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More College Grads Equals Faster Economic Growth

Author: Peter R. Orszag, Adjunct Senior Fellow
February 13, 2013
Bloomberg.com

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As the U.S. population ages, and with the effects of the financial crisis promising to linger for some time, economic growth will be lower than we would like. This is why the federal government needs to do more to help Americans earn college degrees.

For much of the 20th century, the U.S. benefited from rapidly rising educational levels, as the economists Claudia Goldin and Lawrence F. Katz of Harvard University showed in their 2008 book, "The Race Between Education and Technology." Over the past 30 years, however, educational attainment has risen much more slowly. From 1960 to 1985, the share of adult Americans with at least a college degree more than doubled, to 19 percent from less than 8 percent. From 1985 to 2010, though, the share rose by only about half, to 30 percent. This slowdown has exacerbated inequality and crimped growth.

If the increase had continued at the same rate as before 1985, about half the adult population today would have at least a college degree. More graduates would mean lower inequality, because the wage premium for a college degree would be reduced by the additional supply. And it would mean higher national income, because better-educated workers are, on average, more productive.

So it is important to ask what we can do to raise college graduation rates. It may be useful, in turn, to break that question down into the three stages of attaining a degree: high- school graduation, college enrollment and college completion. For now, I would like to focus on the first two stages. (A future column will examine the issue of college completion, including innovations that could reduce the cost of attendance.)

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