The Relationship Between Education and the Economy

In May, the Department of Labor put out this graph, showing the educational and wage characteristics of unemployed workers in 2009. The basic story is one we are all familiar with — those who achieve higher levels of education earn more money and are less likely to be unemployed. But the really interesting story is how important this is to the economy as a whole, and how it presents a long-term solution to the top economic concerns of the day.

This week, in a speech at the University of Texas, President Obama said, “The single most important thing we can do is to make sure we’ve got a world-class education system for everybody. That is a prerequisite for prosperity.” The comment followed this statement from the president:

Now, when I talk about education, people say, well, you know what, right now we’re going through this tough time.  We’ve emerged from the worst recession since the Great Depression.  So, Mr. President, you should only focus on jobs, on economic issues. And what I’ve tried to explain to people …. (is that) education is an economic issue. Education is the economic issue of our time.

It’s an economic issue when the unemployment rate for folks who’ve never gone to college is almost double what it is for those who have gone to college.  Education is an economic issue when nearly eight in 10 new jobs will require workforce training or a higher education by the end of this decade.  Education is an economic issue when we know beyond a shadow of a doubt that countries that out-educate us today, they will out-compete us tomorrow.

Right now, all levels of government in the US find themselves mired in a quagmire of fiscal deficits and entrenched unemployment. Government deficits are increasing as high levels of unemployment have persisted and added additional expenses for state and local governments, while simultaneously reducing tax revenues.

In many ways, both of these problems can be traced back to education. With higher educational attainment and fewer dropouts, our nation will necessarily have better-skilled, more autonomous workers. Such a workforce can use its education to be more creative and build wealth, which will ultimately help the economy and take pressure off of government programs. In addition, a more productive and independent workforce will produce increased tax revenues through increased earnings, consumption, and property values.

The first chart makes it clear: Every level of education passed decreases the chances of unemployment, and raises personal income. In other words, every level of education passed lessens the the costs of unemployment insurance, creates additional taxable income, and thus strengthens our economy.

This relationship between education and the economy is one that the Alliance for Excellent Education (All4Ed) is dedicated to understanding. EMSI recently partnered with All4Ed to develop a method that accurately measures the economic impact of increasing or decreasing the high school graduation rate for any region the US.

Recently All4Ed research found that reducing the dropout rate by half — just for the class of 2008 — in the nation’s largest 45 metros would lead to $4.1 billion in increased earnings and 30,000 new jobs.

If you would like to learn more about our research into the economic impact of education, please contact us. Or read more here and here.

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