Federal Education Spending Fails To Prevent Dropping Skill Levels and Wage Gap

While the Federal Department of Education spends huge amounts of dollars in the national education in failed to prevent a drop in skill levels and a widening of the wage gap. In 2014, the Federal Education spending totaled a whopping $140 billion, which is a 12% of the entire federal budget or 6% of our national income (GDP). Given this substantial investment, the question is how much progress has been made in education?

In this article we like to measure this progress in education against the 2007 article “America’s Perfect Storm” – released by the Education Testing Service (ETS). This company tested the aptitudes of millions of Americans by means of the the SAT, GRE, AP and TOEFL standardized test.

In the article, the ETS identified three main challenges that would shape the knowledge-based jobs in the US and with it our ability to compete in the global economy. These three challenges are:

1. Drop in skill levels, especially in reading and math.
2. A widening of the wage gap.
3. Demographic shifts, that is less education.

1. Disparities in Skill Levels
In a study conducted by the OECD (Organization for Economic Co-operation and Development) and the NAEP (National Assessment of Educational Progress) test scores between American, Canadian, Chinese and Korean students was compared in the time frame from 2003 to 2012.

The test scores of Chinese and Korean students increased from an normalized store of 550 to 561 and 542 to 552, respectively. In the same interval test scores of American students declined from 483 to 481. See picture below.

This alarming result poses a clear threat to the US because it has the highest inequality gap in skills, especially in math and reading and – that is, across US student and adult populations, the gap between our most and our least proficient is the highest of any of the OECD countries.

The ETS report names three factors that might have caused this skill drop. A prolonged recession, rising automation and competition from overseas.

2. Widening of the Wage Gap
Today an estimated 48% American college grads work in work in jobs that did not require a college degree. Back in 2000, the ETS expected 66% of all job growth to come from college jobs. Today it is the non-college jobs which account for the major part of employment growth of Americans.

The unemployment and underemployment rates are a part of the ETS report. In 2014, the unemployment rate was 8.5% of recent college grads and the underemployment rate skyrocketed to a 16.8%. In comparison these numbers were 5.1% and 10.5% back in 1995, respectively.

The “America’s Perfect Storm” publication blames the technology and outsourcing for this trend. Me as a part-time economist would add that skyrocketing debt, legal hazard and a entitlement thinking significantly contribute to the ongoing loss of our competitiveness.

3. Demographic Shifts
The good news is that the US population is expected to grow 20% until 2030. In comparison, the populations of Europe and Eastern Europe are stagnating or shrinking.

However, earlier population growth was fueled by a positive birth rate of Americans (larger than 2.1 children per couple). The future population growth mainly comes from the immigration of Hispanics. Often thely lack high-school diplomas and many do not speak English well or at all. How will they fare in the US workforce?

While it is that investment in education is a primary driver in the US economy. However, this substantial investment has failed to yield the expected results. Our US economy is loosing ground against overseas competition.

A former president Ronald Reagan once said. “I know that for America there will always be a bright dawn ahead.” I personally share the optimistic sentiment of this quote. Why? Because America’s bright entrepreneurs will find solutions to this crisis in education. We at TutorZ play our part in providing affordable quality tutoring to American students.