Ben Bernanke's Speech on Education and Economic Competitiveness

Higher Education
In many ways, higher education represents the strongest part of the U.S. educational system, as demonstrated by the fact that students from all parts of the world come here to study.  Our institutions of higher learning are extraordinarily varied, ranging from large public research universities to small liberal arts colleges to community colleges and vocational schools.

The main business of our institutions of higher education is, of course, undergraduate teaching.  But unlike some countries, we do not separate research and undergraduate education; our advanced, graduate-level research programs are housed in universities with strong undergraduate programs.  Thus, our colleges and universities are important sources of research and development (National Science Foundation, 2007; Litan, Mitchell, and Reedy, forthcoming).  More than half our basic research--the foundation for breakthroughs that create new industries--is conducted at universities.  Additionally, higher education has embraced the broader mission of translating research into new products and enterprises; our colleges and universities account for 15 percent of applied research and development (National Science Foundation, 2007).  The innovations that begin on campuses are diffused to businesses through patents, start-up companies, and consulting arrangements between faculty and industry.

One great challenge in higher education lies in making sure our high-school graduates are prepared for it and have access to it.  With college enrollment rates having leveled off in recent years, much debate surrounds how we can move more students into higher education and keep them in school until they graduate.  Researchers have demonstrated a strong relationship between family income and college attendance.  Since 1990, nearly 80 percent of high-school completers from high-income families (the top 20 percent of income) have enrolled in college the next fall.  The proportion of those from low-income families who enroll in college the following fall has been moving up gradually, but it remains much lower--just over 50 percent.6  This discrepancy holds even for students classified as high achievers:  A longitudinal study of eighth graders in 1988 found that only 29 percent of those scoring in the top fourth of the group in math--but who were from families with low social and economic status--had completed a bachelor’s degree or more by 2000, while three-fourths of those from families with high social and economic status finished their undergraduate degrees (Fox, Connelly, and Snyder, 2005).7  Surely, high tuition must be one barrier to attending and completing college (Card, 2001; Kane, 1994), but it is not the only barrier (Dynarski, 2005).  Low-income students, in particular, are more likely to come from school and family environments that do a poor job of preparing them for a successful transition to college (Carneiro and Heckman, 2003).  This suggests that supplemental programs to help under-prepared college students could improve eventual college completion rates; unfortunately, the research on the benefits of such programs is mixed, which reinforces the need to improve educational achievement in regular high school classes (Bettinger and Long, 2005; Angrist, Lang, and Oreopoulos, 2006).

Community colleges have made a significant contribution to expanding educational opportunities.  Offering lower costs and more-flexible schedules, they now enroll almost one-half of U.S. undergraduates.  Attendance at one of these institutions is associated with higher wages, even if a degree is not completed.  Evidence suggests that each year of credit at a community college is worth almost as much, in terms of increased earnings potential, as a year at a four-year college.  The average student who entered, but did not complete, community college earns 9 percent to 13 percent more than the average for students who ended their education with high school.  Those who completed a two-year associate degree earn an even larger premium, 15 percent to 27 percent (Kane and Rouse, 1999).  And the earnings of graduates who started at two-year schools and transferred to four-year programs ultimately match those who begin their post-high-school education at four-year institutions (Gill and Leigh, 2003).  Community colleges play a constructive role not only for 18-to-22-year-olds but also for older adults, providing flexible programs for obtaining new skills, specialized training contracted for by individual businesses, remedial education, and adult enrichment.

Adult Education
Today we are increasingly recognizing that education need not, indeed should not, stop at the age of 22.  Economists have long argued that on-the-job training and learning-by-doing are significant components of the acquisition of human capital.  Research shows that the knowledge and experience gained over time through informal and formal learning on the job appear to pay off for workers and accrues particularly rapidly early in their careers (Altonji and Williams, 2005; Topel, 1991).  An extensive survey of firm-sponsored training a number of years ago found that 84 percent of employees received some kind of formal training while working for their current employer, and 96 percent received some type of informal training (Bureau of Labor Statistics, 1996).  With the advance of technology and the need to attract and retain skilled workers, I am certain that business-sponsored training will remain an important component of the management toolkit.

Upgrading skills through continuing education and training outside the job is also important, particularly in an environment in which workers can face displacement from international competition or technological advance.  Recognizing this possibility, many workers continue to acquire formal education later in life than was once traditional.  For example, almost one-fifth of students at post-secondary institutions of all types are at least 35 years old (National Center for Education Statistics, 2007a).  And, for older workers looking to retool their skills, classroom instruction has been shown to be effective.  For example, classroom training for displaced workers is estimated to boost future wages as much as for students of the usual school age, although the overall return on investment for displaced workers is lower because they have fewer remaining working years than do new entrants to the labor force (Jacobsen, LaLonde, Sullivan, 2005).  Similarly, studies of a number of welfare-to-work programs have reported long-term gains for those who participated in intensive basic education and vocational training (Dyke and others, 2006; Hotz, Imbens, Klerman, 2006).  Such results suggest that well-designed programs to assist workers who lose their jobs can contribute to cushioning the effects of globalization and technological change.

Conclusion
Let me close by reiterating that education--lifelong education for everyone, from toddlers to workers well advanced in their careers--is indeed an excellent investment for individuals and society as a whole.  Education fundamentally supports advances in productivity, upon which our ability to generate continuing improvement in our standard of living depends.  If we are to successfully navigate such challenges as the retirement of the baby-boom generation, advancing technology, and increasing globalization, we must work diligently to maintain the quality of our educational system where it is strong and strive to improve it where it is not.  In particular, we must find ways to move more of our students, especially minorities and students from disadvantaged backgrounds, into educational opportunities after high school.  To do that, we must continually experiment, innovate, and evaluate so that we can make rational decisions about what works and what doesn’t in education.  Because the quality of your workforces is so vital to the success of your businesses, you as business executives must participate fully in this process, along with other stakeholders--students, parents, teachers, and policymakers.  I’m encouraged that you are devoting so much energy and thought to this topic at this three-day conference.

© 2008 CNBC.com

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