Michael Hicks: The 21st Century Fund and the future of schooling

I’ve written several columns and delivered several talks on the dire consequences that the collapse in college attendance has for Indiana. To remind readers, Indiana is now ranked 42nd in educational attainment.

Back in 2015, we had pushed college attendance up to a record 65% of recent high school graduates, about 8% behind the national average. We’ve now dropped to 53% of high school grads heading off to college, well below the national average. So, in the race for educational attainment, Indiana is well behind the pack and slowing down.

However, as I try to explain the problem, someone in the audience always makes the comment that it is possible to make a good living without a college degree. Of course, that is factually true. There are many fine careers one can pursue without attending college. Take the trades, for example, where the pay is a reasonably good middle-class salary.

Indiana today has about 14,000 electricians, 12,000 plumbers, and 14,600 carpenters and about 2,000 helpers of all kinds. Altogether, this is less than 43,000 workers, which is almost exactly the number of these occupations a decade ago. If we account for retirements, we’d have job openings for about 5% of these jobs. And, if we assumed there really are too few people working in the trades, let’s add another 10%.

These retirement and shortage estimates are much too high, but assuming they are true, we’d need about 6,300 more tradespeople each year. However, roughly 35,000 kids will turn 18 this year and have no college plans. The trades have nowhere near the demand for workers that Indiana’s educational system produces.

To make it even clearer, nationwide, there have been no net new jobs created for workers without a college degree in more than 30 years. Here in Indiana, just since 1998, jobs for high school graduates have declined by 57,000 workers, while jobs for college graduates have risen by 106,000 workers. This is nearly a perfect illustration of something economists call The Fallacy of Composition.

It is absolutely true that an individual can find well-paying work without a college degree, but that doesn’t hold for everyone. That is the fallacy. In fact, few young people who do not attend college will move into the ranks of the middle class. That surely isn’t the world most of us would prefer, but it is the one we have, and there are no signs of change.

However, I am not mostly concerned with the individual effects of low educational attainment. Instead, I worry about the regional effect on Indiana and our counties and cities. The reason for this is that education has a spillover effect, and reduced levels of educational attainment have two very damaging influences on city, county and state economies.

The first concern is simply that places with above-average shares of educational attainment outperform everywhere else. Part of this is due to the sorting of individual families, but there is a spillover effect. The empirics are compelling. Increasing the share of adults with a bachelor’s degree in an Indiana county by just 1% raises annual salaries for high school graduates in that county by more than $1,000 a year. That is the equivalent of more than an extra week’s earnings each year. This is true across the nation and is alone a huge argument for boosting educational attainment.

The second big concern is inequality. Higher levels of educational attainment tend to reduce lifetime inequality between workers. The reason for this is pretty simple. Here in the United States, and across the developed world, there is rising demand for tasks that require higher levels of education. Every business has three choices on how to handle the tasks. They can hire workers with higher levels of educational attainment, they can buy equipment that automates the task, or they can outsource the task.

In cities or counties with an abundant share of well-educated workers, we observe growth of wages and employment for all types of workers. The reason for this is that there always are tasks across the skill spectrum that people must perform. In places with a high share of educated workers, the gap between college and non-college wage shrinks. But, in places with an excess supply of less-educated workers, the wage gap grows.

The consequences of growing educational attainment are straightforward. Places with higher levels of college graduates grow faster, and they experience less income inequality than places with low levels of educational attainment. It really is that simple.

Indiana’s experience with worsening educational attainment has yet to be fully felt. We peaked in 2015, and the cohort of students included in that peak are now moving into their mid-20s. The sting of this decline will be acute, and sadly will continue to appear in the economic data for a half-century. Still, there is room for some optimism. The state legislature took two dramatic steps this year that hold much promise.

The first step is the automatic enrollment of eligible students in the 21st Century Scholarship program. In years past, only about half of eligible kids had enrolled. However, 81 % of those enrollees attended college. For many reasons, it is unlikely that we’ll see this sort of success with the other half of eligible kids, but it is the single most discrete step we can take to make college more accessible.

The second step is the ongoing reinvention of high school. At first, I was dubious about this. Indiana’s educational policy has for too long de-emphasized college preparation and attendance, and this plan sounded like more of that same monumental policy mistake. Fortunately, the information I have seen appears to reverse the course. The focus will now be heavily on post-secondary education, with exposure to different occupations.

It is good to reserve judgment until further development, but both legislative actions are important towards reversing the trend of declining educational attendance in Indiana. They should have all our support. Still, I have two notes of caution.

The first is that part of the declining educational attainment in Indiana is due to declining resources. There are no meaningful set of reforms that can be accomplished without more tax dollars spent on education. The sooner that truth is understood, the better off we’ll be.

The second is simply that we need to do a better job communicating the importance of education to our young people. It is true that you don’t need a college degree to be successful. If you are very smart, industrious and lucky, you’ll do just fine without one. For the rest of us, a middle-class income mostly means finishing college. We’d all be wise to ignore folks who say otherwise.

Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics in the Miller College of Business at Ball State University. Send comments to [email protected].