Going for the Gold
February 16, 2015
With the fabled Iowa caucuses and New Hampshire primary a little less than a year away, America’s presidential campaign has begun. Numerous candidates are already jockeying for money and staff as they prepare to formally announce. Amid this jostling, one wonky issue likely to make its way into both Republican and Democratic candidate forums is income inequality.
That is a mixed blessing, because presidential campaigns typically bring more heat than light to complex issues like income inequality. Beyond talk about tinkering with the tax code, hiking the minimum wage, and curtailing immigration, we hope candidates will focus on perhaps the most potent long-term remedy to income inequality: education.
A recent report by the Washington Center for Equitable Growth (WCEG) persuasively documents how improved educational performance by American students will foster U.S. economic growth that is both higher and more widely shared. The report was issued against the backdrop of two troubling features of the U.S. economic landscape.
The first is the growing gap between rich and poor. This is not a new trend, but it has intensified in recent years. Upper-income Americans have been achieving strong economic gains (UC-Berkeley economist Emmanuel Saez says 95 percent of the income gains from 2009-2012 went to the top 1 percent), while the average American household earned less, in inflation-adjusted terms, in 2012 than in 1989. Last year’s celebrity treatment in New York of “rock star economist” Thomas Piketty, author of an influential book on income equality, underscores the resonance of this issue.
The other troubling feature of the U.S. economy is the so-called “achievement gap” between students from low-income households and those from higher-income households. In short, students from higher-income households score higher on various standardized tests and complete more years of formal education. The nexus between educational achievement and earning potential—a 2012 Georgetown University study found that the lifetime earnings of college-educated workers will be 84 percent higher than those who only have a high school diploma—means that the achievement gap helps drive the income gap.
But these two gaps are not immutable according to some law of physics. Indeed, the WCEG report carefully spells out the estimated benefits to be gained from different levels of educational improvement in America—using the pithy organizing device of striving for different Olympic medals.
The “bronze” outcome would see U.S. students matching the average math and science scores of students in the 34 advanced countries belonging to the Organization for Economic Cooperation and Development. The resulting better-educated, more-productive workforce would drive a 1.7 percent increase in gross domestic product (GDP) by 2050, which translates into a $2.5 trillion cumulative increase in present-value GDP. To win “silver,” U.S. students would need to match the Canadian average in math and science. The reward would be a 6.7 percent GDP increase by 2050, translating to a $10 trillion cumulative increase. And to win “gold,” U.S students would need to match the math and science scores of the most advantaged quarter of today’s U.S. students. Bringing home the gold would lead to GDP being 10 percent higher by 2050—a cumulative present-value gain of $14.7 trillion, a staggering 84.4 percent of 2014 U.S. GDP.
And in any of these medal-winning futures not only would U.S. GDP be substantially larger, its resulting income distribution would be more equal as well because hitting these educational goals would entail narrowing the achievement gap. Those in the lowest quartile of the U.S. economy would see significant increases in their lifetime earnings: 4.3 percent under the “bronze” scenario, 10.9 percent for “silver,” and 22 percent for “gold.” While raising test scores and improving educational outcomes is much of the battle, no less important is ensuring that students develop the skills and knowledge needed for occupations that offer high wages and contribute to the country’s long-term growth. Here the STEM disciplines—science, technology, engineering, math—offer the most potential.
The WCEG report is hardly the first to document the high price connected to America’s under-performing students. A McKinsey study published in June 2009 found that the achievement gap between U.S. students and those in other countries cost the U.S. economy as much as $2.3 trillion in economic output in 2008. In the nearly six years since this McKinsey study and this WCEG work America has made almost no progress on closing its achievement gap. About all the country has produced here is more studies documenting the gap’s magnitude and cost.
The link between education, income gains, and economic growth goes to the heart of America’s economic future. This is why they are worthy topics for debate among presidential aspirants—despite the fact that the gains for educational investments and reforms today mostly won’t be realized until far beyond any next presidential term. Here is hoping that candidates from both parties advance gold-medal ideas between now and November 2016—and that the voters listen and agree to go for the gold.
Articles © 2015 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2015 Trustees of Dartmouth College. All rights reserved.