How does education affect
economic growth and
opportunity?
Claudia Golden
Henry Lee Professor of Economics, Harvard University
Director, NBER’s Development of the American Economy
Program
Larry Katz
Elisabeth Allison Professor of Economics, Harvard University
Research Associate, National Bureau of Economic Research
The American Century and Human Capital Century
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U.S. became world economic leader by in 20th century by
becoming world leader in education
Modern economic growth requires mass education and
increasingly require high quality education and college training
The Three Transformations to Mass U.S. Education
● Common School Movement – 1840 to 1860
● High School Movement – 1910 to 1940
● The Unfinished Shift to Mass College Education
Increased educational attainment directly explains 25% of U.S.
economic growth of output per worker in last century and key
indirect effect on advances and diffusion of new technologies
Rapid educational advance key to shared prosperity in face of
skill biased technological change
US Education Growth Accounting for 1915 to 2005
Educational increases driven by increased educational attainment
of successive U.S. birth cohorts – immigration minor role
Annual Growth
Rates
GDP
Per Hour
Education
Per Worker
Education
Contribution
1915 to 1940
1.98
0.50
25%
1940 to 1960
2.45
0.49
20%
1960 to 1980
1.94
0.59
30%
1980 to 2005
1.71
0.37
22%
1915 to 2005
2.00
0.48
24%
Theme: Race between Education and Technology
(1) Rapid Secular Growth in Demand for Skills from Skill Biased
Technological Changes
(2) Variation in rate of growth of supply of skills is key factor:
acceleration around 1910 with high school movement and
deceleration post-1980
(3) Rise in College Wage Premium since 1980 from Slowdown in
Skill Supply Growth from Slower Growth of Education
Attainment of the U.S. Born for post-1950 Birth Cohorts
(4) No persistent SBTC acceleration; Immigration Only Minor Role
(5) Change in Nature of Skill Demand Shifts: Impact of computers
and offshoring on labor market is more subtle than standard
monotonic SBTC view – manual vs. routine vs. abstract tasks –
polarization of labor demand; growth of finance
The Human Capital Century: Mean Years of Schooling by Birth Cohort
14
For the U.S. Born
at age 30
Years of Schooling
13
12
11
10
9
8
7
1870
1880
1890
1900
1910
1920 1930 1940
Year of Birth
1950
1960
1970
1980
Years of Schooling at Age 35 Years by Birth Cohort: 1875 to 1980
15
Years of Schooling at Age 35 Years
14
Men
13
12
11
Women
10
9
8
1870
1880
1890
1900
1910
1920
1930
Year of Birth
1940
1950
1960
1970
1980
College and High School Wage Premiums, 1915 to 2005
College graduate wage premium
High school graduate wage premium
College graduate wage premium
0.6
0.4
0.5
0.35
0.3
0.4
0.25
0.3
0.2
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
High school graduate wage premium
0.45
Male Wage Inequality, 1937 to 2005
0.55
Gini coefficient
90-10, males
1.6
0.50
1.5
0.45
1.4
0.40
1.3
1.2
0.35
1.1
1.0
0.30
1935
1945
1955
1965
1975
1985
1995
2005
Gini Coefficient
90-10 Log Weekly Wage Differential
1.7
Narrowing, Widening, Polarizing: U.S. Wage Structure Changes
1. Move from Growing Together (1947-73) to Growing Apart (1973 to
2008) – Rising Wage Inequality is the Driving Force
2. Long-Run U.S. Wage Structure Changes
(a) Narrowing, 1910 to 1950
(b) Stable, 1950s-1960s
(c) Monotonic Widening, 1979-87
(d) Polarizing: Divergence of Upper-Tail and Lower-Tail Wage Inequality
Trends, 1987 to the present
3. Rising Education Returns Account for Majority of Post-1980 Increase
in U.S. Wage Inequality; Declining Education Returns Driving Force
of Narrowing of Wage Structure, 1910 to 1950
4. Supply-Demand Analysis of U.S. Wage Structure Changes
5. The Slowdown in U.S. Educational Attainment Growth
Growing Together, Growing Apart: Annual Growth Rate of Real
Income Across the Family Income Distribution
1947 to 1973
1973 to 2005
3%
2%
1%
0%
Lowest fifth
2nd fifth
mid fifth
4th fifth
top fifth
top 5%
Long-Run U.S. Income Inequality – Top 1% Share
5
10
15
20
Top 1% Share of Taxable Income, 1913 to 2006
1910
1920
1930
1940
1950
1960
1970
1980
Source: Saez and Piketty, based on IRS data.
1990
2000
2010
Importance of Rising Returns to Education
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Returns to Education Rise and “Convexify” from 1980 to 2005
-- Returns to Year of K-12: Increase from .063 to .072
-- Returns to Year of College: Increase from .076 to .129
-- Returns to Year of Post-College: Increase from .073 to .142
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Increased Returns to Schooling (almost entirely from increased
returns to Post-Secondary Schooling) explain 65 percent of the
actual increase in hourly wage variance of .081 from .248 in 1980
to .329 in 2005
Two Major Components of Increase in U.S. Wage Inequality
since 1980:
(1) Increased returns to post-secondary schooling
(2) Rising Wage Inequality Among the College Educated
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Supply-Demand-Institutions Framework
The supply-demand-institution (SDI) explanation for
wage structure changes has three parts:
(1) Supply and Demand Shocks
(2) Interactions of Market Forces and Institutions
(3) Institutional Changes
SS*1980-2005
(wS/wU)*
2.0
Slope = -0.61
σSU = 1.64
SS*1960-80
1.5
1.0
0.5
(LS/LU)*
0.5
1.0
1.5 2.0 2.5
3.0
3.5 4.0
4.5 5.0 5.5
-0.5
DD*1960-80
-1.0
DD*1980-2005
-1.5
6.0
What About Immigration?
4
College/HS Equivalents, Workforce Annual Percentage
Change
Total
Just 14% of the
decrease is due
to immigrants.
3
2
1
Due to
Immigrants
0
1915-40
1980-2005
1940-60
1960-80
Year Interval
Narrowing Wage Inequality, 1890-1950
Occupational Wage Ratios available prior to 1940 Census
-- Skilled (Machinists, Printing Compositors, Building Trades)
relative to Less-Skilled Manual Trades
-- White-Collar (Clerks, Professors) to Blue-Collar (Mfg
production worker) Wage
● Within-Industry Wage Distributions for Mfg, 1890 to 1940s
● Direct Evidence of Educational Wage Differentials from
Iowa State Census of 1915
-- 1914 Occupational Earnings and Years of Schooling by Type
of Schooling (Common, Grammar, HS, College)
-- Compare Iowa in 1914 to 1940 and 1950 Censuses
Source: Goldin and Katz (2000, 2001, 2008)
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Relative Earnings by Skill: 1890 to 1960
2.0
1.8
3
1.6
1.4
2
Professor/mfg
Assoc prof./mfg.
Female clk/prod.
Male clk/prod.
1
1890
1900
1910
1.2
1.0
1920
1930
1940
1950
1960
(Clerical/mfg. production) earnings
(Professor/manufacturing) earnings
4
Iowa State Census, 1915
Card No. ...........
Name..............................................…............... Age ...........
Sex: Male Female
County............................... P.O. ..............…..........................
Color .................
Town or Township .................…................... Ward .............
Marital Status .....
Occupation .........…......... Months in 1914 Unemployed ........
Months Schl. 1914
Total earnings for 1914 from occupation ...........................
Public ... High....
Private...College...
Extent of Education: Common ... yrs. Grammar school … yrs.
High school .... yrs. College.... yrs.
Read ...........
Birthplace ......... Do you own your home or farm? yes no
Write ..........
Incumbrance on farm, home $.….. Value of farm, home $….
Blind ... Deaf ...
Insane ... Idiot ...
Milit. Service: Civil War .. Mexican .. Spanish .. Infantry..
Cavalry .. Artillery .. Navy .. State .. Regiment .. Company ..
If Foreign Born
Church Affiliation .......................................................……...
Naturalized? ....
Father’s Birthplace .............. Mother’s Birthplace ........…....
Yrs IA... Yrs US...
Remarks ..................................... Signed .....……... Assessor
Returns to Years of Schooling 1915: Mincer Equations
Males, 18 to 34 Years Old
Years in
school
All Occupations
Farm
BlueCollar
WhiteCollar
Common
school
0.0483
(0.00395)
0.0637
(0.00837)
0.0229
(0.00450)
0.0438
(0.00889)
Grammar
school
0.0693
(0.00421)
0.0568
(0.0110)
0.0634
(0.00458)
0.0679
(0.00909)
High
school
0.120
(0.00564)
0.132
(0.0176)
0.0908
(0.00738)
0.0826
(0.00747)
College
0.146
(0.00915)
0.166
(0.0381)
0.0575
(0.0195)
0.131
(0.00849)
Why Decline of Education Returns and Skill Differentials in FirstHalf of 20th Century?
High School Movement Takes Off circa 1910
-- Rapid and Accelerating Growth in Relative Supply of Skills
-- High returns to HS with growth in demand for office workers
and skilled production workers
-- Lower individual costs with building of public high schools
-- State free tuition laws
-- Expands first in wealthy agricultural areas, small towns
-- Grassroots movement: local control, social capital
-- Academy movement in mid- to late-19th century
-- Lower opportunity costs with decline of child labor intensive
sectors, further decline with high unemployment in 1930s
-- NOT driven by compulsory schooling or child labor laws
Public and private secondary school rates
H.S. Enrollment and Graduation Rates for the U.S.
0.8
0.6
Enrollment rate
0.4
Graduation rate
0.2
0.0
1890
1900
1910
1920
1930
1940
1950
1960
1970
Public and Private Secondary School Graduation Rate
High School Graduation Rates for Four Divisions
0.8
0.6
Pacific
New England
West North Central
M iddle Atlantic
0.4
0.2
0.0
1900
1910
1920
1930
1940
1950
1960
1970
Human Capital in the New World:
The “Virtues” of the Past (and Present?)
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Mass education in the US was achieved because of basic
democratic and egalitarian principles with roots in
colonial and early Republic periods making it:
● Open and “forgiving”
● Academic, yet practical
● Publicly funded (and provided) by small, fiscally independent
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districts
● Secular: church-state separation (but not Godless)
● Gender neutral: for K-12, and even college for most years
Quality versus quantity?
Do these “virtues” still serve us well today?
The Slowdown in U.S. Educational Attainment Growth
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Educational attainment increased by 6.2 year for cohorts born in 1876 to
1951 or by 0.82 years per decade
Educational attainment increased 0.50 years for cohorts born from 1951 to
1975 or 0.21 years per decade
Traditional high school graduation rate (excluding GEDs) has stagnated at
around 75-80 percent since early 1970s
Slowdown in college graduation rate especially for males
College entry rate continues to grow for HS graduates
U.S. led the world in education over most of 19th & 20th centuries: leader in
common school & HS movements and initial college access – no more
U.S. leads in educational attainment among 55 year olds today but no longer
for those under 35 years old; 11th for 25-34 year olds in OECD
U.S. now near bottom of OECD in high school graduation rates, middle of
OECD in college graduation rates, tops in any college attendance
School quality problems in international comparisons of standardized tests -but not when look at adult literacy beyond college age
Public and Private Secondary School Graduation Rate
U.S. High School Graduation Rate, 1890 to 2004
Including GED recipients
0.8
0.6
0.4
0.2
0.0
1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Year of Schooling by Birth Cohort: Native Born by Race
Sources of Slowdown and What Can Be Done?
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Family background changes: single parent households vs. more educated
parents and smaller families
Immigration and Ethnic Composition Changes: Same Pattern for U.S. born
but some impact from new immigrants
K-12 Failures: Lack of Resources vs. Incentives, Standards, & Accountability
Problems
GED Growth and 2nd Chances in U.S. System
Explosion in College costs relative to family incomes and financial aid – huge
growth in share of mix college & work
How increase high school graduation rate and make more students college
ready?
Early childhood education
College Financing Reforms and Universal College Access
Teacher Quality, Teacher Recruitment, Merit Pay – decline of Finance &
Recession – opportunity to recruit new generation of talented teachers
Selected Policy Options in Response to Rising
Inequality
EITC & Increased Tax Progressivity
● Strengthen Employee Bargaining Power
● Professionalize (Upgrade) In-Person Service Jobs
● Infrastructure Investments and Construction Jobs
● Fix Health Insurance System
● Early Childhood Education
● School-to-Work Transition, Drop Out Prevention
● Second Chance Education/Training ; Displaced Workers
● Access to College and Financial Support in College
● Wage Insurance linked to Education/Training Jobs
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