Roger W Ferguson, Jr: The importance of education
Remarks by Roger W Ferguson, Jr, Vice Chairman of the Board of Governors of the US Federal
Reserve System, at the commemoration of Black History Month, The Johns Hopkins University
Applied Physics Laboratory, Maryland, 24 February 2006.
* * *
I am pleased to have the opportunity to be part of the Applied Physics Laboratory's commemoration of
Black History Month. Your theme, "Celebrating Community: A Tribute to Black Technical, Educational,
and Social/Civic Institutions," aptly highlights a number of the key building blocks that have enabled
many African Americans to fulfill their personal dreams. In that regard, I would like to focus my talk
today on education--its importance and its ongoing role in economic achievement.
As members of an organization dedicated to cutting-edge scientific research and development, you
undoubtedly deeply appreciate the ongoing need for our nation's workforce to embody advanced
levels of training. Investment in human capital--as we economists like to call it--is critical to generating
products and services with high economic value. Today, much of that high-value output demands
workers with the creativity, cognitive abilities, and skills to interact with challenging technologies. In
addition, ongoing innovation requires workers to be flexible and to be willing to view education as a
life-long commitment. In short, an educated workforce is a must if our economy is to continue to enjoy
significant gains in productivity and living standards.
At the same time, the link between education and individual economic success is well documented. An
investment in education is associated with a higher probability of employment. For African Americans,
a college degree can substantially narrow the longstanding gap between their labor market
experiences and those of whites. Last year, for example, when the national unemployment rate
averaged 5.1 percent, the jobless rate for black adults (25 years and older) with a bachelor's degree or
higher was 3.5 percent; for white adults, the jobless rate was 2 percent. For persons with only a high
school diploma, both the rates of joblessness and the disparity between the rate for blacks and that for
whites were greater: an unemployment rate of 8.5 percent for blacks versus 4 percent for whites.
Perhaps more indicative of the economic value of education, workers with college degrees earn an
education premium, and that premium has risen over the past twenty-five years. Most economists
have found that an additional year of schooling typically raises an individual's earning power between
8 and 15 percent. Recent studies show that four years of college boost earnings about 65 percent.1
Clearly, economic achievement and educational achievement are intertwined. For that reason,
education is at the heart of efforts to promote equal opportunity for all Americans. We have made
some progress in opening doors to education for African Americans; we must make more.
As I reflect on the educational attainment of black Americans, I would say that the news is still mixed.
The percentage of African Americans aged 25 to 29 who have completed high school or obtained a
GED remains on an uptrend. But the improvements slowed over the 1990s, and in 2004 it remained,
at close to 89 percent, short of the rate for non-Hispanic white youth, which was just over 93 percent.2
One important factor in the uptrend in high-school completion has been a corresponding downtrend in
the high-school dropout rate for African Americans. Here again, however, the improvement has been
slower recently than in the 1970s and 1980s. In 2003, 6.3 percent of black students in grades 10 to 12
left school during the year--down from the over-the-year dropout rate of 9.7 percent in 1981 but little
changed from the rate in 1991.3 For white high schoolers, the dropout rate between 2000 and 2001
was 4.1 percent.
Economists have identified a number of reasons for the racial gap in dropout rates, including lower
expected returns to education because of discrimination in the job market and the lower quality of
schools attended by blacks. Clearly, raising the quality of our elementary and secondary schools is a
longstanding goal, and the potential economic and social payoffs seem likely to be high. Research has
shown that improving school conditions in the South from the early to the middle part of the twentieth
century contributed significantly to greater school completion rates by African Americans.4 Other
findings suggest that the support and encouragement that students receive from their families and
communities can also help keep students engaged in school. In recent years, a number of economists,
including staff members of the Federal Reserve Bank of Minneapolis, have argued that intensive
preschool programs can help to build important noncognitive skills, such as persistence and motivation
and, as a result, have large private and public net benefits.5
Of course our job is not done when our students reach high school graduation--indeed, in today's
economy, it is only just beginning. Our goal must be to see that our investments in motivating and
educating students in our homes and in the elementary and secondary schools provide the students
with the ability to pursue the advanced education and training that today's labor market values so
highly.
Certainly, the trends in college-attendance by blacks have been positive in recent years, but compared
with the uptrend in high-school completion, progress in college completion among African Americans
has unfortunately been relatively slow. The percentage of the black population aged 25 to 35 that has
completed four years of college more than doubled between 1970 and 2000, from 6.5 percent to 15
percent. However, completion rates for young white adults, which were already much higher, climbed
even more rapidly--to almost 33 percent in 2000.6
The difference in college completion by race reflects both lower rates of college enrollment and lower
rates of graduation by African Americans. Of African Americans aged 18 to 24, the percentage
enrolled in college is 10 percentage points lower than the percentage of non-Hispanic whites
enrolled.7 The difference in graduation rates for those students who enroll in college is particularly
striking. Of those students who enrolled as first-time students at a four-year institution in the 1995-96
academic year, approximately 62 percent of whites had completed a bachelor's degree by 2001,
whereas only 43 percent of blacks had done so.8
Researchers offer several potential explanations for the difference in college graduation rates by race.
The extent to which family income or borrowing costs significantly constrain the decision to enroll in
college has been hotly debated by economists.9 The common ground in the debate seems to be that
needy students who are capable should be helped financially. But money alone is not the answer;
students must receive the support, encouragement, and preparation from their teachers, families, and
communities that will make the transition from high school to college successful. Research has shown
that blacks have a higher rate of college attendance than whites and a similar rate of college
completion when the comparison is made across individuals with similar educational achievement in
4
David Card and Alan Krueger, "School Quality and Black-White Relative Wage Differentials," Quarterly Journal of
Economics, 1992.
5
James J. Heckman and Pedro Carneiro, "Human Capital Policy," in James J. Heckman and Alan B. Krueger, eds.,
Inequality in America: What Role for Human Capital Policies? (The MIT Press, 2003), and Rob Grunewald and Arthur
Rolnick, "A Proposal for Achieving High Returns on Early Childhood Development," Federal Reserve Bank of Minneapolis,
May 2005.
6
Yolanda Kodrzycki, "College Completion Gaps between Blacks and Whites: What Accounts for the Regional Differences,"
New England Economic Review, Federal Reserve Bank of Boston, First Quarter 2004.
7
U.S. Census Bureau of the Census, Education and Social Stratification Branch, Current Population Survey Report,
Historical Tables, Table A-5a (Excel file).
8
U.S. Department of Education, Digest of Education Statistics, Table 311, National Center for Educational Statistics, 2004.
9
Refer to, for example, Thomas Kane, "College Entry by Blacks Since 1970: The Role of College Costs, Family Background,
and the Returns to Education," Journal of Political Economy, October 1994; J. Bradford DeLong, Claudia Goldin, and
Lawrence F. Kartz, "Sustaining U.S. Economic Growth," in Henry J. Aaron, James M. Lindsay, and Pietro S. Nivola, eds.,
Agenda for the Nation (The Brookings Institution, 2003); Steven V. Cameron and James J. Heckman, "Can Tuition Policy
Combat Rising Wage Inequality," in Marvin Kosters (ed.), Financing College Education: Government Policies and
Educational Priorities (American Enterprise Institute, 1999).
BIS Review 13/2006
high school.10 This finding provides yet another reason for greater investment in the quality of
secondary schools. Such investment may increase not only rates of high-school graduation but also
rates of college completion.
As I noted earlier, the linkage between education and economic opportunity is typically measured by
the relationship between education and earnings. Earnings are an important measure of one's
success in the labor market, but broader measures of income and ultimately net worth are even more
significant yardsticks for gauging the financial health of households. The Federal Reserve's Survey of
Consumer Finances, which collects data every three years on the balance sheets of American
families, provides comprehensive information on household income, assets, and liabilities.11 Data from
the most recent survey show that, from 2001 to 2004, real (that is, inflation-adjusted) family income
was little changed for both African American and non-Hispanic white households. And the gap
between median incomes for the two groups remained quite large. Specifically, the median income of
black households was about $29,000--only 58 percent of the median for non-Hispanic white
households. The gap was somewhat narrower among households headed by an individual with a
college degree; median income for African American households in this group was close to
$54,000-75 percent of the median for non-Hispanic whites. Although black households have gained ground
over the past decade, income inequality continues to be a concern. Lower income makes it more
difficult for black families to acquire assets and to create wealth.
The 2004 results show that economic progress for blacks, as measured by real net worth, has been
substantial over the fifteen years that the surveys have been conducted. Real median net worth for
African-American households in 2004, at $20,400, was more than three and one-half times as great as
it was in 1989. That said, the wealth gap between blacks and non-Hispanic whites, whose median real
net worth stood at $140,700 in 2004, remains sizable. A substantial part of the wealth gap between
black and non-Hispanic white families is associated with their ownership of assets. Although the racial
wealth gap is significant at the top of the wealth distribution, a more important difference is that a much
greater proportion of African-American families than whites have zero or near-zero real net worth.
The increase in ownership of nonfinancial assets for black households in recent years occurred
primarily in residences, other real estate, and privately held businesses. Because none of these types
of assets is owned by a large share of black families, any wealth gains arising from them will not be
widely distributed across black families. Nonetheless, blacks continued to make progress in
homeownership in 2004. As is the case regardless of race, the home is typically a family's largest and
most important asset. Homeownership is one of the cornerstones of wealth creation and is generally
associated with a range of socially desirable outcomes, including better schools, less crime, and
greater neighborhood stability. For these and other reasons, increasing the rate of homeownership
has been a longstanding national priority. Of course, because we are interested not simply in
homeownership or the value of homes but in net worth, an important consideration in terms of wealth
creation is the amount of equity that families have in their homes--that is the difference between the
value of the home and any debt secured by it. Over the most recent survey period, during which
property values have risen rapidly, the median value of home equity for African-American homeowners
increased an impressive 24 percent.
Business ownership, too, remains an important avenue of wealth creation for African Americans. The
median net worth of black families with business assets was about $174,000 in 2004, a level more
than eight times the median net worth for all black families. Furthermore, the survey results show far
less inequality in median net worth and income between black and non-Hispanic white business
owners than between black and non-Hispanic white families overall.
All told, the findings from our most recent survey, along with the other trends that I discussed earlier,
highlight noticeable gains in the economic well-being of African Americans. However, they also clearly
show that much more needs to be accomplished, and I believe that education is the key to further
progress.
Given the importance of education in today's economy, I was encouraged to see that the Applied
Physics Laboratory is committed to a number of programs that engage minority students at all levels of
schooling. These programs are aimed at developing a commitment to lifelong learning--beginning with
an introduction to math, science, and technology in our primary and secondary schools. In light of the
differences in college completion rates I noted earlier, I was glad to see that APL offers internships for
talented minority undergraduates in computer science and engineering that give them opportunities to
do research and to be mentored by professionals in their fields and that it provides support for
graduate study in engineering.
I was also interested to learn that many of your undergraduate interns are students from historically
black colleges and universities (HBCUs). To borrow a phrase from Juan Williams, those very special
institutions have for decades had as their central mission helping African Americans "find a way or
make one."12 And, even though black enrollment at other colleges and universities has risen over
time, HBCUs continue to account for more than one-fifth of all bachelor's degrees awarded to African
Americans.13 Among those schools and their graduates are many with a longstanding commitment to
scientific and technical education, dating from George Washington Carver's tenure at Tuskegee to
Julian Earls' work at NASA. In this region, we are fortunate to have a fine group of HBCUs: Howard
and Morgan State, both highly regarded across a range of curricula; Bowie State, which specializes in
training black students for masters degrees in computer science; Maryland Eastern Shore, with its
emphasis on marine and environmental science; and Coppin State, known for its nurturing of students
as they build the fundamental skills that allow them to move on to more-advanced work.
Although most of my remarks today have centered on the economic value of education, I want to
emphasize that a good education is much more that just the classroom-based learning of facts, or
even the skill of critical thinking. Formal education is just the starting point for a lifetime of learning and
doing. And a truly outstanding education is one that instills in students moral values and ethical
behaviors. In striving to encourage our students to do "well," we must not forsake our responsibility to
give them a solid grounding in those topics that will help them do "good." You may be surprised to
hear that even the economics profession--well-known for its hard-headed assumption of rational actors
pursuing their own self interest--has in the past few decades focused on the role of moral and
cooperative behaviors in leading to better economic outcomes. The accounting and corporate
governance scandals in recent years have revealed how costly such unethical and opportunistic
business dealings can be, potentially to all of us.
Let me close by saying that the economy of the United States depends greatly on an educated
workforce--one with the skills to tackle new ideas and new technologies, one in which morals and
ethics are deeply instilled, and one with a love of learning, exploring, and questioning that lasts a
lifetime. The African-American community's commitment to education as a path to equal opportunity
dates back at least to Frederick Douglass. We all must resolve to keep that longstanding commitment
strong.