Investing in Education: The Under-/Overqualified Seesaw

September 26, 2007

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A speech given by Federal Reserve Chairman Ben Bernanke to the Chamber of Commerce this week has gotten us thinking once again about education and its role in industry's future workforce.

"Education provides excellent returns, both for individuals and for society. [Education is] the key — to your success. [It] is the capabilities of the people you employ. To a significant extent, those capabilities are the product of education. [But] not just of education acquired formally in classrooms before entering the workforce but also of lifelong learning that 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," Bernanke said in a speech to the Chamber of Commerce a few days ago.

"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."

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, Bernanke stated. The slower expansion of the labor force, all else equal, implies slower growth of potential output. More schooling for more of the workforce could help cushion the impact of this demographic transition on economic growth by boosting productivity growth.

Workers' skills certainly contribute indirectly to productivity growth by affecting 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.

To aptly fill tomorrow's workforce, National Association of Manufacturers President John Engler wrote at IMT last year, "students have to develop the skills required in the high-tech manufacturing sector, skills that can be measured and certified by schools, employers and independent groups."

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. For older workers looking to retool their skills, classroom instruction has been shown to be effective; 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."

Yet what about the overqualified? We hear it from readers here at the blog: years dedicated to their engineering studies, decades' of hands-on working experience, vigilant upkeep of tech-development training — and now pushed out of their profession.

"The percentage of employees who are overqualified for their jobs, as defined by having at least three more years of education than is required by the job they hold, is about three times greater than the proportion of people who are underqualified using the same criterion. And the overqualified proportion has more than doubled over the past generation," Human Resource Executive recently explained, pointing to Steve B. Vaisey's Education and Its Discontents, 1972-2002: Overqualification in America, which was published last December.

Plus, as HR Exec noted, we don't know what skills and knowledge future workers will need, so it is impossible to ensure they learn the right ones.

Of course, job requirements are changing every year (month? week? day?), so how do you prepare "tomorrow's workforce" for a future that will very likely be far different than what we expect?

Better-educated workers are likely better prepared to adapt — to new technologies, to new processes, etc. — as they develop. Our ability to reap the benefits of globalization will depend on the flexibility of our labor force to adapt to changes in job opportunities, in part by investing in the education and training necessary to meet the new demands. The demand for engineers, for example, is felt not only in the U.S., but also in Europe.

"The IEEE and Association for Electrical, Electronic and Information Technologies in Germany are joining engineering societies, industry representatives, pre-university education leaders, institutions of higher learning and policy makers to discuss strategies for addressing the looming shortages of engineers and technical educators worldwide," according to Electronic Design.

To upgrade knowledge among current workers, the National Center on Education and the Economy recommends "creating personal competitiveness accounts — a GI Bill for our times.

"The cost of this new GI Bill comes to about $31 billion per year ... it is probably the single most important investment we can make in our economic future."

Resources

Education and Economic Competitiveness Transcript: Ben Bernanke Sept. 24, 2007

The Future Mismatch of Skills by Peter Capelli Human Resource Executive, July 23, 2007

IEEE to Push for More Engineers and Educators Worldwide by Sam Davis Electronic Design, June 4, 2007

Executive Summary Tough Choices or Tough Times The National Center on Education and the Economy, 2007

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