SKILLS, MOBILITY, AND GROWTH

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1 SKILLS, MOBILITY, AND GROWTH Eric Hanushek Ludger Woessmann Ninth Biennial Federal Reserve System Community Development Research Conference April 2-3, 2015 Washington, DC

2 Commitment to Achievement Growth Nation at Risk (1983) Stem a rising tide of mediocrity. George H. W. Bush and all Governors (1989) Bring U. S. achievement up to top of world by Clinton: Goals 2000: All Americans can reach international competitive standards. Bush: No Child Left Behind All students proficient by 2013 Obama: State of the Union 2011 We know what it takes to compete for the jobs and industries of our time. We need to out-innovate, out-educate, and out-build the rest of the world.

3 Importance to the United States Human capital will determine power in the current century, and the failure to produce that capital will undermine America s security. Independent Task Force Report, Condoleezza Rice, co-chair, Council on Foreign Relations

4 Key Issues The importance of knowledge capital Economic impacts of improving schools Distributional implications of minimal skills

5 Cognitive Skills and Economic Growth,

6 Years of Schooling and Economic Growth With quality control Without quality control

7 560 Do these trends in test scores relate to improvements in growth rates? Japan Korea N. Zealand Norway Australia Netherlands UK Finland France Belgium Canada Sweden Germany USA Japan Korea Finland Netherlands N. Zealand Canada Australia UK Sweden France Belgium Norway USA Germany 480 Italy Italy

8 Trends in Growth Rates vs. Trends in Test Scores

9 First in the World by % 10-year reform percent additions to GDP 30% 20% 10% Success by 2000 Total K-12 spending 0% year 10-year reform

10 PISA Math and Science (2009/2012) Singapore Hong Kong-China Korea Finland Japan Chinese Taipei Liechtenstein Estonia Canada Switzerland Macao-China Netherlands Germany Australia New Zealand Poland Belgium Slovenia Ireland United Kingdom Denmark Czech Republic France Norway Iceland Latvia United States Hungary Portugal Luxembourg Spain Sweden Italy Lithuania Slovak Republic Russian Federation Croatia Dubai (UAE) Greece Israel Turkey Serbia Bulgaria Romania Chile Thailand United Arab Emirates Uruguay Costa Rica Malaysia Mexico Kazakhstan Montenegro Jordan Brazil Argentina Albania Tunisia Colombia Indonesia Qatar Peru

11 PISA Math and Science (2009/2012) points Singapore Hong Kong-China Korea Finland Japan Chinese Taipei Liechtenstein Estonia Canada Switzerland Macao-China Netherlands Germany Australia New Zealand Poland Belgium Slovenia Ireland United Kingdom Denmark Czech Republic France Norway Iceland Latvia United States Hungary Portugal Luxembourg Spain Sweden Italy Lithuania Slovak Republic Russian Federation Croatia Dubai (UAE) Greece Israel Turkey Serbia Bulgaria Romania Chile Thailand United Arab Emirates Uruguay Costa Rica Malaysia Mexico Kazakhstan Montenegro Jordan Brazil Argentina Albania Tunisia Colombia Indonesia Qatar Peru

12 Value of Improvement to U.S. I Assuming historical patterns hold Schools improve over 15 years (2030 target) Replace workers over 40 years Present value over 80 years Improvement plan I U.S. reaches Germany Economic Benefits Present value of 340% of GDP Average 7.3% higher GDP/pop for 80 years 14% higher paychecks for all workers every year

13 Value of Improvement to U.S. II Assuming historical patterns hold Schools improve over 15 years Replace workers over 40 years Present value over 80 years Improvement plan II All U.S. students at minimal skills by 2030 Economic Benefits Present value of 153% of GDP Average 3.3% higher GDP/pop for 80 years 6% higher paychecks for all workers every year LOWER BOUND (no improvement above minimal skills)

14 Distributional Issues Individual gains from universal minimal skills Minimal skills 23.5% improve to 420 Increase average earnings by 3.3 percent Reduce standard deviation of earnings by 4.5 percent Lower bound estimates Minimal skills v. Rocket Scientists Both Complementary

15 Improvement is Possible Achievement Growth, % 4.0% 3.0% Estimated annual test-score gains (percent of standard deviation) 2.0% 1.0% 0.0% -1.0% -2.0% Latvia Chile Brazil Portugal Hong Kong Germany Poland Liechtenstein Slovenia Colombia Lithuania United Kingdom Singapore Switzerland Greece Mexico Israel Finland Italy New Zealand Denmark Korea, Rep. Hungary Iran United States Taiwan (Chinese Taipei) Belgium Canada Cyprus Australia Jordan Russian Fed. Indonesia Austria Spain Iceland Japan Netherlands Tunisia Argentina France Ireland Norway Romania Czech Rep. Slovak Rep. Thailand Bulgaria Sweden -3.0%

16 Why has U.S. done so well? Superior economic institutions Early commitment to human capital Best colleges and universities Immigration All advantages are disappearing

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