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Educate for Growth

February 16, 2012 5 minute Read by Matthew Denhart

Education is good for an economy. One estimate suggests that increasing the quality of educational achievement in a country could increase economic growth by a full percentage point per year. Data from the Bureau of Labor Statistics show that staying in school is worth it for individual Americans. In 2010, median earnings for full-time American workers age 25 and over stood at $782 per week. As one might expect, earnings were lower for those with less educational achievement but improved for each increased level of attainment. Median weekly earnings for workers with less than a high school diploma were less than $450 a week. Workers with a bachelor’s degree earned $1,038 a week, nearly a third more than the national median for all workers. Those with a master’s degree earned $1,272, while those with a Ph.D. made $1,550 each week. At the top of the earnings pyramid were professional degree holders (such as doctors and lawyers), who had weekly earnings of $1,610. In addition to higher earnings, lower unemployment rates are also evident for more highly educated Americans. The BLS reports that the average unemployment rate for all Americans was 8.2% in 2010. Yet, for workers with less than a high-school diploma, the rate was nearly 15%. The unemployment rate fell for each higher level of education achieved, standing at 5.4%, 4.0%, and 2.4% for bachelor’s, master’s and professional degree holders, respectively. Doctoral degree holders, with an unemployment rate of 1.9%, were the least likely to be without a job. State-level data also suggest that high educational achievement correlates positively with economic well-being and growth — not just for individuals but for the states in which they reside. It is instructive to compare educational attainment levels for the 10 states in 2010 with the highest per capita income levels against the 10 states with the lowest. The high-income group includes states like Connecticut, Massachusetts, and Virginia, all of which had a bachelor’s degree attainment rate of at least 35% in 2010. Meanwhile, no state in the low-income group (including states such as Mississippi, Idaho, and Kentucky) had more than 29% of its population possessing a college degree. Overall, the high-income group of states had an average bachelor’s degree attainment rate that was more than 10 percentage points higher than that of the low-income states (32.4% compared to 22.3%). Clearly, there are many factors beyond just educational achievement levels that determine income levels and rates of economic growth. However, when isolating the effect of education using regression analysis, studies have found that education itself is a significant and positive factor for growth. In a study published by the OECD, the Harvard economist Robert Barro analyzes data on education and economic growth for more than 40 countries. Unlike many other analyses, his study separates the effects of the quantity (measured by the number of years in school) and the quality (measured by internationally comparable test scores) of education on growth. Barro finds that both are significant determinants of economic growth. Specifically, he estimates that an increase of one standard deviation in students’ scores on internationally comparable science tests would raise a country’s economic growth rate by 1.0% per year. The Stanford economist Eric A. Hanushek and the University of Munich economist Ludger Woessmann report similar findings. In their paper, “The High Cost of Low Educational Performance,” they demonstrate that if the U.S. improved its primary and secondary school achievement to equal the level of Finland, America’s long-run economic growth rate would increase by more than one full percentage point. In present-value terms, this is a reform worth more than $100 trillion. The bottom line is that economies rely on the quality of their workforce. Higher rates of educational achievement increase workers’ skills, making them more dynamic and productive.  For the American economy to thrive in the 21st century, an educated, innovative and entrepreneurial work force is essential.


Author

Matthew Denhart
Matthew Denhart

Matthew Denhart is an expert on immigration policy and is the author of the Bush Institute’s America's Advantage: A Handbook of Vital Immigration and Economic Growth Statistics, now in its third edition. He currently serves as executive director of the Calvin Coolidge Presidential Foundation and is a founder of the Coolidge Scholars Program which provides full-ride merit scholarships to America's most promising college students. A summa cum laude graduate of Ohio University, Denhart has written and spoken widely on a variety of policy topics including the economics of higher education, labor, and taxes. He has contributed articles to numerous national publications including The Wall Street Journal, Forbes.com, CNN Opinion, and Bloomberg View. 

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