by Gary Griffin
Education is the key to changing the course and direction of America’s future. As an institution, it is the reflection of American society. It is the window of opportunity that leads from one generation to the next. This window is rapidly closing. To lose a generation is unacceptable, but dropout rates indicate that is happening. While the above scenario may never happen, all indicators point in this direction. Education is how we keep America great and strong, and get our next generation prepared for life in the information society and global economy. Public education must recognize the importance of its role in the information society and make the changes that are necessary in order to get the next generation where it needs to be. The gap in economic disparity continues to widen, and if public education does not change then it will only get wider. Woe unto America. However, the blame and responsibility doesn’t rest on the shoulders of education alone. The whole of society, including our political leaders, must put social policies into place that facilitates this transition.
THE LACK OF EDUCATION AND THE UNEMPLOYABLE
The rise of the high school movement in the beginning of the twentieth century was unique in the United States, in that high schools were implemented with property-tax funded tuition, openness, no exclusivity, and were decentralized. The academic curriculum was designed to provide the students with a terminal degree. The students obtained general knowledge (such as mathematics, chemistry, composition, etc.) best applicable to the high geographic and social mobility in the United States. The provision of the high schools accelerated with the rise of second industrial revolution industry. The increase in office white collar and skilled blue-collar work in manufacturing reflected in the high demand for high schools.
In the twenty-first century, the educational attainment of the U.S. population was similar to that of many other industrialized countries, with the vast majority of the population having completed secondary education and a rising number of college graduates that outnumber high school dropouts. As a whole, the population of the United States is becoming increasingly more educated. Postsecondary education is valued very highly by American society and is one of the main determinants of class and status. As with income, however, there are significant discrepancies in terms of race, age, household configuration, and geography. Overall the households and demographics featuring the highest educational attainment in the United States are also among those with the highest household income and wealth. Thus, while the population of the United States is becoming increasingly educated on all levels, a direct link between income and educational attainment remains.
In 2007, Americans stood second only to Canada in the percentage of thirty-five- to sixty-four-year-olds holding at least two-year degrees. Among twenty-five- to thirty-four-year-olds, the country stands tenth. The nation stands fifteen out of twenty-nine rated nations for college completion rates, slightly above Mexico and Turkey. The U.S. Department of Education’s 2003 statistics suggest that 14 percent of the population (or thirty-two million adults) have very low literacy skills. However, this is but one picture of education in America.
We cannot separate primary from secondary education. We cannot separate secondary from postsecondary. We cannot separate the education experiences in high school or college from the skills needed in workforce. While there may be many reasons to get an education, one of the realities of education is that it teaches skills and transfers knowledge from the current generation to the next in order to prepare them to enter into adult life as a productive member of American society. From this view, education is not a self-betterment proposition; it’s an economic proposition. When we lose those individuals before they’ve completed their high school graduation, it is a serious blow to the future of America.
“High dropout rates are a silent epidemic afflicting our nation’s high schools. The dropout epidemic in the United States disproportionately affects young people who are low-income, minority, urban, single-parent children attending large, public high schools in the inner city. But the problem is not unique to young people in such circumstances. Nationally, research puts the graduation rate between 68 and 71 percent which means that almost one-third of all public high school students in America fail to graduate.”135 In this same report, of those they interviewed, the top reason given for leaving schools was that classes were not interesting.136 Additionally, another reported statistic was that 81 percent of those dropouts interviewed said that what would’ve improved the chances of staying in school were opportunities for real-world learning to make classes more relevant. This report is telling because it illustrates that what is going on in the classroom is far removed from what is going on around students. That is, the classroom experience doesn’t reflect the real-world experience.
“Over a million of the students who enter ninth grade each fall fail to graduate with their peers four years later. In fact, about seven thousand students drop out every school day. Perhaps this statistic was acceptable fifty years ago, but the era in which a high school dropout could earn a living wage has ended in the United States. Dropouts significantly diminish their chances to secure a good job and a promising future. Moreover, not only do the individuals themselves suffer, but each class of dropouts is responsible for substantial financial and social costs to the communities, states, and country in which they live.”137 The cost of dropouts to our nation is extremely high—a cost that we cannot afford over the next decade. How high? “Dropouts from the Class of 2008 alone will cost the nation more than $319 billion in lost wages over the course of their lifetimes.”138
On top of the growing epidemic of losing the next generation of Americans by virtue of the fact of that they are dropping out of school, America is now in a deep recession with millions of jobs lost through 2008 and 2009. Unemployment rates have also reached epidemic proportions. At the end of 2009, the unemployment rate hit 10 percent. This is a level not seen in a long time, and described as the worst recession since the Great Depression.
If assessed at a high level, the whole story is not apparent. A little history is necessary to put unemployment into its proper context. This helps to demonstrate the connection between politics, economics, and education in America. It helps to explain why we are where we are today.
Unemployment occurs when a person is available and willing to work but currently without work. The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed. The unemployment rate is also used in economic studies and economic indices such as the United States’ Conference Board’s Index of Leading Indicators as a measure of the state of macroeconomics. Mainstream economics believes in the main that unemployment is inevitable and a necessary evil to prevent inflation; this is disputed by some schools of heterodox economics. The causes of unemployment are disputed. Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and services in the economy (cyclical unemployment). Others point to structural problems and inefficiencies inherent in labor markets; structural unemployment involves mismatches between demand and supply of laborers with the necessary skill set, sometimes induced by disruptive technologies or globalization. Classical or neoclassical economics tends to reject these explanations and focuses more on rigidities imposed on the labor market from the outside such as unionization, minimum wage laws, taxes, and other regulations that may discourage the hiring of workers (classical unemployment). Yet others see unemployment as largely due to voluntary choices by the unemployed and the time it takes to find a new job (frictional unemployment). Behavioral economics highlights phenomena such as sticky wages and efficiency wages that may lead to unemployment.
There is also disagreement on how exactly to measure unemployment. In The General Theory of Employment, Interests, and Money, Keynes argued that neoclassical economic theory did not apply during recessions because of private investor timidity. In consequence, people could be thrown out of work involuntarily and not be
able to find acceptable new employment. This conflict between the neoclassical and Keynesian theories has had strong influence on government policy. The tendency for government is to curtail and eliminate unemployment through increases in benefits and government jobs, and to encourage the job seeker to both consider new careers and relocation to another city. Involuntary unemployment does not exist in agrarian societies nor is it formally recognized to exist in underdeveloped but urban societies, such as the megacities of Africa and of India/Pakistan. In such societies, a suddenly unemployed person must meet his or her survival needs by getting a new job at any price, becoming an entrepreneur, or joining the underground economy of the hustler.
A direct demand-side solution to unemployment is government-funded employment of the able-bodied poor. According to classical economic theory, markets reach equilibrium where supply equals demand, and everyone who wants to sell at the market price can. Those who do not want to sell at this price do not; in the labor market, this is classical unemployment. Increases in the demand for labor will move the economy along the demand curve, increasing wages and employment. The demand for labor in an economy is derived from the demand for goods and services. If the demand for goods and services in the economy increases, then the demand for labor will increase, increasing employment and wages. Monetary policy and fiscal policy can both be used to increase short-term growth in the economy, increasing the demand for labor and decreasing unemployment.
The labor market is not efficient. Minimum wages and union activity keep wages from falling, which means too many people want to sell their labor at the going price but cannot. Supply-side policies can solve this by making the labor market more flexible. These include removing the minimum wage and reducing the power of unions. Other supply-side policies include education to make workers more attractive to employers. Supply-side reforms also increase long-term growth. This increased supply of goods and services requires more workers, increasing employment. It is argued that supply-side policies, which include cutting taxes on businesses and reducing regulation, create jobs and reduce unemployment.
Economists distinguish between various types of unemployment, including cyclical unemployment, frictional unemployment, structural unemployment, and classical unemployment. Frictional unemployment occurs when a worker moves from one job to another. While he searches for a job he is experiencing frictional unemployment. Classical or real-wage unemployment occurs when real wages for a job are set above the market-clearing level, causing the number of job seekers to exceed the number of vacancies.139
Cyclical and structural unemployment are most important to this discussion. Cyclical or Keynesian unemployment, also known as demand-deficient unemployment, occurs when there is not enough aggregate demand in the economy. It gets its name because it varies with the business cycle, but it can also be persistent, as during the Great Depression. This is caused by a business cycle recession and wages not falling to meet the equilibrium level. Cyclical unemployment rises during economic downturns and falls when the economy improves. Keynesians argue that this type of unemployment exists because of inadequate effective aggregate demand. Demand for most goods and services falls and less production is needed and consequently fewer workers are needed. When wages do not fall to meet the equilibrium level, mass unemployment results.140 Some consider this type of unemployment one type of frictional unemployment in which factors causing the friction are partially caused by some cyclical variables. For example, a surprise decrease in the money supply may shock participants in society. In this case, the number of unemployed workers exceeds the number of job vacancies, so that if even all open jobs were filled, some workers would remain unemployed. This kind of unemployment coincides with unused industrial capacity (unemployed capital goods). Keynesian economists see it as possibly being solved by government deficit spending or by expansionary monetary policy, which aims to increase nongovernmental spending by lowering interest rates.141
Structural unemployment is caused by a mismatch between jobs offered by employers and potential workers. This may be due to geographical location, skill variation, and many other factors. Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers might lack the skills needed for the jobs or be in the wrong part of the country or world to take the jobs offered. If such a mismatch exists, frictional unemployment is likely to be more significant as well. For example, in the late 1990s there was a tech bubble, creating demand for computer specialists. In 2000–2001 this bubble collapsed. A housing bubble soon formed, creating demand for real estate workers, and many computer workers had to retrain to find employment. Another example in developed countries is the present combination of the shortage of nurses with an excess labor supply in information technology. Unemployed programmers cannot easily become nurses because of the need for new specialized training, the willingness to switch into the available jobs, and the legal requirements of such professions.
Structural unemployment is a result of the dynamics of the labor market and the fact that these can never be as flexible as, e.g., financial markets. Workers are left behind because of costs of training and moving (e.g., the cost of selling one’s house in a depressed local economy), plus inefficiencies in the labor markets such as discrimination or monopoly power. Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.
Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while their skills (including job-searching skills) become rusty and obsolete. Problems with debt may lead to homelessness and a fall into the vicious cycle of poverty. This means that they may not fit the job vacancies that are created when the economy recovers. The implication is that sustained high demand may lower structural unemployment. This theory of persistence in structural unemployment has been referred to as an example of path dependence or hysteresis.
Much technological unemployment (e.g., due to the replacement of workers by machines) might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labor productivity mean that fewer workers are needed to produce the same level of output every year. The fact that aggregate demand can be raised to deal with this problem suggests that this problem is instead one of cyclical unemployment. The demand side must grow sufficiently quickly to absorb not only the growing labor force but also the workers made redundant by increased labor productivity. Otherwise, we see a jobless recovery such as those seen in the United States in both the early 1990s and the early 2000s.
From their actions, it appears that our government leaders see the current economic crisis as a Keynesian equation that can be solved by social policies that are based on assumptions from the Keynesian economics. I argue that the current economic crisis is not cyclical but structural. The unemployment we are seeing is a result of the misalignment of the major social structures of American society. Moreover, the cyclical approach being taken by our leaders in government around monetary and fiscal policies doesn’t factor in the affect of a retiring baby boom generation. For example, we may have lost seven million jobs in 2009, but with almost one-third of the population ready to retire over the next decade, that still leaves over seventy million jobs to fill. We don’t have the people to fill those jobs.
Though many people care about the number of unemployed, economists typically focus on the unemployment rate. This corrects for the normal increase in the number of people employed due to increases in population and increases in the labor force relative to the population. The unemployment rate is expressed as a percentage and is calculated as follows:
I argue that if we include baby boomers who are retired in this formula that the unemployment rate esc
alates to over 40 percent. From a social standpoint, retirement is not the same as unemployment. As I demonstrate in chapter 10, it is the same from an economic perspective, however. From this vantage point, the retirement of the baby boomers will have a devastating effect on the economy because productivity will bottom out. The American dollar is based on our productivity in terms of the value of goods and services produced in America as measured by Gross Domestic Product or GDP. 142
THE BABY BOOM GENERATION