Education for What: The Rising Demand for Skill and the Decline of Manual Labor

Stephen J. RoseState Higher Education Executive Officers

July 12, 2012

Most Americans Think That The Expansion of Higher Education Has Had A Lot To Do With Our Strong Economic Growth

1929

1932

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1971

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2001

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2007

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Real GDP Per Person, 1929-2008, 2008 Dollars

More Education Results in Higher Earnings

Less than HS

HS Diploma

Some college, No Degree

Associates Degree

Bachelor's Degree

Master's Degree

Doctoral Degree

Professional Degree

1,000,000 2,000,000 3,000,000 4,000,000

973,000

1,304,000

1,547,000

1,728,000

2,268,000

2,671,000

3,252,000

3,648,000

Lifetime Earnings by Highest Educational At-tainment, 2009 Dollars

The Premium For Getting A College Degree Has Grown In the Last Thirty Years Because of Rising Demand For College-Level

Skills

1915 1940 1950 1960 1970 1980 1990 2000 20050%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

89%

65%

37%

49%

59%

48%

66%

78%81%

College Wage Premium Over High School, 1915-2005

If We Don’t Increase The Number of People with Certificates and College Degrees, Our Economy Will

Underperform

Almost 20% gap

The Rise in Managerial and Professional Jobs, Three Occupation Tiers, 1960-2008

1960

1969

1971

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1981

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1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

15

20

25

30

35

40

45

Managers and Professions

Less Skilled Blue-Collar, Sale clerks, and Service

Skilled Blue Collar, Supervisors, and Clerical

The economy has shifted from manufacturing to office work and high end services, areas that benefit more from greater skills associated with postsecondary education.

1960

1969

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0

5

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50Shares of Functional Employment,1960-2008

Office, Public Administration&Finance

Industrial Production, Construction,&Transportation

Retail and Low-Skill Services

Education, Health Care, and communication

Agriculture, Mining, & Timber

75% of Earnings Go to Office and High-Skill Workers

1.1%12.2%

11.3%

22.1%

53.2%

Share of Total Earnings by Functional Area, 2009

FarmBlue CollarLow-Skill ServicesHigh-Skill ServicesOffice

Understanding Structural Change by Deconstructing Value Chains over Time

Using Input-Output Tables to show complete “value chains”--the direct and indirect inputs needed to produce final output.

Technological change means that it takes a smaller share of our resources to produce common goods and services. For example, in 1947, food and clothing were 43% of what we consumed; the comparable figure in 2007 was 16%.

The Changing Composition of What We Consume, 1947 - 2007

1947 20070%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Business ServicesEducationRecreationHeath CareTransportationPublic Administration and ServicesClothingHousingFood and Drink

Changing Shares by Type of Consumption,

1947-2007

Food

and

Drin

k

Cloth

ing

Tran

spor

tatio

n

Housin

g

Publ

ic Adm

inist

ratio

n an

d Se

rvice

s

Recre

atio

n

Educ

atio

n

Busin

ess Se

rvice

s

Heath

Car

e

-19.1%

-7.9%

-1.4%-0.1%

3.0% 3.4% 3.8%5.3%

13.0%

Changing Educational Composition in Producing Exports, 1967-2007

No HS/GED

HS or GED

AA and Some college, no four-year degree

Four-year degree

Graduate degree

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

20071967

Changing Functional Composition in Producing Exports, 1967-2007

Farm

Factory and other blue collar

Low-skill services and Retail

High-skill services

Office and Finance

0% 10% 20% 30% 40% 50% 60%

20071967

Changing Occupational Composition in Producing Exports, 1967-2007

Managers and Professionals

Good medium skill jobs

Less skilled jobs

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

20071967

Rising Demand for College-Educated Workers, and Triple Whammy for Manual

WorkersFirst, final output has shifted from goods

production (food, clothing, transportation) to services (health care, business services, and education).

Second, within each activity, the industrial share of raw material and manufacturing industries needed to produce final output has declined: e.g., in 1967, 26% of the value of food and drink came from farming and food manufacturing industries; in 2007, the comparable figure was 13%.

Third, within manufacturing industries (and all other industries), the share of production workers out of total employment has declined.

In the Future, Most Young People Will Need Some Form of Postsecondary

Education The wages of those with a HS diploma or less

have been falling. A growing option is occupationally-focused

certificate from a Community College or private for-profit school.

Placement matters: Those with a certificate earn 37% more if they work in an occupation for which they have been trained.

In two- and four-year colleges, there have been fewer students majoring in liberal arts and the humanities because of low earnings of recent college graduates.

The earnings premium for getting a BA remains at a high level

More BA graduates are getting a graduate degree, and more are getting jobs in business and not just education or health care.

DON’T

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