Education Holds the Key to Economic Success

What Is Holding Back Blacks and Hispanics?

Two economic topics that have received much attention in recent years are income inequality and lack of social mobility in the United States. Underpinning much of the stagnant progress for both issues is the low level of educational attainment, especially among underrepresented populations (more specifically, Blacks1 and Hispanics). On the other hand, there is overwhelming evidence that education is one of the keys to overcome the inability to advance up the income scale. Over the past four decades, the high school dropout rate for Blacks and Hispanics has fallen markedly. In 2012, the percentage of Black students who dropped out of high school was 7.5 percent and for Hispanics 12.7 percent, while the total was 6.6 percent.2 This is a stark improvement from the early 1970s when the rate for Blacks and Hispanics was 21.3 percent and 34.3 percent, respectively.

However, the share of Blacks and Hispanics obtaining a college degree still trails that of White3 students by a wide spread. In 2012, the percentage of White students obtaining a four-year degree reached 32.7 percent, while less than half of that share of Blacks and Hispanics received a degree. Although Blacks and Hispanics are seeing a lower level of college degrees than their White counterparts, the share of “some” college and associate degrees surpasses Whites and the total. More than 40 percent of Blacks and Hispanics had either some college or received a two-year degree in 2012.

Education in the New Economy

It has been well understood over the years that education is the best path for individuals to move up the income scale, especially in the United States. Although entrepreneurship and on-the-job training are also viable avenues to achieving economic prosperity, it is well documented that investments in education pay high rates of return over the long-run. In a 2006 speech, former Federal Reserve Vice Chairman Roger Ferguson noted, “As our economy becomes more and more technologically advanced and globally interconnected, the skills, knowledge, and analytical ability that education develops are becoming ever more crucial to each individual’s success.”4 The Great Recession made this point even clearer, when workers without the relevant skills or education found it very difficult to land work. Furthermore, there is a large body of research that shows that education makes a difference in terms of income. One piece of such research revealed that “Those who obtain a bachelor’s degree have a median income of $50,360 compared to a median of $29,423 for people with only a high school diploma. An associate’s degree leads to a median income of $38,607, more than $9,000 higher than a high school diploma. Those with a graduate degree have a median income of $68,064, 35.2 percent more than those with a bachelor’s degree.”5 Within this new post-Great Recession economy, Blacks and Hispanics have faced similar challenges in re-engaging in the U.S. economy. Those that have pursued higher levels of education will probably reap the benefits of the current economic recovery and future growth of the U.S. economy. For Hispanics, the new sense of the importance of education seems to have started at the beginning of this century. For Blacks, the share of students enrolled in college stagnated during the Great Recession, but the level remains high relative to previous cycles. For both groups, greater strides in education will help improve the path to economic prosperity.

How Important is Education for the U.S. Labor Market?

To answer this question, we will use a two-pronged approach. The first one is very short, to the point and gives a light answer the reader can relate to very easily. Derek Bok, a lawyer and educator said it best, “If you think that education is expensive, try ignorance.” The second approach is a bit more scientific. We use research from two different databases. The first one will be based on a Bureau of Labor Statistics (BLS) longitudinal survey on “America’s Young Adults at 27: Labor Market Activity, Education, and Household Composition.”6 Although the report notes several other characteristics for this group of young Americans, we will concentrate only on the educational attainment, race/ethnicity and the labor force experience over time, to help us make our argument regarding the importance of education for Blacks and Hispanics in the United States. The second data set will be based on data from the U.S. Department of Commerce, the Census Bureau and the Current Population Survey (CPS).

Longitudinal Survey

In analyzing the BLS’s longitudinal survey, the first characteristic that piqued our interest and confirms data we present later in this report (U.S. Department of Commerce), is the impressive improvement Hispanics and Blacks have made in terms of high-school dropout rates, which is the first step to improve the possibilities of these minorities in higher educational attainment. According to the longitudinal analysis, for which the most recent data we have are from 2011, the dropout rate for Blacks was 12.4 percent, while it was 13.6 percent for Hispanics. The second data point is that both groups, Blacks and Hispanics, still have a long way to go on the road to improve their overall educational stance in the U.S. 

The large differences among Whites, Blacks and Hispanics appear later on when we look at college/bachelor’s graduation rates. The highest level of attainment for the different groups in this longitudinal analysis changes drastically for Blacks and Hispanics when we look at higher education, especially when looking at bachelor’s degrees or more (Table 1). Whites continue into college in a greater proportion, while Blacks’ and Hispanics’ participation in higher education drops considerably, especially when looking at bachelor’s graduation rates. Although college enrollment remains relatively high for all of the races in this longitudinal survey, the percentage of those graduating with a bachelor’s degree falls precipitously for Blacks and for Hispanics compared to Whites. This result is also consistent with our other sources of data as we see that Blacks and Hispanics seem to have given more importance to some college and/or two-year college degrees or associates degrees rather than pursuing a bachelor’s degree. Out of the 68.0 percent of Whites that enrolled for college, 35.4 percent had “some college” education, which includes associate degrees, while 32.7 percent had a bachelor’s degree or more. However, for Blacks, those figures are 41.2 percent with “some college,” while only 15.3 percent with a bachelor’s degree or more. For Hispanics the situation is similar to that of Blacks, with 43 percent saying they have “some college,” while 14.5 percent said they had a bachelor’s degree or more.

It is interesting to point out that the longitudinal analysis cohort age group is likely representative of the Millennial generation. The definition of the Millennial generation are those that were born between 1981 and 1996, while the age of the cohort chosen in the longitudinal analysis goes from 1980 to 1984. That is, with the exception of those that were born in 1980, the rest of the members of this cohort are members of the Millennial generation. Furthermore, the data from the longitudinal research show that 65.5 percent of this cohort, which we may call the “early Millennials,” has some college versus “only” 57.7 percent for the Baby Boomers, according to the U.S. Census Bureau.7 This is also consistent with other studies that show that Millennials put more importance in college education than previous generations. However, it is clear that Blacks and Hispanics of the Millennial generation may not be quite as similar to Whites who were born in the same period. Thus, Black and Hispanic Millennials still need to continue to improve college enrollment but, more specifically, graduation rates in order to improve labor and income prospects in the U.S. economy.

From the same longitudinal analysis we can see the importance of having some college education in terms of being employed and being engaged in the labor force, especially for Blacks and for Hispanics. Table 2 shows the period, during 1998 to 2011 where the members of this cohort were either employed, unemployed or not in the labor force. The information is crossed with the level of education. 

The most striking, although not surprising, data from this table is how difficult it is for any race/ethnic origin to remain engaged in the labor force if the person does not have a high school diploma. For example, for the White, non-Hispanics population between the ages of 18-26 the percentage of weeks were they were not engaged in the labor force was 30.8 percent during the period of 1998-2011. For Black, non-Hispanics, the percentage of weeks out of the labor force for those without a high school diploma surges to 45.1 percent of weeks, while for Hispanics that number was 31 percent of weeks. Thus, Blacks continue to be disproportionally affected in the U.S. labor market if they do not have a high school degree. A similar situation occurs with the percentage of weeks working and unemployed. For Whites, with less than a high school diploma, the percentage of weeks spent working during the period was 57.5 percent versus 11.7 percent of that time being unemployed. For Blacks, weeks employed were as low as 39 percent, while 15.9 percent of weeks were of unemployment. For Hispanics, the percentage of weeks employed were 59.9 percent versus 9.2 percent unemployed.

Another striking data point in this longitudinal analysis was the very high percentage of time not in the labor force for those individuals with bachelor’s degree or higher, compared to other groups. Whites with bachelor’s degree or higher were not in the labor force during 21.4 percent of weeks during this time period, while Blacks were out of the labor force during 24.3 percent of the weeks and Hispanics were out of the labor force during 22.7 percent of the weeks. Although this may seem like an odd result, the fact that having a bachelor’s degree or higher normally requires these individuals to stay outside of the labor force during a relatively long period of time (typically four years for a bachelor’s degree) versus those who do not go to college or have some college. The important results for these groups of college degree-holders is the percentage of weeks they were working and the percentage of weeks they were unemployed which, for Whites was 75.8 percent and 2.8 percent of the weeks, for Blacks was 71.2 percent and 4.6 percent of the weeks and for Hispanics was 73.4 percent and 3.8 percent of the weeks, respectively.

This longitudinal analysis clearly shows the important behavioral differences in terms of labor force engagement, employment and unemployment conditions, over the years, of Whites, Blacks and Hispanics. The survey confirms the importance that education has on the ability of different groups within the U.S. population to get a job, stay on that job and contribute to the overall economy during the years. Thus, it is clear from this longitudinal analysis that having at least some college education is more beneficial for employment and labor force engagement in the United States than having less than high school or only high school education. 

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