Education, Economic Growth, and Gaps in Information

T iiis brief paper concerns a rather speculative and wide-ranging document on economic growth. It is not a study of the economics of education, but in it I was forced to make a foray into this field. The entire study focuses in quantitative terms-upon three questions. What have been the sources of past United States growth? What will be the probable future growth rate? How much could the future growth rate be altered by various actions that might be considered? My interest in the sources of past growth arose partly because quantitative estimates were needed to approach the other two questions, but mainly because of the feeling that a systematic and simultaneous look at all the possible sources of growth should give rise to a more objective appraisal of each than the more usual examination of only one source in isolation. Tables 1 and 2 show the estimates. One shows the sources of growth of total real national income, the other of real national income per person employed. The tables divide growth broadly between the contribution of increased inputs and that of increased output per unit of input. The general approach to measurement of the contribution of increased inputs is simple (although there are some fairly complicated refinements that I shall not discuss here) and rather conventional. If all inputs increase 1 per cent, output should increase 1 per cent. (I actually assume output will increase more than 1 per cent, but the excess is shown separately in the tables as the contribution of economies of scale.) If labor earnings represent 73 per cent of the national income, then labor must represent 73 per cent of total inputs, and a 1 per cent increase in labor input alone will increase national income by 0.73 per cent. There are considerable advantages in using growth rates rather than percentage changes in the calculations, and this is what I have actually done. Thus, if labor input increased at an average annual rate of 1 per cent over some period and labor earnings averaged 73 per cent in this period, the assumption is that the increase in labor inputs contributed 0.73 percentage points to the growth rate of total real national income. (This result is subject to several refinements, but it indicates the general approach.) I treat a change in the average quality of labor in exactly the same way as an increase in its quantity, and it is here that education comes into the study. If, in the previous example, the average quality of labor increased at an average annual rate of 1 per cent because of more education, 0.73 points in the growth rate would be ascribed to this factor. My study devotes a chapter to education, in which the estimation of changes in the average quality of the labor force resulting from education is described. In brief, earnings differences between groups of males of similar age, classified by education, are taken to represent differences in their contributions to production or quality. Educational groups differ not only by the fact of education but by natural ability, amount of experience, and other factors. Of the total earnings differentials, three-fifths are assumed to result from differences in education and associated offsetting differences in work experience, as distinguished from natural ability, energy, and other factors. This provides weights for combining groups with different amounts of education. Distribu-