Opinion and Economic Analysis

HICKS: Human capital, income inequality and our future

October 22, 2011

Since at least the 1960s, economists have been warning that the link between human capital and economic growth was growing. These warnings became louder by the 1980s and were accompanied by fears that the American work force was developing a skills deficit.

During that time, the developing world was educating students in unthinkably large numbers, and international comparisons of our high school performance saw us drop to the bottom of the developed world. There are now high schools in South Africa, China, India and elsewhere where students get a better education for less than 20 percent the cost of an American high school.

Despite clear evidence of a growing problem, we have, as a nation, taken almost no serious action to correct our national weaknesses in education.

The story is not all dismal. We do wonderfully at providing some students, perhaps a third or more, with an education that is broad and enables them to be whatever they resolve to be. This classic liberal education is something virtually all developing countries and most developed countries have yet to master.

I—along with most of the men and women I know in my professional life today—had this education. It is worth noting that, with the exception of a Presbyterian kindergarten from which I learned fiscal rectitude, I am the product of public schools from first grade through a doctorate degree. Like me, the Americans who are lucky enough to have had this sort of education go on to college, choose careers and prosper.

On the flip side, more than half of Americans get high school educations that leave them unprepared for the world they find themselves in after graduation. In this world, they compete with perhaps 2 billion men and women worldwide who are better educated than they are—and yet willing to work for far less. This is a bad recipe for American prosperity.

At about the same time, economists who study economic growth started raising alarm about America’s education deficit, and their colleagues who study income inequality began to notice a trend. The broad middle class began to shrink and our economy began to slowly polarize into rich and poor.

Almost all wage growth over the past two decades went to those folks with high-end college degrees. For many of us, this is concerning. If this trend continues for another two generations, it will dramatically change the state of the nation.

Individually, these trends are worrisome, but I am afraid this recession has amplified the trends. The results are frightening. We may have 5 million workers who lack the skills for meaningful re-employment and tens of millions more who lack an education that can carry them for 50 years in the work force.

It is tempting to blame external forces: globalization, corporations or fiscal crises. But the fix is found in our classrooms and at home, the kitchen table or wherever kids do homework and dream about their futures.•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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