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Promoting Educational Attainment at the Local Levelmacroblog post, researchers Julie Hotchkiss and Fernando Rio-Avila demonstrate that increasing proportions of the U.S. workforce with a bachelor's or higher degree have "propped up" wages since 2002.1 Over that time period, average national real wages were essentially flat. However, as Hotchkiss and Rio-Avila show, adjusting for changes in educational attainment implies that average real wages have actually declined since 2002. The authors also show a strong connection between wage inequality growth and growth in bachelor's and higher-degree attainment in the United States. They estimate that 61 percent of the growth in wage inequality can be explained by the rising levels of educational attainment in the country. These findings are consistent with similar research,2 and suggests that much of the wage growth in the last several decades has gone to the most productive (and highly educated) workers—the concentration of growth at the top of the wage distribution may prop up average wages, but on average, low- and middle-skilled workers are left out.3
While much of the analysis of educational attainment and inequality has happened at the national level and many community and economic development (CED) interventions occur at the local level, the national trends have significant implications for "people-focused" community and economic development. The Federal Reserve's CED function is focused on this work and the implications for practitioners, policymakers, and researchers.
The growing wage gap between those with and without a college degree warrants a thoughtful approach in promoting increased educational attainment at the local level. Community developers should consider who is earning bachelor's degrees—are local residents earning degrees, or is the growth in attainment coming from in-migrants? Local residents who earn degrees may yield more spillover benefits to the community.4 For example, middle-skilled job creation in the health care industry tends to reach the unemployed better than job creation in higher-skilled industries.5 Additionally, the background characteristics of local residents who earn degrees may have an impact on the benefits or costs of increasing educational attainment or inequality. When people in poverty or their children increase their educational attainment or earn higher degrees, they reap greater benefits than those who come from more affluent backgrounds.6 Goldin and Katz advocate for expanding educational attainment especially for lower-income individuals to combat growing wage inequality, but others see negative effects for those without degrees when college attainment rates increase.
Hotchkiss and Rio-Avila show that absent educational attainment growth, inequality growth would be lower. This suggests that growth in degree attainment does not appear to improve the wages of nondegree-holding workers. In fact, growing educational attainment may actually make life more expensive for low-wage workers because of increases in housing prices and cost of living.7 Community and economic developers should also understand that promoting and enhancing college and higher-degree attainment may have some adverse effects.
This work and other recent research suggest that growth in educational attainment is an important strategy for expanding individual social mobility (an increase in educational attainment will likely improve labor market and economic outcomes for the worker who earns the credentials). However, a focus on growth in college degree attainment is not necessarily an effective community development strategy to reduce inequality and address the challenges of low-income workers.
Economist Edward Leamer suggests that "education works well as a treatment for the income inequality that comes from increased global competition [income inequality between countries], but not so well for the talent-driven income inequality of the postindustrial age [or the income inequality between high-skill workers and low-skill workers within a country or metropolitan area]."8 To deal with the challenges of income inequality in the modern economy, community and economic developers should focus directly on tailoring programs and targeting interventions toward low- and middle-skill workers who have experienced stagnant and declining wages over the last several decades.
This and other topics will be explored at the upcoming Transforming U.S. Workforce Development Policies for the 21st Century conference, sponsored by the Federal Reserve Banks of Atlanta and Kansas City and the John J. Heldrich Center for Workforce Development at Rutgers University. The conference will take place October 15–17, 2014. Visit the website to register and view the conference agenda.
By Stuart Andreason, CED Adviser, Human Capital and Workforce Development
2 For an encyclopedic study of the returns to educational attainment, wages, and inequality, see Claudia Goldin and Lawrence Katz's The Race between Education and Technology (2008).
3 For an encyclopedic study of the returns to educational attainment, wages, and inequality, see Claudia Goldin and Lawrence Katz's The Race between Education and Technology (2008). Other researchers find similar trends. For example, see the work of Emmanuel Saez.
4 This mirrors economic research on whether locals or in-migrants are placed in new job openings, which suggests that local residents provide greater spillover benefits to new employment (Persky, Felsenstein, and Carlson 2004).
5 Marla Nelson and Laura Wolf-Powers. "Chains and Ladders: Exploring the Opportunities for Workforce Development and Poverty Reduction in the Hospital Sector," Economic Development Quarterly. 2009.
6 Sandy Baum, Jennifer Ma, and Kathleen Payea. Education Pays 2013: The Benefits of Higher Education for Individuals and Society. The College Board.
7 Richard Florida, "More Losers Than Winners in America's New Economic Geography," The Atlantic CityLab, January 20, 2013.
8 Edward Leamer, "A Flat World, a Level Playing Field, a Small World After All, or None of the Above? A Review of Thomas L. Friedman's The World Is Flat," Journal of Economic Literature, March 2007, 88–126.