as well, considering 16- to 25-year-olds not only underperformed their foreign counterparts, but also did so to a greater degree than Americans over 40.
Moreover, the United States has the largest gap between highly and poorly educated adults. With poorly educated immigrants and minorities becoming an increasingly prevalent force in U.S. labor markets, the nation would do well to ensure improvements in adult training and education.
Lack of improvement in this area not only could, but will, constrain the growth of U.S. job opportunities in the future.
Market-driven, career-integrated education can and must play an important role in our nation’s future economic health.
Many institutions already offer cooperative education and internship programs through which students mix employment experience with academic study.
These institutions are geared to providing graduates with the kinds of education the marketplace demands and matching them up with local companies that can make the most of their skills.
Lack of such valuable hands-on training nationwide could delay our country’s progress toward ensuring that we have a vibrant knowledge economy.
Policymakers, academic institutions and hiring firms alike need to focus on how to increase hands-on training as a component of students’ formal education to ensure an adequate supply of knowledge workers in this century.
Cooperative education is more than an investment in training or in education. It is the cultivation of an environment of learning. Employers find college cooperative education a vital resource for human resource management.
Combining classroom studies with learning through productive work experiences provides progressive integration of both theory and practice. It is also a mutually beneficial process through which all parties involved gain advantages.
Students benefit through increased learning and improved job opportunities. Academic institutions benefit by being able to expand the range of opportunities offered to students and by accessing real-time industry feedback to keep their curricula current.
Firms benefit through access to a pool of well-prepared employees and a facilitated recruitment process. And importantly, society as a whole benefits as we increase the effectiveness and relevance of education and build a more skilled, competitive and robust workforce.
Through the partnerships developed in cooperative education, we can connect with the realities of today’s workplace.
In this way, we cultivate a more productive, highly skilled, technically trained workforce that will encourage insourcing of jobs from abroad to offset those that are outsourced.
All of this is why I believe that education, including cooperative education and training, is the long-term answer for improving our workers’ ability to adjust to the realities of the 21st century’s marketplace.
Adapted from a feature in the Q1 2005 Business Review, which was based on a speech given by Mr. Santomero at Drexel University on June 22, 2004. Click here for full text of his remarks.
Anthony M. Santomero
President, Federal Reserve Bank of Philadelphia Anthony M. Santomero became president of the Philadelphia Federal Reserve on July 10, 2000. He is currently serving a five-year term ending March 1, 2006. Before becoming president of the Philadelphia Fed, he was the Richard K. Mellon Professor of Finance at the University of Pennsylvania’s Wharton School. While […]