no skills to pay the bills, pt. 1

I'm sure if you asked Barack Obama or John McCain directly about the importance of schools, they'd give you a rousing sermon (or at least a few firm talking points). Yet education reform has been notably absent from our political debate. The candidates love riling up voters' economic nationalism, whether it's talk of foreign oil, foreign cars, China (everyone's favorite boogeyman), outsourcing, globalization, immigrants, or any other buzzword that places blame for American worker woes far from the doorstep of the American government and people.

Yet it’s not globalization or immigration or computers that have widen inequality and slowed wage growth for many Americans. It’s the skills gap.

And while there are plenty of expensive plans to alleviate American poverty to varying degrees, tax-and-redistribution will never provide the economic opportunity and security that we wish for all Americans.

Education should be the primary program to cure our social ills as the key to sustainable high compensation. It is both the key to advancing the welfare of the American poor, and also the means of securing America's economic growth.

This post will focus on primary/secondary education, with a post to follow on college education. Some of the prettier lines from this post I've lifted either from my summaries (linked below) or the original articles (also linked below), but I've spent a bit more time for the sake of flow and coherency to reformulate these ideas.

First, let's recount why education is more important than ever.

The labor market has expanded dramatically in the past 50 years -- undoubtedly for the better of Americans and all mankind. That said, unskilled Americans have had a much, much, much smaller share of the bounty than their fellow citizens.

The problem is that employing unskilled American labor isn't much more profitable than buying a simple machine or employing unskilled labor in a third-world country, yet many unskilled Americans will only accept wages that are much higher than a third-world laborer will accept or a machine will cost.

The value of unskilled labor is low. This sounds like a truism, but it wasn't always the case. Before the machines took over the world and the cost of doing business far from market plummeted, an unskilled laborer simply giving you a few hours time could get a decent wage (of course, that is relative to his peers; relative to his 21st century counterpart his life would be shorter and more brutish). What's more, the American laborer with a high school education likely still had an advantage over his global competition - that advantage has since disappeared.

Meanwhile, unskilled laborers have watched the skyrocketing wages of skilled laborers,. This shift in labor value has been jarring for many Americans, who are ill-prepared to compete for wages based on value-added by their labor, rather than simply time spent at work. And let's be clear, the days of factories full of high-paying manufacturing jobs are gone forever.

Most means of fighting this growing inequality carry large costs that reduce the size of the economic pie (e.g., taxes on capital gains, rent control, large welfare programs). By contrast, investing in human capital encourages work and offers the potential for permanent increases in earnings.

It is no surprise we are seeing a divergence in income when the most valuable skills (soft) are only being attained by a minority of students who graduate college and high-school graduates lack both hard and soft skills.

The skill-wage hierarchy will always exist. Education -increasing skills- is the lone hope for the poor to actually improve their condition.

The wage premium for a high school degree has all but disappeared. There is little point in recounting the soul-crushing underperformance of American public schools, so let us instead look abroad to high-performing examples.

Two of the best primary/secondary schooling examples to learn from reside in Sweden and Finland. The Fins explain the key to their success is to develop excellent initial training for teachers (only ~10% of applicants are accepted for teacher training), start education late and gently (Fins start at 7), and don't waste resources on national testing. The Fins' biggest problem? Getting rid of bad teachers- even with alcohol problems.

While the Fins are more focused on testing achievement (...just not national testing), the Swedes are more interested in developing well-rounded thinkers, evidenced by their varieties of schools and competition, forcing schools to think more pointedly about quality as they risk losing 70k kronor if an unhappy student goes elsewhere.

Swedish reforms in 1994 allowed nearly anyone who satisfies basic standards to open a new school and take in children at the state's expense. Schools can't admit based on religion or entrance exams and nothing additional beyond the set payment by the state can be charged for - but making a profit is fine. Since the reforms, the share of Swedish children educated privately has risen significantly, leading to the proliferation of many "chain" schools.

In these chains, teachers update material on websites, utilize tutors, student-specific syllabi, and weekly student progress reports, and received performance monitoring and bonuses as personal tutors and subject teachers. There are no large school-owned facilities.

The schools are profitable despite only getting a fixed $8-12 thousand per student rate from the locality. The average returns on capital are 5-7% per year thanks to the adept, no-frills, IKEA-style management. I imagine its hard for Americans to imagine so little money can get you student-specific syllabi and tutors - but it can.

Back in the US, efforts to reform public education have centered completely on one thing: money. (One exception is the widely panned NCLB... Why is it panned? Big reason is lack of funding!)

Yet there is scant to any literature that shows increased spending leading to improved results, despite many court decisions mandating increased spending on the premise it is responsible for achievement gaps. That is not to say that less books are as good as more books, but it is to say that spending is not the binding constraint on academic achievement, and that dramatic increases in funding will not lead to the academic gains we'd like to see.

I believe that the public school organizational structure is incompatible with the flexibility and experimentation needed to attain the efficiency and productivity found in Sweden or Finland. Yet until recently, experimentation with other types of schooling has been verbotten. Thankfully, the crumbling public school empire couldn't hold off the barbarians at the gate forever.

Free-market types have managed to carve out a few nooks and crannies for educational experimentation in the US, and we are beginning to see the first efforts to sprout out of these charter-school reservations.

The nation's largest laboratory can be found in New Orleans, where 55% of public school students attend charter schools, by far the highest percentage of any city in the country. Dayton, Ohio and Washington, D.C. are second and third in charter-school market share.

It is still too early to draw firm conclusions on the New Orleans charter system, but there has been demonstrable achievement improvement in what was an entirely stagnant district. Classes are smaller, principals have been reshuffled or removed, school-hours remedial programs have been intensified, and after-school programs to help students increased. Much of the gains are attributed to the quality of instructors.

It would appear that government would be able to accomplish these aims, but it has not. New Orleans charter schools have capitalized on their flexibility to try different programs, allocate resources differently - to innovate. Surely, there will be success and failure in this process; the belief is that the successes will survive and reproduce, while the failures will whither away from disuse.

Top-down government management is ill-suited to support this process.

Meanwhile, in NY, charter schools are experimenting with increased principal autonomy, higher teacher salaries (with cutbacks elsewhere), and other education philosophies. In Washington D.C., there is a pilot program that will pay middle school students that meet academic and behavioral goals.

Are any of these ideas answer? Maybe, maybe not. But whether they work or not, the path to progress in education lies in entrepreneurial districts not national standards, empowered teachers not accredited teachers, and education markets not education mandates. Progressives are often quick to suggest we take notes from top performers around the world. I would love to see us take a page out of the Swedish playbook.

Next, we will look at what's holding back America's university system from reaching its potential.