America in the Global Economy: A Background Paper for the New Commission on the Skills of the American Workforce

In this paper the authors identified the size of America's home market as a crucial component of its historical comparative advantage. The authors showed that over the last four decades nearly 60 percent of per capita U.S. growth has been dependent upon growth in the domestic consumption. Thus, a comprehensive demand side strategy also must target the domestic consumers U.S. businesses know best. On the supply side, they asked themselves what education and skills matter for individual and national economic success in the global economy? The authors' research demonstrated that education matters for growth and college matters the most. Boosting college completion rates by just 10 percent would inject $125 billion into the economy over the long run. Education credentials often serve as a signaling devise that employers use to gauge what potential hires might know and be able to do on the job. Employers are really interested in the knowledge, skills and abilities people bring to the workplace, not just their education credentials. The authors examined a new data set to test this hypothesis and found preliminary evidence to support it. The authors showed that the greater the level of skill required of occupations, the higher the education levels of job incumbents. Secondly, they found that the greater the level of skill required of occupations, the greater the average earnings for workers in those occupations, after holding constant the level of education. Consequently, not only is there a clear payoff to education, there also is an independent payoff to higher skills. And that appears true not only for competencies like innovation, critical thinking, and complex problem solving, but also for basic skills and social skills that are important in interacting with colleagues and customers. They also found that these competencies were useful in estimating which jobs are most vulnerable to being offshored overseas. In conclusion, they recognize that globalization is neither automatically beneficial nor universally destructive. Neither their analysis nor history offer assurances, though their work does suggest some ways forward. Therefore, they should identify strategies that will enable America to seize opportunities presented by globalization while minimizing its negative effects on communities, workers, and their families. Average Earnings by Education of Workers and the Competency Level Occupations Require are appended. (Contains 14 figures, 8 tables and 57 endnotes.) [This paper was written with Zamira Simkins.]