Below is the text from a speech given by Ben Bernanke on "Education and Economic Competitiveness" in Washington D.C. on September 24, 2007:
When I travel around the country, meeting with students, business people, and others interested in the economy, I am occasionally asked for investment advice. Usually (though not always) the question is posed in jest. No one really expects me to tell them which three stocks they should buy. However, I know the answer to the question and I will share it with you today: Education is the best investment.
Here at the U.S. Chamber Education and Workforce Summit, I don’t really need to convince you that, as an investment, education provides excellent returns, both for individuals and for society. As executives accustomed to making hard cost-benefit decisions, you doubtless assign a high priority to the quality of your business’s workforce because you know that a key--perhaps the key--to your success is the capabilities of the people you employ. To a significant extent, those capabilities are the product of education. Here I am speaking not just of education acquired formally in classrooms before entering the workforce but also of lifelong learning that, yes, includes the formal classroom training that might first come to mind but that also includes early childhood programs, informal mentoring on the job, and mid-career retraining, to name a few examples. And when I speak of capabilities, I mean not only the knowledge derived from education but also the values, skills, and personal traits acquired through education, which are as important as, and sometimes even more important than, the specific knowledge obtained. These include such qualities as the ability to think critically, to communicate clearly and logically, and to see a project through from start to finish.
Today, I would like to offer a broad overview of education and its importance to our economy from my perspective not only as an economist but also as a one-time school board member, the spouse of a teacher, and the parent of two young adults pursuing higher education. Although the United States has long been a world leader in expanding educational opportunities, we have also long grappled with challenges, such as troubling high-school dropout rates, particularly for minority and immigrant youths, and frustratingly slow and uneven progress in raising test scores and other measures of educational achievement. If we are to make progress in meeting these challenges, we must be willing to actively debate their causes and continually experiment and innovate to find solutions.
The Benefits of Education
Education imparts significant benefits both to our society and the individuals who pursue it. Economists have long recognized that the skills of the workforce are an important source of economic growth. Moreover, as the increase over time in the returns to education and skill is likely the single greatest cause of the long-term rise in economic inequality, policies that lead to broad investments in education and training can help reduce inequality while expanding economic opportunity (Bernanke, 2007). But the benefits of education are more than economic. A substantial body of evidence demonstrates that more-highly-educated individuals are happier on average, make better personal financial decisions, suffer fewer spells of unemployment, and enjoy better health. Benefiting society as a whole, educated individuals are more likely to participate in civic affairs, volunteer their time to charities, and subscribe to personal values--such as tolerance and an appreciation of cultural differences--that are increasingly crucial for the healthy functioning of our diverse society (Glaeser, Ponzetto, and Shleifer, 2006; Dee, 2004).
From a macroeconomic standpoint, education is important because it is so directly linked to productivity, which, in turn, is the critical determinant of the overall standard of living. The Bureau of Labor Statistics estimates that, between 1987 and 2006, ongoing improvement in the education and experience of the U.S. workforce contributed 0.4 percentage point per year to the increase in nonfarm business labor productivity (U.S. Department of Labor, 2007), a significant amount. These estimates are however conservative in that they hold fixed other sources of productivity growth, such as the accumulation of various forms of capital and the advance of technology; but workers’ skills certainly contribute indirectly to productivity growth by affecting these other factors as well. For example, the state of technology is affected both by the creativity and knowledge of scientists and engineers engaged in formal research and development as well as by the efforts of skilled workers on the shop floor who find more efficient ways to accomplish a given task. Managers who develop a new business plan or find new ways to use evolving technologies can also be thought of as adding to the “intangible,” or knowledge-based, capital of the firm, which by some estimates is comparable in importance to physical capital such as factories and equipment (Corrado, Hulten, and Sichel, 2006).
For individuals, the economic returns to education are substantial as well. In 2006, the median weekly earnings of college graduates were 75 percent higher than the earnings of high-school graduates. In turn, workers with a high-school degree earned 42 percent more than those without any diploma.1 These differentials are large and have been growing; indeed, they have roughly doubled in the past twenty-five years or so. The source of the widening wage gap between the more-educated and less-educated is nothing more complicated than supply and demand. The demand for more-educated workers has been increasing rapidly, partly because the much more widespread use of computers and other sophisticated information and communication technologies in the workplace has increased the reward for technical skills. The supply of highly educated workers has also risen. At the start of the 1980s, 22 percent of young adults aged 25 to 29 held a college degree or more; by last year, that fraction had moved up to 28.5 percent.2 Nevertheless, the supply of educated workers has not kept pace with demand, thus generating an increased salary premium for education. Because the wages of those at the top of the educational ladder have increased the fastest, increasing our investment in education can benefit not only individuals and society but also might narrow income gaps.