President Barack Obama at the University of Texas in Austin, Texas August 9, 2010.

Higher Education and the Economy: Advanced and emerging economies are putting a lot of emphasis on education and its importance for economic growth but experience shows that there is no magic bullet.

In Ireland, the Government has the narrow focus of banking on its faith-based 'smart economy' strategy, which has put academic scientific research at the core of enterprise policy even though its optimistic expectations have no relationship with current evidence.

President Obama said on Monday that the United States gave up its top position as the world leader in University enrollment about 10 years ago, as students in nations like South Korea, Canada and Russia began to surpass their American counterparts. Now the United States ranks 12th among 36 developed nations in college graduation rates, a trend the president said he intended to reverse. In 1970, 30% of global university enrollment was in the US.

“Over a third of America’s college students, and over half our minority students, don’t earn a degree, even after six years,” President Obama told students at the University of Texas in Austin. "So we don’t just need to open the doors of college to more Americans. We need to make sure they stick with it through graduation. That is critical.”

He added, “That’s how we’ll lead the global economy in this century, just like we did in the last century.”

The administration says while close to 70% of high school graduates in the United States enroll in college within two years, just 57% graduate within six years. An estimated 16.7m Americans age 25 to 34 currently possess college degrees, but the administration calculates that for the United States to resume its place as the world leader in college graduation rates, the nation will have to provide for 11m more young people to enter and complete college by the end of the decade.

If current population trends hold, an estimated 3m more young adults will graduate during the next 10 years. But there will be a gap of eight million students.

The president said in his speech: "It’s an economic issue when the unemployment rate for folks who’ve never gone to college is almost double what it is for those who have gone to college.  Education is an economic issue when nearly eight in 10 new jobs will require workforce training or a higher education by the end of this decade.  Education is an economic issue when we know beyond a shadow of a doubt that countries that out-educate us today, they will out-compete us tomorrow.

The single most important thing we can do is to make sure we’ve got a world-class education system for everybody.  That is a prerequisite for prosperity.  It is an obligation that we have for the next generation."

Grover J. "Russ" Whitehurst, a Senior Fellow at the Brookings Institution think-tank in Washington DC, commented on Monday that US university enrollment rates have gone down (they have been rising) because other countries have leapfrogged the US. 

He said a presidential address is not the place to address subtleties, but policymakers and practitioners in higher education will need to do so if the increased emphasis on attaining college degrees is to pay the expected dividends.  In that sense, focusing on the horserace may be counterproductive.

Whitehurst said the relationship between years of schooling and economic output at the national level is complex, to say the least.  A small but consistently positive relationship between long-term growth and years of schooling is found in econometric studies, but there are many caveats and exceptions that are relevant to designing higher education policy in the US.  He said for one thing there is tremendous variability in the relationship.  For example, Germany has a stronger economy than France but half the percentage of young adults with a college degree.  Further, France has increased its percentage of young adults with college degrees by 13 percentage points in the last 10 years whereas Germany’s output of college graduates has hardly budged, yet the economic growth rate of Germany has exceeded that of France over this same period.  Whitehurst says obviously increasing educational attainment is not a magic bullet for economic growth.  Education credentials operate within boundaries and possibilities that are set by other characteristics of national economies.  "We must attend to these if more education is to translate into more jobs'" he said.

Whitehurst added that a growing body of research suggests that policymakers should pay more attention to the link between job opportunities and what people know and can do, rather than focusing on the blunt instrument of years of schooling or degrees obtained.  In international comparisons, for example, scores on tests of cognitive skills in literacy and mathematics are stronger predictors of economic output than years of schooling.  Within the US, he said there is evidence that for many young adults the receipt of an occupational certificate in a trade that is in demand will yield greater economic returns than the pursuit of a baccalaureate degree in the arts and sciences.

The former director of the Institute of Education Sciences at the US Department of Education, said a single-minded pursuit of regaining the world’s lead in college graduates may ignore the fact that one size does not fit all nations or all young adults.  He added that one of the distinctive feathers of the US higher education system is its diversity, with over 6,000 institutions of all manner and stripe serving students of many ages and needs.  In contrast, the higher education system is most of the countries with which the US compete is centrally managed and homogenous.  He concluded: "We should make diversity our strength by establishing national policies that encourage institutions to adjust quickly to changing needs in the marketplace for learning.  A good place to start would be creating much better information on the graduation rates and employment outcomes associated with particular degree and certificate programs at particular institutions.  If we’re to win the international horserace we will need to create the conditions for horse races among postsecondary institutions in this country with finish lines of productivity and employment."

The US has the key advantage of attracting foreign talent who are generally educated at US universities and in California’s Silicon Valley, an estimated 50% of start-ups are either launched by an entrepreneur who was born overseas or one who is among the founding partners. The national average is 25%.

So America gains hugely because many bright foreign students remain in the country.