[Economic Report of the President (2010)]
[Administration of Barack H. Obama]
[Online through the Government Printing Office, www.gpo.gov]

 
CHAPTER 8

STRENGTHENING THE
AMERICAN LABOR FORCE

The recession has been extremely difficult for American workers and
families. One in ten workers is now unemployed, wages and hours worked
have fallen, and many families are struggling to make ends meet. Making
matters worse, the recession followed a sustained period of rising
inequality and stagnation in the living standards of typical American
workers. A central challenge in coming years will be to smooth the
transition to a sustainable growth path with more widely shared
prosperity.
As we begin to recover from the recession, we will see a new and
much-changed labor market. Some industries that grew unsustainably
large in recent years, such as construction and finance, will recover
but will not immediately return to past employment levels. The same may
be true for traditional manufacturing, which has been shrinking as a
share of the economy for decades. The pace of employment decline will
surely moderate after the recession, but many former workers in
traditional manufacturing will need to transition into new, growing
sectors.
In the place of the declining industries will come new opportunities
for American workers. Health care will remain an important source of
growth in the labor market, as will high-technology sectors including
clean energy industries and advanced manufacturing. Well-trained and
highly skilled workers will be best positioned to secure good jobs in
these new and growing sectors. The best way to prepare our workforce
for the challenges and opportunities that lie ahead is by
strengthening our education system, creating a seamless, efficient
path for every American from childhood to entry into the labor market
as a skilled worker ready to meet the needs of the new labor market.
Both individuals and the economy as a whole benefit from increased
educational attainment and improved school quality. A focus on access,
equity, and quality for all American students, from early childhood
through high school and into postsecondary education and training
throughout workers' careers, will help ensure that the benefits of
economic growth are widely shared.

Challenges Facing American Workers

Thel ast few years have been achallenging time for American workers,
with the high unemployment of the current recession compounding longer-
run trends toward increased insecurity and inequality.

Unemployment

As of December 2009, the unemployment rate was 10.0 percent, a rate
that has been exceeded only once since the Great Depression. As high
as it is, however, this rate understates just how weak the labor
market is. Many Americans who would like to work have given up hope of
finding a job and have dropped out of the labor force; others who
would like full-time jobs have settled for part-time work. Figure 8-1
shows both the conventional unemployment rate and a broader measure of
labor underutilization that includes not just unemployed workers but
also those who would like jobs




but have given up looking for work and those who are employed part-
time for economic reasons. This measure indicates that more than one
in six potential workers are unemployed or underemployed. Another
measure of labor market conditions that accounts for those who have
given up looking for work is the employment-to-population ratio. In
December, fewer than six in ten adults were employed, the lowest ratio
since 1983. A final useful labor market indicator is the number of
long-term unemployed--those without jobs for 27 weeks or more. More
than one-third of unemployed Americans have been seeking work for more
than 26 weeks, the highest share since the series began in 1948.
The employment situation is even worse for members of racial and
ethnic minorities. Figure 8-2 shows the unemployment rate for whites,
blacks, Hispanics, and Asians. While the unemployment rate for whites
topped out at 9.4 percent in October 2009 and has declined slightly
since then, the rate for blacks exceeds 16 percent and has continued
to rise, while that for Hispanics is nearly 13 percent. The
disproportionate impact of the current recession on blacks and
Hispanics mirrors that seen in past business cycles. It is critical
that all Americans be able to participate fully and equally in our
economic recovery.




Even a quick return to job growth will not immediately eliminate
employment problems, as it will take time to create the millions of
new jobs needed to return to normal employment levels. Many workers
will have difficulty finding work for some time to come. Extended
periods of high unemployment and low job creation rates mean that many
displaced workers will exhaust their unemployment insurance benefits
before jobs become available in large numbers. After months or even
years of unemployment, most who exhaust their benefits will likely
have used up whatever savings they had when they lost their jobs. Many
will be forced to turn to public assistance--Temporary Assistance for
Needy Families, Supplemental Nutritional Assistance (formerly known as
food stamps), or other similar programs--to make ends meet.
Sustained periods of low labor demand also have negative
repercussions for the long-run health of the economy. Mounting evidence
indicates that displacement during bad economic times leads to long-run
reductions in workers' productivity (Jacobson, LaLonde, and Sullivan
1993), likely because the displaced workers lose job skills, fall out
of habits needed for successful employment, and have trouble
convincing employers that they will be good employees. The resulting
loss of ``human capital'' reduces workers' earning power, even after
the economy recovers.
Deep downturns have particularly large effects on young Americans.
The unemployment rate for teenagers in December was 27.1 percent.
Research shows that teens who first enter the labor market during a
recession can have trouble getting their feet onto the first rung of
the career ladder, leaving them a step or more behind throughout their
lives (Kahn forthcoming; Oreopoulos, von Wachter, and Heisz 2006; Oyer
2006). There is also evidence that when parents lose their jobs, their
children's long-run economic opportunities suffer (Oreopoulos, Page,
and Stevens 2008).

Sectoral Change

The Great Recession has aggravated an already challenging trend:
sectoral shifts that are changing the nature of work. While most
American workers were once engaged in producing food and manufactured
goods, often through physical labor that did not require a great deal
of training, the United States is increasingly a knowledge-based
society where workers produce services using analytical skills. The
changing economy offers tremendous opportunities for American workers
in high technology, in the new clean energy economy, in health care,
and in other high-skill fields.
Accompanying these shifts in the composition of employment have been
changes in the institutions that govern the labor market. The
prototypical American career once involved working for a single
employer for many years, backed by a union that bargained for steady
wage increases and for a pension that promised a stable, guaranteed
income in retirement. The labor market has changed. Fewer than one in
seven workers belongs to a union, and most people can count on
changing employers several times over their careers. Moreover, the
vast majority of retirement plans are now ``defined contribution,''
meaning that workers' retirement incomes depend on the success of
their individual investment decisions and on the performance of asset
markets as a whole. This shift has meant added risk for workers,
particularly those whose planned retirements coincide with downturns
in asset prices.

Stagnating Incomes for Middle-Class Families

A final major challenge facing American workers is the decades-long
stagnation in living standards for typical families and the related
increase in inequality. Figure 8-3 offers two looks at income trends
over the past half century. First, it shows real median family
income--the level at which half of families have higher income and half
have lower income--over time. The median rose steadily until 1970, but
then the rate of growth slowed substantially, and since 2000, the
median has actually fallen.
One determinant of family income is the number of individuals working
outside of the home. Female labor force participation has risen
dramatically: in 1960, just over 40 percent of adult women (aged
18-54) participated in the labor force; by 2000, approximately three-
quarters did. This increase in female labor force participation
contributed to the rise in family incomes. However, the female labor
force participation rate has been roughly stable since 2000, and there
are not likely to be future increases in participation as dramatic as
those seen in the past. Further increases in family incomes will
likely rely on growth in individual earnings.
The other two series in Figure 8-3 show the median earnings for men
and women working full-time, year-round jobs. Real median female year-
round earnings have grown steadily by about 1.1 percent per year on
average since 1960, reflecting in part the gradual leveling of labor
market barriers to women's career advancement. But real male earnings
have been essentially flat since the early 1970s. One source of the
stagnation of median male earnings and the reduced growth rate of
median female earnings is that productivity growth slowed betwen 1973
and 1995 (Chapter 10). But this is not a complete explanation. Even at
a reduced growth rate, American workers' productivity has more than
doubled in the last 40 years.
A partial explanation for the divergence between productivity and
earnings is the rapid rise in health care costs in recent years: an
ever-greater share of the compensation paid by employers has gone
toward health



insurance premiums, which have risen much faster than inflation. This
makes health reform an urgent priority. As discussed in Chapter 7, the
proposals under consideration in Congress will slow the growth in
health care costs, allowing American workers to realize more of the
benefits of their hard work through increased take-home pay.
A second explanation is that per capita earnings are distributed in
an increasingly unequal way, with ever-smaller shares going to workers
in the middle and bottom of the distribution (Kopczuk, Saez, and Song
forth-coming). Earnings inequality is compounded by inequality in
nonlabor income, including dividends, interest, and capital gains.
Figure 8-4 shows that in recent years nearly half of all income--
including both wages and salaries and nonlabor income--has gone to 10
percent of families. The top 1 percent of families now receive nearly
25 percent of income, up from less than 10 percent in the 1970s
(Piketty and Saez 2003). Today's income concentration is of a form not
seen since the 1920s. Although there is nothing inherently wrong with
high incomes at the top of the distribution, they are problematic if
they come at the expense of the rest of workers. A major challenge for
American public policy is to ensure that prosperity is again broadly
shared.



Policies to Support Workers

The Administration's first priority upon taking office was to
strengthen the economy and the labor market, helping to provide jobs
for those who need them. According to Council of Economic Advisers
estimates, the American Recovery and Reinvestment Act of 2009 had
created or saved between 1.5 million and 2 million jobs as of the
fourth quarter of 2009 (Council of Economic Advisers 2010).
At the same time, the Administration has worked to strengthen the
safety net for those who remain unemployed. The Recovery Act provided
unprecedented support for the jobless, with increased benefits for
every unemployment insurance recipient, the longest extension of
unemployment benefits in history, an expansion of the Supplemental
Nutrition Assistance Program, and assistance with health insurance
premiums for those who have lost their jobs. These provisions have
directly helped millions of out-of-work Americans pay for housing, put
food on the table, and maintain access to medical care. Moreover,
because the unemployed are likely to spend any benefits they receive,
these provisions have supported increased economic activity,
strengthening the labor market and helping to create the job openings
that will be needed to move people back into work. The safety net
provisions in the Recovery Act are scheduled to expire at the end of
February 2010,but because of the ongoing weakness in the labor market,
the Administration is working with Congress to extend them further.
The Recovery Act also included provisions to reform the unemployment
insurance system, making it work more effectively in today's economy.
These provisions extend unemployment insurance eligibility to many
low-wage and part-time workers who were not previously eligible. These
and other recent initiatives will also make it possible for many
unemployed workers to draw out-of-work benefits while participating
in training that prepares them to enter new fields.
Even after the labor market recovers, the dynamic American economy
will continue to pose challenges--while also creating opportunities--
for workers. Rapid technological change will cause shifts in the labor
market, forcing some workers into unanticipated mid-life career
changes. Policy can help to ease these transitions. Most important, it
can ensure that workers who may switch careers several times during
their lifetimes are able to maintain health insurance and to support
themselves in retirement. As discussed in Chapter 7, comprehensive
health care reform will eliminate preexisting conditions restrictions
in health insurance and improve access to insurance in the individual
market. These changes will make it much easier for people to maintain
insurance when they change jobs or pursue entrepreneurial
opportunities.
Declines in stock prices and home values have put serious pressure on
many Americans' retirement plans and have highlighted the importance
of improved retirement security. The Administration has proposed
several measures to increase saving by low- and middle-income workers.
Efforts include expanded access to retirement plans along with rule
changes to streamline enrollment in 401(k) and IRA programs,
facilitate simple saving strategies, and reorient program default
options to emphasize saving. And, most important, the Administration
is committed to protecting Social Security, thus ensuring that it can
provide a reliable source of income for future retirees, as it has for
their parents and grandparents.
Health and retirement security need to be accompanied by labor market
institutions that support and protect workers. Labor unions have long
been a force helping to raise standards of living for middle-class
families. They remain important, and we need to reinforce the principle
that workers who wish to join a union should have the right to do so.
Another set of institutions in need of attention is our immigration
system. The current framework absorbs considerable resources but does
not serve anyone--native workers, employers, taxpayers, or potential
immigrants--well. Particular problems are posed by the presence of
large numbers of unauthorized immigrants and the lengthy queues--some
over 20 years--for legal residency.
Reform of the immigration system can strengthen our economy and
labor market. Reform should provide a path for those who are currently
here illegally to come out of the shadows. It should include
strengthened border controls and better enforcement of laws against
employing undocumented workers, along with programs to help immigrants
and their children quickly integrate into their communities and
American society. Future immigration policy should be more responsive
to our economy's changing needs. Reform of the employment-based visa
and permanent residency programs will also help reduce the incentives
to immigrate illegally by giving potential immigrants a more viable
legal path into the United States.

Education and Training:
The Groundwork for Long-Term Prosperity

Rebuilding our economy on a more sustainable basis, investing in
future productivity, fostering technological and other forms of
innovation, and reforming our healthcare system to deliver better
outcomes at lowercosts are all crucial to long-run increases in living
standards, and all are discussed elsewhere in this report. But one
fundamental component of a strategy to ensure balanced, sustained, and
widely shared growth is a robust system of education and training. The
positive link between education and worker productivity--the
cornerstone of economic prosperity--is well established. In fact,
research has credited education with up to one-third of the
productivity growth in the United States from the 1950s to the 1990s
(Jones 2002).

Benefits of Education

At the individual level, there is a strong relationship between
educational attainment and earnings (Card 1999). The earnings premium
shows up at all levels of education. Those who complete one year of
post-secondary education earn more than those who stop after high
school, while those who complete two years or finish degrees earn more
still. And job training for the unemployed has been shown by rigorous
studies to raise participants' future earnings (Manpower Demonstration
Research Corporation 1983; Jacobson, LaLonde, and Sullivan 2005).
The earnings premium associated with education is far larger than the
cost--in tuition and forgone earnings--of remaining in school (Barrow
and Rouse 2005), and it has grown in recent decades. Figure 8-5 shows
the trends in the average annual earnings of individuals with high
school diplomas but no college and of those with bachelor's degrees.
In the mid-1960s, college graduates earned roughly 50 percent more
than high school graduates, on average; by 2008, the premium had more
than doubled.



Education has other important benefits besides increased earnings.
For example, recent studies have found that education improves people's
health (Cutler and Lleras-Muney 2006; Grossman 2005). The explanation
may be that better educated people make better health-related
decisions, such as exercising or not smoking, or that education allows
for easier navigation of a complex health care system. Education's
benefits also extend beyond the individual. More educated people
commit fewer crimes, vote more, and are more likely to support free
speech (Dee 2004; Lochner and Moretti 2004). They also make their
neighbors and coworkers more productive (Moretti 2004).

Trends in U.S. Educational Attainment

The United States has historically had the world's best education
system. Although most European countries once limited advanced
education to the economic elite, the United States has historically
made it broadly available. U.S secondary schools have been free and
generally accessible since early in the 20th century. By the 1950s,
nearly 80 percent of older teens (aged 15-19) in the United States
were enrolled in secondary school, compared with fewer than 40 percent
in Western Europe. The widespread expansion of state colleges and
universities, begun under the Morrill Land Grant Act of 1862, led to
even further advances in American education. Average educational
attainment of people born in 1975 was over five years higher than that
of those born in 1895. About 50 percent of the gain was attributable
to increases in high school education, about 30 percent to increases
in college and postcollege education, and the remainder to continued
increases in elementary education (Goldin and Katz 2008). During the
second half of the 20th century, as educational attainment rose
worldwide, the United States became a clear leader in graduate
education, attracting the brightest students from around the world.
Some remained in the United States, adding importantly to the Nation's
human capital stock and its diversity, while others returned to their
home countries and used the education they got here to help increase
prosperity there.
Harvard economists Claudia Goldin and Lawrence Katz contend that
America's strong educational system helped make the United States the
richest nation in the world (Goldin and Katz 2008). Over the past
several decades, however, U.S. leadership in education has slipped.
Although the Nation remains preeminent in postgraduate education, we
can no longer claim to be home to the most educated people in the
world.
For decades, the number of educated American workers grew faster
than did the demand for them. But beginning with the cohort that
completed its schooling in the early 1970s, the growth rate in the
supply of educated Americans slowed significantly. This can be seen in
Figure 8-6, which shows the mean years of schooling of Americans by
year of birth. High school and college graduation rates, which grew
steadily for many decades, began to stagnate, and younger generations
no longer graduate at significantly higher rates than did previous
generations. This slowdown in the growth of educational attainment has
contributed to rising income inequality, as the shortage of college-
educated workers has meant rising wages for high-skill work and falling
wages for work requiring less education. The current recession may
provide an opportunity to reverse this slowdown but only if our
education system can keep up with increased demand (Box 8-1).

Meanwhile, other developed countries have continued to improve their
educational outcomes, and the United States has slipped behind several
other advanced countries at both the high school and postsecondary
levels. Among the cohort born between 1943 and 1952--a group that
largely completed its education by the late 1970s--the United States
leads the world in the share with at least a bachelor's degree or the
equivalent. In more recent cohorts, the percentage completing college
has been roughly stable in the United States while increasing
substantially in several peer countries. Figure 8-7 shows that only 40
percent of Americans born between 1973 and



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Box 8-1: The Recession's Impact on the Education System

Today's weak labor market is likely to lead to short-and medium-run
increases in school enrollments, as high unemployment pushes many
young people to increase their job skills through further education.
Indeed, college enrollments rose substantially in 2008 relative to
2007, and preliminary reports suggest further increases in 2009. The
resulting increase in educational attainment will offer long-run
benefits for the economy, because today's students will be more
productive workers when labor demand returns to full strength.
In the short run, however, elevated enrollments are placing strains on
colleges, particularly the two-year colleges that are seeing most of
the enrollment increase, as colleges' costs are rising at the same
time state funding is being cut. Elementary and secondary schools are
under similar strains. In part because of reduced state funding,
schools employed roughly 70,000 fewer teachers and teachers' assistants
in October 2009 than a year earlier, even though student enrollments
were up. The reduction in per-pupil resources at both levels is an
unfortunate budgetary response. At this time of high unemployment, it
is desirable to encourage human capital formation, not make it more
difficult. The State Fiscal Stabilization Fund, part of the Recovery
Act, is helping in this regard, and recipients credit the Act with
creating or saving at least 325,000 education jobs through the third
quarter of 2009.
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1982 have completed associate's degrees or better. Equivalent
attainment rates are higher in nine other countries, led by Canada and
Korea, where 56 percent completed some postsecondary degree or
extended certificate program. High school graduation rates show a
similar pattern, with the United States slipping from the top rank to
the middle in recent decades.

U.S. Student Achievement

U.S. student achievement, as measured by assessments that capture how
much students know at particular ages or grades, has improved notably
in recent years, even as attainment has stagnated. The most reliable
barometer is the National Assessment of Education Progress (NAEP),
which has been administered consistently for more than three decades.
Figure 8-8 shows average NAEP math scores for students at three
different ages from 1978 through 2008. The performance of 9-year-olds
(who are typically enrolled in 4th grade) and 13-year-olds (typically
8th grade) has improved over the past 35 years. The size of the
achievement gains is impressive. Nearly three-quarters of 13-year-olds
in 2008 scored above the 1978 median, with similar gains throughout the
distribution. The performance of 17-year-olds (typically 12th graders)
has also improved, although the gain was smaller.
Despite recent progress, American students are not doing as well as
they should. In addition to average performance, the NAEP program
measures the fraction of students who attain target achievement levels
defined based on the skills that children at each age and grade should
have mastered. A student is judged ``proficient'' if he or she
demonstrates age- or grade-appropriate competency over challenging
subject matter and shows an ability to apply knowledge to real-world
situations. In the most recent tests, only 31 percent of 8th graders
were proficient in reading and only 34 percent in math. Proficiency
rates are similar in 4th grade.
For some subgroups, proficiency rates were much lower. Only 12
percent of black students and 17 percent of Hispanics were proficient
in math in 8th grade. The low achievement in these subgroups is also
reflected in low attainment. In 2000, only 81 percent of black young
adults (aged 30-34) had graduated from high school, and only 15 percent
had bachelor's degrees. Although racial and ethnic gaps have narrowed
importantly in recent decades--the black-white and Hispanic-white
mathematics gaps at age 13 in the NAEP long-term trend data are each
only two-thirds as large as in 1978--the low attainment and achievement
of black and Hispanic students remain disturbing evidence of
educational inequality in our society. Our future prosperity depends on
ensuring that American children from all backgrounds have the
opportunity to become productive workers.
Nowhere does low performance more acutely affect the health of the
U.S. economy than in the areas of science, technology, engineering,
and mathematics (known commonly by the acronym STEM). Employers
frequently report that they have difficulty finding Americans with the
qualifications needed for technical jobs and are forced to look abroad
for suitably skilled workers. Indeed, international comparisons show
that other countries achieve higher outcomes in STEM skills than we
do. In



2006, U.S. 15-year-olds scored well below the Organisation for
Economic Co-operation and Development (OECD) average for science
literacy on the Programme for International Student Assessment, and
behind most other OECD nations on critical skills and competencies,
such as explaining scientific phenomena and using scientific evidence.


A Path Toward Improved
Educational Performance

Concerned about the impact of stagnating educational outcomes on
U.S. economic growth, the President has pledged to return our Nation
to the path of increasing educational attainment. He has challenged
every young American to commit to at least one year of higher
education or career training. He also has set ambitious goals: by
2020, America should ``once again have the highest proportion of
college graduates in the world'' (Obama 2009a), and U.S. students
should move ``from the middle to the top of the pack in science and
math'' (Obama 2009b). Meeting these challenges will require substantial
commitment and reform, not just at the postsecondary level but also
in elementary and high schools and even in early childhood programs.

Postsecondary Education

The Nation's postsecondary education system encompasses a diverse
group of institutions, including public, nonprofit, and for-profit
organizations offering education ranging from short-term skill
refresher programs up to doctoral degrees.
In many of our peer countries, postsecondary education is entirely or
largely state funded, with little direct cost to the student. U.S.
postsecondary students, however, are generally charged tuition and
fees, which have risen substantially in real terms over the past three
decades. It is important to keep in mind that most of our students do
not pay full tuition, as more than 60 percent of full-time students
receive grant aid, and millions more also benefit from Federal tax
credits and deductions for tuition. But increases in financial aid and
Federal assistance have not kept up with rising costs, and the net
price of attendance at four-year public colleges has risen nearly 20
percent over the past decade (College Board 2009).
Young people may have trouble financing expensive investments in
college education even when these investments will pay off through
increased long-term earnings. Thus, rising college costs represent an
important barrier to enrollment. One study indicates that a $1,000
reduction in net college costs increases the probability of attending
college by 5 percentage points and leads students to complete about
one-fifth of a year more college (Dynarski 2003). Thus the dramatic
increase in the price of college has likely had an adverse impact on
college attendance and completion. Moreover, the impact of cost
increases is not evenly distributed: while students from high-income
families can relatively easily absorb the increases, students from
lower-income families are disproportionately deterred.
The rising cost of college is affecting educational attainment and
will continue to do so unless we find ways to make college more
affordable. To this end, the Administration has secured historic
investments in student aid, including more than $100 billion over the
next 10 years for more generous Pell Grants, much of it financed
through the elimination of wasteful subsidies to private lenders in
the student loan program. This will ensure that virtually all students
eligible for Pell Grants will receive larger awards. In addition, the
Administration is taking steps to dramatically simplify the student
aid application process, the complexity of which deters many aid-
eligible students from even applying. This simplification will help
millions more students benefit from the Federal investments in college
accessibility and affordability.
Tuition is not the only barrier to college completion. A great many
students, including nearly half of those at two-year institutions,
begin college but fail to graduate. Completion rates are particularly
low for low-income students. One way to raise completion rates is
through better design of the institutional environment. Recent rigorous
studies have shown that improvements such asenhanced student services,
changes in how classes are organized, innovations in how remedial
education is structured, and basing some portion of financial aid on
student performance can all contribute to improved persistence
(Scrivener et al. 2008; Scrivener, Sommo, and Collado 2009; Richburg-
Hayes et al. 2009).

Training and Adult Education

An often-overlooked component of the Nation's education system, one
in which the government makes a major investment, is job training and
adult education. In 2009, the Federal Government devoted more than $17
billion to job training and employment services and spent substantial
additional funds on Pell Grants for vocational and adult education
students. Training is provided by a diverse set of institutions,
including proprietary (for-profit) schools, four-year colleges,
community-based organizations, and public vocational and technical
schools. Box 8-2 discusses a particularly important type of training
provider, community colleges.
Studies have documented that training and adult education programs
improve participants' labor market outcomes. For example, a recent
study found that Workforce Investment Act training programs for adults
boosted employment and earnings, on average, although results varied
substantially across states (Heinrich, Mueser, and Troske 2008).
Evidence is also growing that state training programs for adults can
have large positive impacts on long-term earnings (Hotz, Imbens, and
Klerman 2006; Dyke et al. 2006).
Education and training for adults play critical roles in helping
displaced workers regain employment in the short term and in helping
them obtain and refresh their skills in the face of an ever-changing
work-place. For example, one study of displaced workers in Washington
State suggests that attending a community college after displacement
during the 1990s increased long-term earnings about 9 percent for men
and about 13 percent for women (Jacobson, LaLonde, and Sullivan 2005).
The benefits were greatest for academic courses in math and science, as
well as for courses related to the health professions, technical trades
(such as air conditioner repair), and technical professions (such as
software development).
Although research demonstrates the value of training programs, there
is no doubt that the current system could be more effective. Five
strategies that could improve effectiveness are: aligning goals across
different elements of the education and training system and
constructing a cumulative curriculum; collaborating with employers to
ensure that curricula are aligned with workforce needs and regional
economies; making sure that scheduling is flexible and that curricula
meet the needs of older and nontraditional students; providing
incentives and flexibility for institutions and programs to continually
improve and innovate; and establishing a stronger accountability system
that measures the right things, makes performance data available in an
easily understood format, and does not create perverse incentives to
avoid serving populations that most need assistance. Reauthorization of
the Workforce Investment Act will provide an opportunity to implement
these strategies.

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Box 8-2: Community Colleges: A Crucial Component of
Our Higher Education System

Community colleges are an important but often overlooked component of
the Nation's postsecondary education system. These colleges may offer
academic programs preparing students to transfer to four-year colleges
to complete bachelor's degrees, academic and vocational programs
leading to terminal associate's degrees or certificates, remedial
education for those who want to attend college but who left high
school insufficiently prepared, and short-term job training or other
educational experiences. Most also offer contract training in which
they work directly with the public sector, employers, and other
clients (such as prisons) to develop and provide training for specific
occupations or purposes.
Community colleges are public institutions that typically charge very
low tuition and primarily serve commuters, which makes them accessible
to people who do not have the resources for a four-year college. They
generally have ``open door'' admissions policies, requiring only a high
school diploma or an ability to benefit from the educational
experience. This makes them a good choice for older and nontraditional
students, as well asfor potential students who want to pursue
additional education and build their human capital but want or need to
do so at relatively low cost.
More than 35 percent of first-time college freshmen enroll at
community colleges. These colleges also serve about 35 percent of
individuals receiving job training through the Workforce Investment
Act, along with a notable proportion of adults attending adult basic
education, English as a second language, and General Educational
Development (GED) preparation classes. Researchers have estimated that
attending a community college significantly raises earnings, even for
individuals who do not complete degrees (Kane and Rouse 1999; Marcotte
et al. 2005).
Community colleges will form the linchpin of efforts to increase
college attendance and graduation rates. The Administration has
proposed a new program of competitive grants for implementing college
completion initiatives, with a focus on community colleges. Along with
the sorts of strategies mentioned above for training programs more
generally, community college initiatives could include building better
partnerships between colleges, businesses, the workforce investment
system, and other workforce partners to create career pathways for
workers; expanding course offerings including those built on
partnerships between colleges and high schools; and stronger
accountability for results. These strategies will help both to
strengthen colleges and to raise completion rates. The proposed
program also recognizes the need to learn from such investment
and therefore supports record levels of funding for research to
evaluate the initiatives' effectiveness.
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Elementary and Secondary Education

Students who leave high school with inadequate academic preparation
face greater challenges to success in postsecondary training. In 2001,
nearly one-third of first-year college students in the United States
needed to take remedial classes in reading, writing, or mathematics,
at an estimated cost of more than $1 billion (Bettinger and Long
2007). The need for remediation is a clear warning sign that a
student may later drop out. In one study, students who needed the most
remediation were only about half as likely to complete college as
their peers who were better prepared (Adelman 1998). Of course,
students who leave high school well prepared are more successful in
the labor market as well as in college.
The task of improving college and labor market preparedness begins in
elementary and secondary school, if not earlier. Among the most
important contributors to enhanced student outcomes is effective
teaching. Common sense and research both recognize the importance of
high-quality teachers, and yet too few teachers reach that standard.
Improvements are needed in teacher training, recruitment, evaluation,
and in-service professional development.
Not only is the supply of high-quality teachers insufficient but their
distribution across schools is inequitable. Frequently, schools with
high concentrations of minority and low-income students, the very
schools that need quality teachers the most, cannot recruit and retain
skilled educators. In New York State, 21 percent of black students had
teachers who failed their general knowledge certification exam on the
first attempt, compared with 7 percent of white students (Lankford,
Loeb, and Wyckoff 2002). A particular problem is high teacher turnover:
high-poverty and high-minority schools have much higher turnover than
do schools with more advantaged students. Some districts have begun
experimenting with financial incentives for teaching in high-need
schools; these efforts need to be rigorously evaluated and, if they are
found to be successful, disseminated widely.
Improving teacher quality, however, is not the only promising
strategy for change. Others include extending both the school day and
the school year. Many successful strategies have emerged from schools
that were given freedom to explore new and creative approaches to long-
standing problems. Although traditional public schools can be agents for
change, the public charter school model is tailor-made for such
innovation. The Nation's experience with charter schools has been
fairly brief, but evidence to date suggests that some of these schools
have found successful strategies for raising student achievement. An
important future challenge will be to take these strategies and other
innovative school models to scale, even as schools continue to search
for ever-better approaches.
Although most reforms in recent years have focused on elementary
schools, high school reform is now rising to the top of the education
policy agenda. Promising approaches to improving secondary education
include programs that offer opportunities for accelerated instruction
and individualized learning, programs to expand access to early college
coursework before finishing high school, residential schools for
disadvantaged students, and specialty career-focused academies.
An environment that supports innovation must be coupled with strong
accountability. Some innovations are bound to be unsuccessful, and
indeed there is substantial variation in the quality of both public
and charter schools. Strong accountability systems that promote
effective instructional approaches can provide incentives for all
school stakeholders to perform at their best and help to identify
struggling schools in need of intervention. Systems are needed to
identify failing schools, based on high-quality student assessments as
well as other metrics. At the same time, accountability strategies
must be carefully crafted to discourage ``teaching to the test'' and
other approaches that aim atthe measures used for evaluating schools
rather than at true student learning. Accountability strategies must
also recognize that student achievement reflects family, community, and
peer influences as well as that of the school.
Providing incentives for schools identified as failing to improve can
significantly improve student outcomes. Several states have done just
that. Sixteen years ago, Massachusetts began setting curriculum
frameworks and holding schools accountable for student performance.
Massachusetts students have historically scored above the national
average on various academic achievement measures, but since passing
school accountability reform, Massachusetts has moved even farther
ahead. In Florida, too, a strong school accountability plan,
implemented in 1999, has shown positive results (Figlio and Rouse
2006; Rouse et al. 2007).
The Recovery Act included an unprecedented Federal investment in
elementary and secondary education. The Race to the Top Fund provides
competitive grants to reward and encourage states that have taken
strong measures to improve teacher quality, develop meaningful
incentives, incorporate data into decisionmaking, and raise student
achievement in low-achieving schools. The upcoming reauthorization of
the Elementary and Secondary Education Act provides an opportunity to
make further progress.

Early Childhood Education

High-quality elementary and secondary schools are necessary, but
they are not enough. In recent years, researchers and educators have
learned a great deal about how important the school readiness of
entering kindergarteners is to later academic and labor market success.
School readiness involves both academic skills, as measured by
vocabulary size, complexity of spoken language, and basic counting, and
social and emotional skills such as the ability to follow directions
and self-regulate. Children who arrive at school without these skills
lack the foundation on which later learning will build.
Recent research indicates that as many as 45 percent of entering
kindergarteners are ill-prepared to succeed in school (Hair et al.
2006). Reducing the share of at-risk preschoolers is critical to
strengthening America's educational system and its labor market in the
long run. High-quality early childhood interventions can significantly
improve school readiness, especially for low-income children.
Intensive programs that combine high-quality preschool with home
visits and parenting support have been shown to raise children's later
test scores and educational attainment and also to reduce teen
pregnancy rates and criminality (Karoly et al. 1998; Schweinhart et
al. 1985).
The programs on which the most compelling research is based include
small classes, highly educated teachers with training in early
child-hood education, and stimulating curricula. They feature parent
training components that help parents reinforce what the teachers do
in the classroom. The programs also assist teachers in identifying
health and behavior problems that can inhibit children's intellectual
and emotional development. Importantly, even intensive, expensive
programs are cost-effective. For example, one particularly intensive
program was found to produce $2.50 in long-run savings for taxpayers
for every dollar spent, because in adulthood the participating
children earned higher incomes, used fewer educational and government
resources, and had lower health care costs (Barnett and Masse 2007).
Less intensive programs can be effective as well. The Head Start
program provides an academically enriching preschool environment for
3-and 4-year-olds, at a cost in 2008 of only about $7,000 per child
per year. Although the quality of Head Start centers varies widely,
studies have found that attendance at a well-run center improves
children's later-life outcomes (Currie and Thomas 1995).
Ensuring that all families have access to the services and support
they need to help prepare their children for kindergarten will require
a strong system of high-quality preschools and other early-learning
centers. Providers must be held to high standards and given the
resources--including qualified staff and teachers--needed for success.
And when children leave their preschool and prekindergarten programs,
they must have access to quality kindergartens that ease the
transition to elementary school.

Conclusion

The recession has taken a severe toll on American workers and many
will continue to suffer from its effects for sometime to come. A strong
safety net will be essential to helping working families through this
trying time. As the economy strengthens, we must rebuild our labor
market institutions in ways that ensure that prosperity and economic
security are more widely shared.
Going forward, workers who have strong analytic and interactive
skills will be best able to secure good jobs and to contribute to
continued U.S. prosperity. Education must begin in preschool, because
children's long-run success depends on arriving in kindergarten ready
to learn, and be available throughout adulthood, because our
increasingly dynamic economy requires lifelong learning. The
Administration's education agenda will strengthen our education and
training institutions at all levels.