LiNE Zine Spring 2001 - Learning and Earning: Having Your Cake and Eating It Too

Learning is to the knowledge economy what coal was to the industrial economy—the fuel for economic progress. That’s both the good news and the bad news. The good news is that unlike natural resources that are owned by a few, learning can be undertaken by anyone. The bad news is that those who, for whatever reason, do not learn are left out in the cold (so to speak).

Increasingly, learning is what separates the “haves” from the “have nots.” Over the past two decades, formal education, which is the imperfect but best proxy that we have for measuring learning on a large scale, has become an increasingly powerful determinant of earnings capacity. For example, in the U.S. the “wage gap” between those with and without a college education has more than doubled since 1980. In European countries, where labor markets tend to operate with less flexibility than in the U.S., this growing gap between the highly educated and the less educated has manifested itself more strongly in the form of differential unemployment—with the least educated increasingly bearing a disproportionate portion of it.

At the most fundamental level, learning is the prerequisite for change. With it, people are armed to take advantage of the new opportunities that emerge with breathtaking regularity. Without it, the new opportunities are just that—breathtaking. Without the capacity to learn, new opportunities (which typically emerge as old opportunities disappear) are not opportunities at all. They are a threat.

This suggests that the manner in which we approach learning will be a fundamental determinant of the type of society that we create. Not only does learning increasingly determine economic opportunity, it also increasingly shapes all of that which accompanies economic opportunity, or the lack thereof. It determines where we live, who our neighbors are, where our children go to school, and the safety of the streets that they walk on to and from school. It also shapes our health and longevity, and in many ways determines the extent to which each of us will contribute to society’s problems, or be a source of the solution.

In other words, learning has become far too important to be left to chance. No matter how much of a believer you are in the powers of the free market, it seems evident that learning should not be left to it. Children certainly deserve better than the worst that it has to offer—although that is not the point that I want to focus on here. Rather, the point is that adults deserve better too. Not only do they deserve better, it is in our enlightened self-interest to make sure they get it.

Once a person leaves the formal education system, it is their work that is the primary source of their capacity to learn—especially to learn skills and knowledge that have economic significance. Research has shown that workplace learning has powerful effects on people’s earnings capacity. For example, the “wage effect” of 40 hours of formal training is estimated to be about 8% for individuals with little previous work experience. That is to say, an individual who has the good fortune to participate in formal learning activities at work would be expected to earn about 8% more per annum than an otherwise equivalent person who did not participate in formal learning. That is a huge effect—of approximately the same magnitude as an entire additional year of formal education.

But here’s the real clincher. Other research has shown that at the low end of the income distribution, parents’ earnings have a huge impact on the well-being of their children; a relatively small increase in earnings can have a big impact on children of low-income parents (although, not surprisingly, this is not true for children of high income parents). In fact, it appears that the detrimental effects that children too often experience as a result of being raised by a single mother (e.g., low grades, drug and alcohol problems, teenage pregnancy) are primarily attributable to low income, rather than to being raised by a single mother.

So here’s the point. Learning is not just a good thing. Given the high degree of correlation between people’s economic well-being and other non-economic dimensions of families’ well-being, learning is an increasingly important determinant of the overall quality of life.

This line of argumentation leads inexorably to the conclusion that it is in society’s interest to actively promote lifelong learning. And since so much of life is spent at work, that seems like an excellent place to start. Sure—people can go to night school. But the reality is that when you’re working (potentially long hours and/or more than one job), commuting (often on public transportation), caring for your children and attending to whatever other obligations you have, there is precious little time left to go to school. Especially for those who could benefit the most from doing so.

That means that employers who make it easy for people to learn at work deserve our special thanks. But they deserve more than our thanks. They deserve our help.

Unfortunately, given the laissez faire policies in vogue in the United States, workplace learning is a topic that receives no attention whatsoever from a public policy perspective. Implicitly, we have taken the view that if it’s a good thing, then the market will take care of it. But that view fails to distinguish between the “private good” and the “public good.” Although “the market” is terrific at maximizing the private good, and also the public good when it coincides with the private good, the market is lousy at arriving at optimal solutions when the two—public and private good—do not coincide. And with regard to lifelong learning, they do not.

Public good and private good diverge in the presence of “externalities.” Because there are “negative externalities” associated with smoking, we impose a tax on it (both to discourage the activity and to help pay for its negative effects). Because learning has “positive externalities” associated with it (it makes for a better society), we subsidize it heavily. But increasingly, learning does not (or should not) stop when people leave the school system. In the era of unprecedented change in which we live, learning must be ongoing if people and families are to have a chance of benefiting from—rather then being harmed by—change.

Currently, we have no systematic public policy in place for fostering workplace learning—especially for the low-income individuals who could benefit from it most. Although some states governments promote workplace literacy programs, the federal government has done nothing. Moreover, there are federal policies in place that actually create disincentives for employers to invest in workplace learning.

Although it seems unlikely (to say the least) that, under the current political climate, there will be a surge of federal activity to promote workplace learning among low-income individuals, one could hold out hope that, at a minimum, the disincentives that employers currently face in this regard could be eliminated. There are at least two, closely related disincentives which could be eliminated—and at virtually no cost to the federal coffers:

1. Employers’ spending on employee education and training is accounted for as a cost (although a “hidden” cost—a point which is taken up below). Consequently, unlike an investment in tangible assets (computers, plant, equipment) an investment in education and training cannot be amortized. So it reduces this quarter’s earnings. And because executive compensation is increasing tied to earnings (and stock prices), this puts investments in learning on uneven footing with investments in tangible assets. This is a poor policy for the knowledge era.

2. Unlike every other major source of investment (including investments in intangibles assets such as research and development), firms’ investments in education and training are not publicly reported. So not only are the current earnings lower for firms that make substantial investments in learning, potential investors have no way of knowing that future earnings can be expected to increase because of the investment that has been made. This adds insult to the injury of the aforementioned accounting problem.

The long and short of it is that firms must make investments in workers’ education and training despite public policy and related pressures from financial markets, rather than because of those pressures. Almost certainly, the tendency to cave in to these pressures will be most evidence for the people who have the most to lose—those workers who are at the bottom of the earnings distribution.

This is not only wrong, it is foolish and shortsighted. Here we are, squarely in the midst of the knowledge era, allowing industrial era mindsets and policies to continue to shape our actions. These policies have costs without benefits. They promote the perpetuation of an under-class in a society that prides itself on providing equal opportunity to all.

We are faced with an opportunity (in the infamous words of Marie Antoinette) to “let them eat cake.” But because learning is both an investment and a necessity in the knowledge economy, there is an opportunity for people to have and eat their cake. A rare opportunity, indeed. One not to be missed.

Although she has a heretical streak in her, Laurie Bassi spends most of her days passing as a conservative, mainstream economist and president of Human Capital Dynamics, a research-based consulting firm in Chevy Chase, Maryland. She also serves as a research fellow to Saba and Accenture’s Institute for Strategic Change. She can be reached at lbassi@hcdynamics.com.

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