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October 24, 2011

Human Capital, Income Inequality and Our Future

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 with fears that the American workforce 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 many students, perhaps a third or more, with an education that is both broad and enables these students 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.  We do it well for a minority of students—and I, and most the men and women I know in my professional life today, have had this education.  It is worth noting that, with the exception of a Presbyterian kindergarten from whom I learned fiscal rectitude, I am solely the product of public schools, from 1st grade through Ph.D.  Like me, the third of Americans who are lucky enough to have this sort of education go on to college, have 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 two billion men and women worldwide who are better educated than them, 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 very slowly polarize into rich and poor.  Almost all wage growth over the past two decades is going 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 that this recession has amplified the trends.  The results are frightening.  We may have 5 million workers who lack the skills for meaningful reemployment and tens of millions more lack an education that can carry them for 50 years in the workforce.

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.

Link to this commentary: https://commentaries.cberdata.org/593/human-capital-income-inequality-and-our-future

Tags: education, inequality and poverty


About the Author

Michael Hicks cberdirector@bsu.edu

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He has authored two books and more than 60 scholarly works focusing on state and local public policy, including tax and expenditure policy and the impact of Wal-Mart on local economies.

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