Education and Economic Growth


It is an article of faith among California’s political class that insufficient higher educational opportunities are a constraint on California’s economic and job growth.  Just about every California economic development document includes a discussion of California’s desperate need for more college graduates.

Unfortunately, the facts disagree with the faith.  California is educating far more people than it is creating jobs for them to take.  In the past 10 years, California’s public higher education system alone issued 2,455,421 degrees.  Over the same period, the state saw a net increase of only 1,136,642 jobs.

That’s right.  California granted more than twice as many post-high-school degrees as net new jobs.

We can quibble about the numbers, but the conclusion does not change. The number of degrees includes 871,922 community college degrees, including a conservative estimate of 94,000 in 2015, because data are not yet available.

If we exclude community college degrees, California’s university and state college systems still granted 1,583,499 degrees, a much greater number than new jobs.  Some of those represent one person earning multiple degrees, but more than 28 percent of students would have to have earned multiple degrees for the number of college graduates to be less than the number of net new jobs.

These numbers don’t include California’s private colleges and universities, of which there are many.  The University of Southern California, for example, granted 14,633 degrees in June 2015.

You cannot escape the conclusion that California job growth lags the rate at which the state creates college degrees.  College graduates are a significant California export.

Of course, not all of California’s new jobs require college degrees.  For example, almost 31 percent (351,926) of California’s net new jobs over the past 10 years were in the Leisure and Hospitality sector.  Very few of those jobs require a college degree.

So, why is everybody saying that higher education is a constraint on California’s growth?

Part of the reason is that education ranks with motherhood and “tolerance” on California’s pantheon of virtues, particularly among the highly educated political class, and education --- notably the teachers’ unions --- has a powerful lobby, perhaps the most powerful in California.

Part of it is a poor understanding of statistics.  People observe that, on average, college graduates earn far more than non-graduates and conclude that education creates higher income, completely ignoring the self-selection bias: The lowest-ability student in your high school didn’t go to college, because he was the lowest-ability student. The highest-ability student went to college because she would have been bored beyond measure holding up a “slow” sign in a construction zone.  Repeat after me: correlation does not imply causation.

Then, even after all this pumping out of graduates, there remain persistent shortages of qualified Californians to fill some jobs. Of course there are.  Nobody expects San Jose to produce all the geniuses that drive Silicon Valley’s innovation. Why should we expect them to all come from California?  These are very special jobs requiring very special skills. In this situation, large numbers work to employers’ advantage.  If the entire world is your source of these special workers, you have a much better chance of finding exactly who you need, or pay what you prefer.

The forecasting industry is a big part of the problem. It is easy to find forecasts such as this Georgetown University report that says by 2020, a whopping 65 percent of all U.S. jobs will require post-secondary education. It is just as easy to find forecasts that robots will take away all of our jobs--- including in the so-called “knowledge” sector.

Long-term forecasts are extraordinarily unreliable. Long-run forecasts of necessary skill sets for future jobs are even more unreliable. They are completely dependent on assumptions that frequently prove wrong. Famously bad long-term forecasts include Time Magazine 1966 statement that “Remote shopping, while entirely feasible, will flop.” and Western Union rejecting the telephone in 1876 as having “… too many shortcomings to be seriously considered as a means of communication.”

Forecasts of increasing demand for educated workers seems to be contrary to observation. Because of computers, a McDonalds’ worker doesn’t need to know how to make change, or the price of any product. All they need to know is what a product looks like and how to push a button.

What we appear to be seeing is what my colleague Dan Hamilton calls a “hollowing out of the middle.”  Technology has increased demand for very-high-skilled people, as we see in the Silicon Valley, and it’s increased the demand for low-skilled people, as in the McDonalds example. It’s also reduced demand for many people in between, that is, the middle class.

Focusing excessively on higher education creates problems while doing no good. It is ridiculous to attempt to give 65 percent of young people a college degree. You cannot achieve that goal without reducing the quality of the graduates, which reduces the value of the degree for the better students.  This would be repeating what California has done with high school diplomas. Graduation requirements have been reduced to the point that the degree is meaningless for almost all purposes. 

Increasing supply at any educational level will not make new jobs appear; in fact, many of those workers are likely to go to where there are jobs and basic costs, particularly housing, are more reasonable.  A recent study by Cleveland State University documents the ongoing migration of educated Millennials from high-cost places with few opportunities to places with lower costs of living. 

Yet rather than into look how to create better paying jobs across the board, the education lobby --- including many now at universities --- have a perfect motivation to support more spending on, well, they and their friends. If we did achieve a 65 percent college graduate rate, we’d hear the policy wonks calling for more advanced degrees.

So, we ask, why we are creating so many more college graduates than jobs for college graduates?  I think it’s because we’ve promised our young people an education to match their abilities. That’s fair.  Government is providing a service for citizens. If it provides an educated workforce for Arizona and Texas, well that’s an unintended consequence.

We also need to ask, why is California not creating jobs for our educated young people? That’s another discussion, with lots of reasons. But, creating more college graduates is not among the answers to that question. Focusing on it diverts energy and resources from the real challenges to California’s economic growth.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at