Abby Joseph Cohen, former Chief Investment Strategist at Goldman Sachs and now President of their Global Market Institute studies long-term economic scenarios. "The most important challenge confronting the US economy is the education we provide our workers".
To be sure, Cohen cites the federal budget deficit (which existed in all but five of the last 45 years), as a concern. Federal government spending is now 24% of GDP. Nearly 60% of that is for entitlement spending, which neither political party seems willing to cut. More ominously, nearly three quarters of entitlement spending is for healthcare, which surged 7x as a percentage of GDP since 1960. "The deficit is important. However, my greatest concern is the quality and productivity of our work force. We need to align the education system with the knowledge economy".
Currently, that alignment is not happening in K-12 education. Spending per student is higher than any other of the 34 OECD countries (except Luxembourg) but American 15 year olds rank only 17th in Science and 25th in Math. Even worse, the US has made no headway in lowering its high school drop-out rate, which at 25% is more than 2.5x most other developed economies. Amazingly, in the same study American students scored #1 for "Confidence".
OECD graphic from "USA Inc." by Mary Meeker, KPCB
"The American economy will see a negative impact on productivity if we do not better equip our workforce", says Cohen. For example, the effect of the 9.1% unemployment rate is disparate. Among workers with a Bachelors Degree, unemployment is 4%. That number soars to 11% for those with a high school diploma and quadruples for those never finishing high school. The problem may be even worse than these figures would suggest. U-6, the government''s official measurement of labor under-utilization, stands at 16.3% nationally and an incredible 21.8% in California. Unlike previous downturns, the average time the unemployed are now out of work has climbed to 40 weeks
Cohen is joined by other prominent economists, such as Nobel Prize winner Gary Becker in emphasizing the importance of improving the K-12 education system.
Her recommendation is for greater educational focus on science and math. Appointed by President Obama to a bi-partisan Innovation Advisory Board, her role is to help address policy toward improving STEM (Science, Technology, Engineering and Math) education. While 40% of American students focused on STEM subjects in the post-war period, that number today is less than 15%.
"It is the income, productivity and contribution of each worker that ultimately contributes to the wealth of a nation. Improving the size of the CAPABLE labor force and labor productivity is the magic potion behind long-term economic growth. I think our education system should emphasize the importance of basic science and math, just as previous economic transitions were accompanied by changes in education policy".
With a comparative reduction in the pool of science and math specialists, the US has seen a decline in scientific R&D as percentage of GDP. It is now sixth place in R&D investment (2.8%) as a percentage of GDP, trailing nations like Japan (3.2%), South Korea and Israel (4.7%). "In a free market, multi-nationals recognize that new research facilities and hiring skilled local workers can earn returns as high or higher than from investment in the US".
The US is confronting a variety of cyclical and structural economic challenges. As states and counties continue to slash education budgets, Abby Joseph Cohen would like the public to understand the significance of skills and education for America''s long-term competitiveness. "Simply put- it is the most important thing".