Alan Greenspan: The growing need for skills in the 21st century
Remarks by Mr Alan Greenspan, Chairman of the Board of Governors of the US Federal Reserve
System, before the US Department of Labor 21st Century Workforce Summit, held in Washington, DC
on 20 June 2001.
* * *
I am pleased to have the opportunity to be part of today's 21st Century Workforce Summit and
appreciate the hospitality of Secretary Chao and the Department of Labor.
The past decade or so has been marked by a remarkable surge in technological innovation and
business efficiency. This period of rapid innovation has brought with it enormous opportunities to
enhance living standards for a large majority of Americans. Our ability to take full advantage of these
opportunities depends crucially on how well we as a nation can integrate these new technologies into
our society.
In my remarks today, I would like to offer some perspective on the challenges created by the
interaction of new technologies with the skills of the American workforce, and how the educational
system has in the past and can in the future respond to these challenges.
The process of innovation is, of course, never ending. Over the past 100 years, for example, the rate
of increase of the gross domestic product of the United States, adjusted for price change, has
averaged around 3 percent per year. Yet only a fraction of that increase represents growth in the
tonnage of physical materials - particularly oil, coal, wood, raw chemicals - and increases in the
amount of manual labor employed in the production process. The remainder represents new
value-adding insights into how to rearrange physical materials and labor inputs to better serve human
needs - in short, the conceptual content of the GDP.
The inexorably rising share of the nation's output that is conceptual appears to have accelerated
following World War II with the insights that led to the development of the transistor, microprocessor,
laser, and fiber optic technologies. By the 1990s, these and other critical innovations had fostered an
enormous new capacity to capture, analyze, and disseminate information and had begun to alter
significantly how we do business and create economic value, often in ways that were not foreseeable
even a decade ago. Indeed, it is the proliferation of information technology throughout the economy
that makes the current period so special.
The types of skills needed to interact with the new methods of adding value associated with this
diffusion of information technologies are complex. One obviously needs a core of highly skilled
workers to push the frontier of technology forward and to make the newer technologies more
accessible to the rest of the workforce. Once technology becomes more user friendly, the ability of the
general workforce to create value is greatly facilitated.
What is particularly telling in this regard is how well the American economy has performed with a
workforce for which the average level of education has been roughly unchanged for a quarter of a
century. As labor markets tightened in the mid-1990s, the anecdotal reports of worker shortages were
worrisome. There were numerous stories of employers going through entire lists of people before
finding someone who could do the job, and widespread concerns that a lack of high-tech skills among
American workers would prevent much of the population from participating fully in the economic gains
associated with the emerging high-tech revolution. Consistent with these anecdotes, in a national
survey of small businesses, the percentage citing labor quality as their most important problem rose
from less than 5 percent in 1993 to 20 percent by 1998.
As it turned out, however, the capacity for American businesses to absorb the less educated part of
our workforce seems to have been far greater than these anecdotes implied. The unemployment rate
for adults with a high school education or less fell from 43⁄4 percent in 1998 to around 4 percent by the
middle of last year. And, while the proportion of small-business managers who worried about labor
quality has remained elevated in the past few years, it did not increase further in spite of the decline in
unemployment.
One explanation for this phenomenon is the often-observed multiplier effects of technological
breakthroughs. For example, as engineers and programmers have developed increasingly more
sophisticated hardware and software, the vast productive benefits of computers have become far
more readily available to the average worker in recent years. Looking back a number of decades to
the early stages of the information technology revolution, we can see that COBOL and Fortran were
the "visas" into the world of technology. Those workers without very sophisticated programming skills
could not interface with the new computer-driven technologies and thus often could not take
advantage of the potential productivity improvements associated with those technologies. But today's
increasingly user-friendly software has enabled workers with far less education and skills to engender
value added from new technologies that their older brothers and sisters could not have foreseen a half
generation earlier.
In particular, we are finding that despite the awesome capabilities of our newer innovations, there are
certain skills inherent in all human beings that technology cannot replicate. Low-skilled workers in
decades past had to rely principally on their manual labor skills to create value added. Today, the
newer technologies give similarly skilled workers the opportunity to vastly multiply their
value-producing capabilities by leveraging their ability to identify and classify. For example, retail sales
clerks not only facilitate sales in the conventional manner, but also automatically engender books of
account, inventory control, and supplier reorders.
But, while software has increased our capacity to integrate lower-skilled individuals into the workforce,
the rapidity and unpredictability of innovation also imply a need to strengthen those cognitive skills of
our overall workforce. An increasing proportion of the workforce must be equipped not simply with
technical know-how, but also with the ability to create, analyze, and transform information and to
effectively interact electronically with others.
Moreover, learning will increasingly need to be a lifelong activity. The days when a high school or
college education would serve a graduate throughout his or her working career are gone. Today's
recipients of diplomas should expect to have many jobs and to acquire and use an ever-expanding
range of skills over their working lives.
It may not seem credible that an educational system shown by many studies to stifle learning between
the fourth and twelfth grades relative to the systems of our foreign trading partners can provide our
workforce with the necessary intellectual tools going forward.
But, while such studies suggest there is much to be done, there also are reasons to be optimistic. In
the past, our educational system, defined in its widest sense, has been guided importantly by the
marketplace toward the broader needs of our economy. Indeed, the history of education in the United
States traces a path heavily influenced by two themes: the need for a workforce with the skills required
to interact productively with the evolving economic structure, and a thirst for knowledge among the
American people.
The educational system during the early years of the United States was far less formalized than today.
There were, of course, grammar schools and colleges that catered to the wealthier segments of
society. But most individuals had little access to more than a minimal level of formal schooling
because they were needed to work on the farm. In 1800, for example, more than 90 percent of
Americans lived on farms. Yet, our ancestors understood the value of education, and less formal
arrangements were frequently used; home-based schooling, private tutors, and church-sponsored
Sunday schools are just a few examples. The one-room schoolhouse on the prairie still provokes a
remarkable, though perhaps not wholly justified, degree of nostalgia.
People felt that once a child learned how to read and write, an unlimited world opened up. The focus
in those early years was thus often on increasing literacy - beyond that, children were expected to
read books to satisfy their interest in other subjects such as science or philosophy. In this sense, the
inquisitive nature of the people of that time drove the need to know beyond the measures of formal
education in those early years.
Evidence of our ancestors' intellectual capacity and desire to acquire a broader education are
abundant. Abraham Lincoln, for example, had little formal education while a young child, but once
taught how to read by his mother, he read voraciously in a wide range of subjects. And one can only
marvel at the letters that twenty-year-old soldiers sent back home in the Civil War. They were
remarkably thoughtful and literate. These soldiers, presumably with little formal education, were
obviously reasonably well read. They did have the advantage, of course, of a world without television.
Early in the twentieth century, advances in technology began to require workers with a higher level of
cognitive skills, for instance the ability to read manuals, to interpret blueprints, or to understand
formulas. Our market-driven educational system responded: In the 1920s and 1930s, high school
enrollment in this country expanded rapidly, pulling youth from rural areas, where opportunities were
limited, into more productive occupations in business and broadening the skills of students to meet the
needs of an advancing manufacturing sector.
At the same time, our system of higher education was also responding to the advances in economic
processes. Although many states had established land grant schools earlier, support for these schools
accelerated in the late nineteenth century as institutions located in states that specialized in agriculture
and mining sought to take advantage of new scientific methods of production. A century ago, the
content of education at an American college had evolved from a classically based curriculum to one
combining the sciences, empirical studies, and modern liberal arts.
Universities responded to the need for the application of science - particularly chemistry and
physics - to the manufacture of steel, rubber, chemicals, drugs, petroleum, and other goods requiring
the newer production technologies. Communities looked to their institutions of higher learning for
leadership in scientific knowledge and for training of professionals such as teachers and engineers.
During this time, the scale and scope of higher education in America was shaped by the recognition
that research - the creation of knowledge - complemented teaching and training - the diffusion of
knowledge. In broad terms, the basic structure of higher education remains much the same today, and
it has been one that has proven sufficiently flexible to respond to the needs of a changing economy.
Certainly, if we are to remain preeminent in transforming knowledge into economic value, the U.S.
system of higher education must remain the world leader in generating scientific and technological
breakthroughs and in preparing workers to meet the evolving demands for skilled labor. However, the
pressure to enable all workers to benefit from the new technologies also requires that we strengthen
the significant contributions of other types of training and educational programs, especially for those
with lesser skills.
The notion that formal degree programs at any scholastic level or that any other training program
established today can be crafted to fully support the requirements of one's full working life has become
subject to increasing doubt. It is evident that we need to foster a flexible education system - one that
integrates work and training and that serves the needs both of experienced workers at different stages
in their careers and of students embarking on their initial course of study.
Community colleges, for example, have become important providers of job skills training not just for
students who may eventually move on to a four-year college or university but for individuals with jobs
- particularly workers seeking to retool, retrain, or simply to broaden their skills. The increasing
availability of courses that can be taken "at a distance" over the Internet means that learning can more
easily occur outside the workplace or the classroom.
Economists have long argued that a significant proportion of the work knowledge that one acquires in
a lifetime is produced on the job. Several decades ago much of that on-the-job training was acquired
through work experience. Today, businesses and labor unions are placing greater emphasis on the
value of formal education and training programs - ranging from corporate universities to partnerships
with community colleges and other providers - as well as relationships with public agencies, including
welfare-to-work and school-to-work programs. These efforts recognize that technologically advanced
learning must be grounded in real-world curriculums that are relevant to changing business needs and
that it be provided in flexible venues that open access to development of skills to as many workers as
possible.
Meeting the complex range of skills likely to be required of our workforce in the future presents a
significant challenge to our educational system. But it is a challenge we cannot afford to ignore. We
must provide young people with the opportunities and incentives to learn. We must ensure that our
population at all ages and all competencies receives an education that will allow full and continuing
participation in this dynamic period.