The World is Flat: A Panel on the Education Imperative for the 21st

Century Labor ForceOctober 24, 2006

knowledge.wpcarey.asu.edu

www.asu.edu/p3

Friedman’s Triple Convergence Principles: (Excerpts taken from Jim Pinto’s review in Automation.com,

October 2005)

•The creation of a global, web-enabled playing field allows multiple forms of collaboration, the sharing of knowledge and work, without regard to distance or geography, and soon even language.

•Hence, global companies lose walls, floors and buildings. Employees are now a vast, global pool of specialists, assembled (and disassembled) according to needs.

•New opportunities are created for individuals to compete against anyone, anywhere in the world using the new, "flat" rules.

So What Does this have to do with Arizona?

Source: Calculated from National Center for Educational Statistics (nces.ed.gov/ipeds) and U.S.Department of Commerce, Bureau of Economic Analysis (www.bea.gov).

Arizona will lead in growth of HS Graduates

So it is not about whether Arizona will grow, it is how will we Grow? What is key for Arizona’s competitiveness?

Competitiveness: Competitive regions are places where companies want to invest and people want to live.

Competitiveness: The ability to achieve success in markets leading to better standards of living for all. It is about growth in productivity.

Competitiveness: The ability of an economy to hold stable or increasing market shares in an activity while sustaining stable or increasing standards of living for those who participate in it. It requires increasing employment at satisfactory income levels. Hence, competitive economies grow in the aggregate and grow in terms of individual standards of living.

Competitiveness and the Education Imperative

Friedman: “Education gap and an ambition gap”The Education imperative

•What is the best way to prepare students for the challenges of the 21st Century Labor Markets?•How do we capture the attention of the people who have the most at stake?•How do we convey the value of education to students/parents?•How do we craft investment policies that maximize ROI. E. G. spend and plan wisely?•How do we convey the science and technology imperatives articulated by Friedman?

Instead what do we hear•Education needs to be accountable. “No child left behind” Aims testing, etc. •Spend too much or Spend too little•School choice needs to be encouraged•Education institutions are inefficient and overly costly•School costs too much. We/I can’t afford College

• Individual earnings are strongly correlated to educational attainment.

• Average annual earnings of individuals with a bachelor’s degree are more than 75 percent higher than the earnings of high school graduates. – These additional earnings sum to over $1

million over a lifetime.

Private Returns

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

25-29 30-34 35-39 40-44 45-49 50-54 55-59Age Group

Earnings ($)

Postgraduate University Graduate Some CollegeHigh School Diploma Some High School

MEAN ANNUAL EARNINGS BY AGE AND EDUCATIONAL ATTAINMENT IN ARIZONA

Full-time, Year-Round Workers, 1999

Source: U.S. Department of Commerce, Bureau of the Census, 2000 Census Public Use Microdata Sample.

• If the value of a college education is expressed on the same basis as the return on a financial investment, the net return is on the order of 12 percent per year, over and above inflation. – This compares favorably with annual returns

on stocks that historically have averaged 7 percent.

Private Returns (cont.)

• Despite the very high return on investment for the time and money spent on attaining a college degree, only one-quarter of the U.S. adult population has at least a bachelor’s degree. Why? Barriers exist:– Financial Barriers– Ability Barriers– Informational Barriers

Private Returns (cont.)

30

40

50

60

70

80

90

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

Percent

Low est Income Quartile Second Income Quartile Tw o Highest Income Quartiles

Source: Carniero and Heckman, 2002.

COLLEGE PARTICIPATION RATES OF MALES 18-TO-24 YEARS OLD BY PARENTAL INCOME

• A 1 percent increase in the labor force share of college graduates in a city drives up wages for all workers:

- 1.9 percent for labor force participants without a high school diploma- 1.6 percent for labor force participants with a high school diploma- 0.4 percent for college graduates

Higher Education Enhancement Drives Productivity Growth Across the

Economy

• Arizona ranks in the middle of the states with 23.5 percent of the 25-and-over population possessing a bachelor’s degree, slightly below the U.S. average.

• Issues for Arizona:– Gains in educational attainment have been less than the

U.S. average in recent decades, ranking among the slowest in the nation.

– The educational attainment of those in the labor force, particularly young adults, is substantially below the national average.

– The older population is relatively highly educated, but many do not participate in the workforce.

Educational Attainment

-6

-4

-2

0

2

4

6

8

10

18-24 25-34 35-44 45-64 65+

Age Group

Percentage

High School Diploma Bachelor's Degree Graduate Degree

EDUCATIONAL ATTAINMENT IN ARIZONA IN 2000 RELATIVE TO NATIONAL AVERAGE

By Age Group

Source: U.S. Department of Commerce, Census Bureau.

Degrees vs Job Demand• Over last ten

years, Arizona’s public universities graduated

• 170,157 Bachelor• 59,374 Master• 8,269 PhD• 5,247 Professional

degree students.

• In the next ten years, Arizona’s economy will need over

• 330,000 Bachelor• 74,000 Master• 16,000 PhD• 23,000

Professional degrees.

Percent Change

94%

25%

93%

334%

To me these aspects of the economy suggest that the available labor market is far wider and deeper than even 20 years ago.

The ROI to skill investment has no doubt increased dramatically as a result.

Friedman clearly articulates the education imperative that prevails today.

As one reads the book it becomes clear that knowledge, skill, the ability to relocate, to adapt, to acquire new talents and skills as demands change will all be at a premium.

Lessons From the World is Flat

For Our Panel

What is the education imperative today based

on your business’ experience?

For Our Panel

Are the skill sets you see from people now entering the labor

force sufficient to meet your needs today and your employees’ own future needs?

If not, what elements need refinement?

Additional Reference Slides

China Myth: The story is simple. They are simply stealing our quality jobs by paying ridiculously low wages. It is just production on the “cheap”

China Reality: China has maintained a stratospheric productivity growth rate of 17 percent annually. So over the last ten years the US has lost over 2 million manufacturing jobs. China has lost over 15 million manufacturing jobs during the same time period.

Is it really all about the “China Price”?? – And what is the China Price?

China is about focus and a relentless drive to succeed

Arizona Population GrowthPage 34

5,130,6325,629,870 5,832,150 6,019,750

6,926,2507,788,175

8,587,550

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

2000 2003 2004 2005* 2010* 2015* 2020*

Interpretations of Competitiveness: Excerpts from “The World Is Flat”

“India is going to be a superpower and we are going to rule”“There is nobody to rule anymore. It’s about how you can create a great opportunity for yourself and hold on to that or keep creating new opportunities where you can thrive. I think today that rule is about efficiency, it’s about collaboration and it is about competitiveness and it is about being a player. It is about staying sharp and being in the game…”

China is a race to the top, a relentless quest to beat the EU and US economically, not with military might!! How? •Train young people in math science and computer skills •Strategic investments in infrastructure•Incentives that will attract global investors

1.0

1.2

1.4

1.6

1.8

2.0

1980-84 1985-89 1990-94 1995-99 2000-03Year

Earnings Ratio

Men Women

RATIO OF MEAN ANNUAL EARNINGS OF UNIVERSITY GRADUATES TO HIGH SCHOOL GRADUATES

Full-time, Year-Round Workers in the United States

Source: U.S. Department of Commerce, Census Bureau, Current Population Survey.

• But how can we assign a value to this wage differential? Exactly how much is it worth to obtain a college degree?

Private Returns (cont.)

Men WomenCosts (Ages 18 to 21):Tuition, Fees, Government Appropriations $60,000 $60,000Foregone Earnings 70,592 57,292Total Costs 130,592 117,292Total Costs Discounted at 4 Percent Real Interest 123,250 110,696Benefits (Ages 22-65)Earnings with a High School Diploma 1,734,824 1,243,838Earnings with a Four-Year Degree 3,012,522 2,202,327Differential in Earnings 1,268,698 958,489Earnings Differential Discounted at 4 Percent Real Interest 461,715 361,076

Net Present Value of a Bachelor's Degree 338,465 250,380Internal Rate of Return 11.7% 11.6%

Source: Center for Business Research, L. William Seidman Research Institute, W. P. Carey School of Business, Arizona State University, using data from the U.S. Department of Commerce, Census Bureau.

VALUE OF A BACHELOR’S DEGREEBased on Mean Earnings of Full-Time, Year-Round

Workers in the United States in 2002-03

Where do you see aspects of Friedman’s triple convergence in your organization?

• Global, web-enabled playing field = anytime/anybody/anywhere collaboration

• Global employee pool assembled/disassembled as required

• Individuals can compete against anyone, anywhere in the world using the new, "flat" rules

For Our Panel

• Private returns are huge and dominate the value proposition for higher education.

• But societal benefits exist as well.

Societal Benefits