Study: 20 Mil More U.S. Grads Could Halt Income Inequality

June 27, 2011 – Adding 20 million post-secondary educated workers to the U.S. economy by 2025 could help close the gap between the rich and poor, according to a study by Georgetown’s Center on Education and the Workforce (CEW).

Adding these workers, the study says, would boost the GDP by $500 billion, add more than $100 billion in additional tax revenues and stop and begin to reverse the growth of income inequality.

“The demand for college-educated workers is growing much faster than the supply,” says CEW director Anthony Carnevale, who wrote the report with Stephen Rose, CEW’s senior economist and research professor.  “In recession and recovery, we remain fixated on the high school jobs that are lost and not coming back.”

Undereducated America

CEW’s report, “The Undereducated American,” suggests the U.S. will need 15 million new bachelor’s degree holders as well as 4 million workers with non-degree postsecondary credentials and 1 million with associate’s degrees.

“Critics will respond that we already have too many college graduates, and that it is irresponsible to invest more in postsecondary education during a time when many graduates are unemployed,” the report states.

But it also notes “This is not the first time critics have complained that too many young people were going to college.”

Critics Were Wrong

Carnevale and Rose acknowledge that Harvard economist Richard Freeman, who published The Overeducated American in 1976, argued that investing in college was wasteful and that the increase in college attendance by baby boomers would lower the earnings of college graduates in the future.

“At that time, using the best available evidence and sound economic reasoning, his conclusion seemed reasonable,” the report explains, adding that the media questioned the value of college in the midst of the recession in 1981, with labor officials stating that the country would turn out upwards of 200,000 more graduates than it needed.

“It turned out that the critics’ predictions were startlingly shortsighted,” the report explains. “Instead of declining, earnings for college-educated workers grew rapidly throughout the 1980s and 1990s, outpacing growth in earnings of their less-educated counterparts. The gap between these relative wages widened significantly.

“This trend remained strong for more than 20 years, and technology has accelerated the trend, as unskilled labor is increasingly automated and employers look for workers who can productively utilize the latest technological products.”

Action vs. Inaction

“The United States has been under-producing college-going workers since 1980,” the report explains. “Supply has failed to keep pace with demand, and as a result income inequality has grown precipitously.”

If America doesn’t add these workers, the report states, income inequality will get worse, with the disparity between the wages of college-educated workers and that of high school-educated workers increasing from 74 percent to 96 percent.

Carnevale and Rose say adding the 20 million workers would increase wages for people with high school diplomas by 24 percent. Wages for those with associate’s degrees would climb by 15 percent, and workers with college degrees would see their incomes go up by 6 percent.

“It will make our level of educational attainment comparable with other developed nations, help us meet the economy’s need for efficiency, and reverse the growth of income inequality,” the report explains.

The full report can be downloaded from the CEW website.