Commentary | Budget, Taxes, and Public Investment

Lessons—Education and Job Growth

These pieces originally appeared as a weekly column entitled “Lessons” in The New York Times between 1999 and 2003.


Education and Job Growth

By Richard Rothstein

Unemployment is now only 3.9 percent, its lowest level in 30 years. A dozen years ago the economy was in bad shape, with widespread unemployment. The United States could not seem to compete with other industrial nations that, with productivity growth, made better and less expensive products.

Schools were widely blamed. The prevailing view was that high unemployment was mostly due to high school graduates who lacked the skills of German or Japanese workers.

Today the crisis is a dim memory, and America’s economy is the world’s envy. Yet schools are, at best, only marginally better, so prosperity cannot be the result of school reform. That means schools were not to blame for the nation’s earlier doldrums.

If we had recognized sooner the limited role schools play in determining economic success, would we have embarked on identical reforms? Or would education policy have been less politicized, with more tolerance for experimentation?

As late as 1994, unemployment was still over 6 percent, and the dropout rate was twice that. Black and Hispanic workers were most severely affected.

At the time, Alan Greenspan, the chairman of the Federal Reserve Board, insisted that schools were the problem. He said those without jobs lacked the skills employers need.

Most economists then feared that attempts to lower unemployment would spur inflation. President Clinton’s first appointees to the Federal Reserve, Alan Blinder and Janet Yellen, supported Dr. Greenspan’s tighter money policies, aimed at keeping joblessness from falling.

Their logic was this: some workers had left jobs and were seeking new ones, but would find work soon. Faster growth could not eliminate such transitions. Other workers wanting jobs were too poorly educated to be hired. Growth could not help them either, because they lacked minimum skills.

Because, the reasoning went, no adequately educated workers were left when joblessness fell to 6 percent, efforts to create new jobs would only cause companies to bid for those already employed, by offering them higher wages. Inflation, not more jobs, would follow. Unemployment could drop further only if schools improved to make graduates more attractive hires.

Today, with unemployment less than 4 percent, many formerly jobless high school dropouts have found jobs. Unemployment has plummeted, even for the most vulnerable, black teenagers. Many who had given up seeking work, not officially counted as unemployed, also have jobs now. Even ex-convicts, often the most poorly educated Americans, are being hired.

Perhaps America has now reached a point where growth should be slowed. But it was a huge mistake to have believed that 6, not 4 percent unemployment (or less) was the target rate. Some three million Americans suffered prolonged joblessness because policy makers wrongly assumed they were too poorly schooled to work.

Economists attribute today’s growth with mild inflation not to improved schools, but to factors like greater efficiency, downward price pressure from growing imports, and a willingness to experiment with lower interest rates. According to the economists Barry Bluestone and the late Bennett Harrison, who wrote “Growing Prosperity” (Houghton Mifflin, 1999), we should test whether we can push unemployment even lower.

But Dr. Greenspan has not wavered. Before initiating the current round of interest rate increases last year, he told the Congressional Joint Economic Committee that “we fall far short” in public education. The nation cannot maintain prosperity, he said, if schools do not improve.

Nobody asked why the chairman’s earlier “blame the schools” approach was flawed, and whether the error was now being repeated.

A decade ago, the views of Dr. Greenspan, Dr. Blinder and Dr. Yellen were commonplace. In 1992, Prof. Lester C. Thurow of the Massachusetts Institute of Technology published the best-selling book “Head to Head: The Coming Economic Battle Among Japan, America and Europe” (William Morrow). It predicted that Europe would “own the 21st century,” partly because poor schools make America uncompetitive. “To create the productivity that can justify high wages,” Dr. Thurow said, “American K-12 education will have to improve.”

But since then, productivity in the United States has soared, wages have recovered and America’s economy has left Japan’s and Europe’s in the dust. It seems that today’s productivity growth stems from years of accumulated innovation, and that American schools do, after all, produce a work force with adequate skills to use new technologies.

Those who blamed schools for earlier economic stagnation were well meaning. But curiously, reputations of mistaken analysts have not been sullied, while the damage they did to the reputation of education’s role in the American economy has endured.

Perhaps we would have wanted similar cures, even after diagnoses were altered. Even in a healthy economy, we should improve the ability of less advantaged students to compete for better jobs. But we might have approached reform differently had we known we were trying to raise achievement beyond levels required for economic growth alone.

Return to the Education Column Archive

See related work on Public Investment | Jobs | Education | Budget, Taxes, and Public Investment | Wages, Incomes, and Wealth | Inequality and Poverty

See more work by Richard Rothstein