The Economic Value of Diversity

Starting with the Great Recession of 2007–2009 and continuing with the political gridlock that led to across-the-board federal spending cuts in 2013, per capita spending on education by federal and state governments has been steadily declining—with a disproportionate impact on minorities. At a time when the global economy is increasingly competitive, this systematic disinvestment in the education of minorities poses the real risk that our children’s generation will not possess the human capital to engage in the kind of innovation needed to stay competitive in the global market and contribute to economic prosperity at home.

In the short run, the rising demand for, and underproduction of, skilled college graduates has had positive repercussions—a persistent wage premium for college-educated workers. But for too many years, education expenditure on our nation’s children has fallen as a share of overall spending. A recent study by the Urban Institute concludes that entitlement benefits for older Americans are increasingly crowding out expenditure on our nation’s youth. As federal stimulus dollars declined, many states have opted to continue funding programs for older citizens, who vote at higher rates than younger adults, at the expense of programs that benefit children.

Meanwhile, the number of retirees will increase from 40.2 million in 2010 to an estimated 88.5 million in 2050. Given the impending retirement of baby boomers, we are facing serious shortages in our workforce.

In terms of sheer numbers, changing demographics will make matters worse: by 2050, new immigrants and their children are expected to account for 83 percent of the growth in the working-age population. But will this emerging and ethnically diverse pool of workers have the necessary education and skills? Not if current trends continue. If we intend to meet our future workforce needs and take advantage of the vast human potential represented by this nation’s changing demographics, we must reform current education and job-training investments to make sure that this generation is adequately prepared to take the reins we hand over.

Labor force makeup by race/ethnicity graphA changing population implies an equally changing labor force. By 2050, whites will no longer make up a majority of the labor force. Source: Georgetown University Center on Education and the Workforce projection of labor force makeup by race/ethnicity

Moreover, the class and race inequality in the postsecondary education system is especially daunting. It is much less likely now to spring from personal bigotry than from mechanisms that in theory are race and class-neutral but in fact reliably produce unequal opportunity among classes and ethnic groups. The complexity and severity of these problems demand bold solutions.’

Among all the ways to start out unequal, being born into the “wrong” race is still the worst. American racism persists even without racists. The lingering effects of Jim Crow still haunt our institutions, isolating minorities in ghetto neighborhoods and in decrepit schools that don’t send kids to college. Race and economic class often go together, and poverty limits college opportunity among all racial and ethnic groups.

Although affirmative action, both race and class-based, seems clearly justified as a device to encourage race and class mobility and compensate for persistent racial and economic inequality, it is not clear that affirmative action as it has been known up to now gets at the roots of inequality. Whether it is race-based or class-based or a pragmatic combination of the two, affirmative action programs can help those who strive to overcome the odds, but they do relatively little to change the odds themselves. In the final analysis, disadvantage, like privilege, stems from a wide range of mutually reinforcing factors. That can be addressed only by policies with sufficient scope to match the complexity of the problem itself.

Racial/ethnic gaps in educational attainment cost graphRacial/ethnic gaps in educational attainment cost the U.S. economy $278 billion per year. Sources: Georgetown University Center on Education and the Workforce

Because ethnic/racial education gaps cost the U.S. economy so much, reducing them could gain an additional $278 billion per year for the economy. (This assumes earnings increases across the board, even though the increased supply of workers with bachelor’s degrees will have the effect of narrowing the earnings gap between them and workers with high school diplomas.) Bringing all workers to the same educational attainment level that whites now have would increase productivity, narrow the pay gap, and increase job opportunities in occupations where minorities are currently underrepresented. The increased purchasing power that $278 billion represents would have a multiplier effect on the economy as a whole, raising the national GDP level. And although interventions required to address educational disparities may require substantial investments, the potential economic and social payoffs would be enormous, since workers with the lowest level of education benefit the most from improving their educational status.

This post was excerpted and adapted from Anthony Carnevale and Nicole Smith’s essay “The Economic Value of Diversity” in Our Compelling Interests (Princeton University Press, 2016).

 


The number of U.S. retirees will increase from 40.2 million in 2010 to an estimated 88.5 million in 2050. Given the impending retirement of baby boomers, we are facing serious shortages in our workforce.
"Making it clear that a demographic revolution is upon us, this illuminating and riveting book offers new ways of seeing and thriving in a world hurling towards the future."
— Henry Louis Gates Jr., Harvard University