Brookings: Experts - Isabel V. Sawhill

Why We Still Think College Isn't for Everyone

Isabel V. Sawhill and Stephanie Owen — Mon, 13 May 2013 15:41:00 -0400

Is a college degree worth it? Not for everyone, according to our newly-released Center on Children and Families policy brief. The value of a college degree can vary dramatically, depending on factors such as field of study, type of college, graduation rate and future occupation. Here’s our final follow-up blog post, where we take a closer look at the conclusions we come to in the brief. (Read the first, second, and third parts here.)

Last week, the Center on Children and Families released a policy brief on making smarter decisions about higher education. We have welcomed the ensuing spirited debate from policymakers, students, colleges, and fellow researchers. The title of our policy brief, “Should Everyone Go To College,” is intentionally provocative and was chosen to start a conversation around the question. In favor of simplicity, we used the blanket term “college” to argue that a traditional four-year bachelor’s degree is not for everyone. We do think that some sort of postsecondary training is a good idea for almost everyone. This includes associate’s degrees, technical and vocational certification, apprenticeships, and worker training programs.

Some suggest that encouraging marginal students to pursue some of these non-academic paths creates a tracked system that keeps low-income and minority kids out of the upper echelons of our society. For that reason, vocational education has largely fallen out of favor in the United States, but gaps in academic performance between rich and poor and blacks and whites have persisted or, in the case of income, even grown. Closing these gaps has been one goal of the research done by the Center on Children and Families at Brookings, and we agree strongly that more needs to be done to prepare students to be college ready at the end of secondary school. But for the students we focus on in our brief—teenagers and young adults planning their educational and career paths—it is often too late to make up this lost ground.

The goal should be to help them make the choices that will turn out best for them given their individual strengths at the end of high school. For a student who has performed poorly in the classroom, the most bang-for-the-buck may come from a vocationally-oriented associate’s degree or career-specific technical training or from a period of work before returning to school with stronger motivation to learn what academic institutions teach. Think of the alternative: this student’s poor grades and possible ambivalence about classroom learning means he is likely to never finish his degree, and will have wasted time and money that could have been spent learning an employable skill. On the other hand, there are plenty of low-income students who are smart enough to succeed in college but who tend to choose schools that are beneath their ability and are more likely to drop out. The correlations of family background with college entry, persistence, and graduation have been rising, meaning it is especially important to help low-income students with the requisite abilities and preparation to enroll in a high-quality institution. Those individuals could benefit from better information about financial aid, graduation rates, and expected earnings.

Unfortunately, that information is not currently available: no one single comprehensive dataset containing information on earnings by school (let alone by major or program) exists. The Student Right to Know Before You Go Act, which we mention in our brief, has bipartisan support and would be an improvement on the status quo. The PayScale dataset we used for our brief has significant limitations, including questions about the reliability of its calculations and its representativeness.

Finally, some have rightly pointed out that our findings are descriptive, and should not necessarily be interpreted causally. It is likely true that smarter students self-select into engineering majors, so not every student will do better if she studies engineering rather than English. The same logic applies to more selective schools: part of why students at elite schools do better later on is that they are more talented before they ever enter college. Even so, careful economic research suggests that students do best when they attend the best school they can get in to, and that certain majors have real benefits.

Ultimately, higher education decisions are made by individual students and their families, and are based on their unique interests, strengths, and personal values, not only income and career prospects. Students need to have realistic expectations about what they’re likely to get out of pursuing higher education. Rigorous economic research has found that there is a sizeable proportion of people who experience a negative return to their education. That doesn’t mean they may not excel at other pursuits. It just means that one size doesn’t fit all high school students.

Authors

Isabel V. Sawhill
Stephanie Owen

Image Source: © Jessica Rinaldi / Reuters

Helping Young People Make Better Higher Education Choices

Isabel V. Sawhill and Stephanie Owen — Fri, 10 May 2013 09:00:00 -0400

Is a college degree worth it? Not for everyone, according to our newly-released Center on Children and Families policy brief. The value of a college degree can vary dramatically, depending on factors such as field of study, type of college, graduation rate and future occupation. Here’s the last in a three-part blog post series, where we take a closer look at findings from the policy brief. (Read the first part and second part here.)

Even though we often talk about college as a monolith, the truth is that not all college degrees are created equal. There is huge variation in the return to a bachelor’s degree, depending on choice of major and occupation; school type and selectivity level; and likelihood of graduating. All of this suggests that it is a mistake to unilaterally tell young Americans that going to college—any college—is the best decision they can make. If they choose wisely and attend a school with high graduation rates, generous financial aid, and high expected earnings, they can greatly improve their lifetime prospects. The information needed to make a wise decision, however, can be difficult to find and hard to interpret.

We lay out a three-pronged approach that would help every young person make a smart investment in their future: better information, performance-based scholarships, and better alternatives to a traditional four-year degree.

Authors

Isabel V. Sawhill
Stephanie Owen

Image Source: Mike Segar / Reuters

For Some, College May Not Be a Smart Investment

Isabel V. Sawhill and Stephanie Owen — Thu, 09 May 2013 09:00:00 -0400

Is a college degree worth it? Not for everyone, according to our newly-released Center on Children and Families policy brief. The value of a college degree can vary dramatically, depending on factors such as field of study, type of college, graduation rate and future occupation. Here’s the second in a three-part blog post series, where we take a closer look at findings from the policy brief. (Read the first part here.)

For a young adult shopping for a college, the choices can be overwhelming. That shiny brochure can make College X look like a great place to spend four years. But what do you really get out of choosing one school over another? As it turns out, quite a bit. The return on investment (ROI) of a bachelor’s degree varies widely at different types of schools. For certain schools, according to the online salary information company PayScale, the ROI is actually negative.

But getting into college and choosing a school is only the beginning. College isn’t worth much unless you graduate. Part of what sets certain schools apart is how many of their incoming students actually come out with a degree.

Notice that there is a wide range of completion rates within each school selectivity category, particularly for the less selective colleges. Not every student can get into Harvard, where the likelihood of graduating is 97 percent, but students can choose to attend a school with a better track record within their ability level.

Authors

Isabel V. Sawhill
Stephanie Owen

Image Source: © Rebecca Cook / Reuters

Should Everyone Go To College?

Stephanie Owen and Isabel V. Sawhill — Wed, 08 May 2013 09:00:00 -0400

Summary

For the past few decades, it has been widely argued that a college degree is a prerequisite to entering the middle class in the United States. Study after study reminds us that higher education is one of the best investments we can make, and President Obama has called it “an economic imperative.” We all know that, on average, college graduates make significantly more money over their lifetimes than those with only a high school education. What gets less attention is the fact that not all college degrees or college graduates are equal. There is enormous variation in the so-called return to education depending on factors such as institution attended, field of study, whether a student graduates, and post-graduation occupation. While the average return to obtaining a college degree is clearly positive, we emphasize that it is not universally so. For certain schools, majors, occupations, and individuals, college may not be a smart investment. By telling all young people that they should go to college no matter what, we are actually doing some of them a disservice.

The Rate of Return on Education

One way to estimate the value of education is to look at the increase in earnings associated with an additional year of schooling. However, correlation is not causation, and getting at the true causal effect of education on earnings is not so easy. The main problem is one of selection: if the smartest, most motivated people are both more likely to go to college and more likely to be financially successful, then the observed difference in earnings by years of education doesn’t measure the true effect of college.

Researchers have attempted to get around this problem of causality by employing a number of clever techniques, including, for example, comparing identical twins with different levels of education. The best studies suggest that the return to an additional year of school is around 10 percent. If we apply this 10 percent rate to the median earnings of about $30,000 for a 25- to 34-year-old high school graduate working full time in 2010, this implies that a year of college increases earnings by $3,000, and four years increases them by $12,000. Notice that this amount is less than the raw differences in earnings between high school graduates and bachelor’s degree holders of $15,000, but it is in the same ballpark. Similarly, the raw difference between high school graduates and associate’s degree holders is about $7,000, but a return of 10% would predict the causal effect of those additional two years to be $6,000.

There are other factors to consider. The cost of college matters as well: the more someone has to pay to attend, the lower the net benefit of attending. Furthermore, we have to factor in the opportunity cost of college, measured as the foregone earnings a student gives up when he or she leaves or delays entering the workforce in order to attend school. Using average earnings for 18- and 19-year-olds and 20- and 21-year-olds with high school degrees (including those working part-time or not at all), Michael Greenstone and Adam Looney of Brookings’ Hamilton Project calculate an opportunity cost of $54,000 for a four-year degree. In this brief, we take a rather narrow view of the value of a college degree, focusing on the earnings premium. However, there are many non-monetary benefits of schooling which are harder to measure but no less important. Research suggests that additional education improves overall wellbeing by affecting things like job satisfaction, health, marriage, parenting, trust, and social interaction. Additionally, there are social benefits to education, such as reduced crime rates and higher political participation. We also do not want to dismiss personal preferences, and we acknowledge that many people derive value from their careers in ways that have nothing to do with money. While beyond the scope of this piece, we do want to point out that these noneconomic factors can change the cost-benefit calculus.

As noted above, the gap in annual earnings between young high school graduates and bachelor’s degree holders working full time is $15,000. What’s more, the earnings premium associated with a college degree grows over a lifetime. Hamilton Project research shows that 23- to 25-year-olds with bachelor’s degrees make $12,000 more than high school graduates but by age 50, the gap has grown to $46,500 (Figure 1). When we look at lifetime earnings—the sum of earnings over a career—the total premium is $570,000 for a bachelor’s degree and $170,000 for an associate’s degree. Compared to the average up-front cost of four years of college (tuition plus opportunity cost) of $102,000, the Hamilton Project is not alone in arguing that investing in college provides “a tremendous return.”

It is always possible to quibble over specific calculations, but it is hard to deny that, on average, the benefits of a college degree far outweigh the costs. The key phrase here is “on average.” The purpose of this brief is to highlight the reasons why, for a given individual, the benefits may not outweigh the costs. We emphasize that a 17- or 18-year-old deciding whether and where to go to college should carefully consider his or her own likely path of education and career before committing a considerable amount of time and money to that degree. With tuitions rising faster than family incomes, the typical college student is now more dependent than in the past on loans, creating serious risks for the individual student and perhaps for the system as a whole, should widespread defaults occur in the future. Federal student loans now total close to $1 trillion, larger than credit card debt or auto loans and second only to mortgage debt on household balance sheets.

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Should Everyone Go To College?

Authors

Stephanie Owen
Isabel V. Sawhill

Image Source: © Brian Snyder / Reuters

Going to College? Think Hard About Your Major and Your Career After You Graduate

Isabel V. Sawhill and Stephanie Owen — Wed, 08 May 2013 10:00:00 -0400

Is a college degree worth it? Not for everyone, according to our newly-released Center on Children and Families policy brief. The value of a college degree can vary dramatically, depending on factors such as field of study, type of college, graduation rate and future occupation. Here’s the first in a three-part blog post series, where we take a closer look at findings from the policy brief.

For the past few decades, it has been widely argued that a college degree is a prerequisite to entering the middle class in the United States. We all know that, on average, college graduates earn significantly more money over their lifetimes than those with only a high school education. Brookings’ Hamilton project has estimated that the average bachelor’s degree holder makes $570,000 more over a lifetime than the average high school graduate. What gets much less attention is that the college premium varies widely by the choices students make.

For example, the value of a bachelor’s degree depends heavily on choice of major and later occupation. No surprise here: the highest paid major is engineering. If on the other hand you studied education (but didn’t go on to get a master’s degree), you can only expect to make half of what those engineering majors do. (Stagnant teacher compensation is a whole other topic that we won’t go into here.)

Not everyone ends up working in the field they studied in college, so it’s also useful to look at earnings by occupation. The highest-earning occupation category is architecture and engineering, with computers, math, and management in second place. The lowest-earning occupation for college graduates is service.

Of course, plenty of people choose to study art or become teachers because they derive intrinsic value from those fields that can’t be measured by a paycheck. Personal preferences and noneconomic benefits are important, too. Few among us would want to live in a world with all programmers and no artists, or all investment bankers and no philanthropists.

Authors

Isabel V. Sawhill
Stephanie Owen

Image Source: © Jessica Rinaldi / Reuters

College Is The Holy Grail, But Should Everyone Go?

Isabel V. Sawhill — Wed, 08 May 2013 09:30:00 -0400

The new Holy Grail in American life appears to be a four-year college degree. Almost all high school students and their parents aspire to go to college, and high school graduates are enrolling in much higher numbers than in the past. The problem is that too few of them are graduating. Dropout rates from four-year schools are over 40 percent and from community colleges they are closer to 70 percent. The need for remedial courses to compensate for what kids are not learning in high school is distressingly high and not all that effective.

For those who actually graduate, a college degree can pay off handsomely in the labor market. After adjusting for other confounding variables, the extra lifetime income associated with a bachelor’s degree is $570,000, and the rate of return is high – somewhere around 10 percent. However, those figures are averages. The benefits of a college degree vary widely depending on the quality of the school and a student’s choice of major. Not all college degrees are created equal: there is a huge variation in the return to a bachelor’s degree, depending on choice of major and occupation; school type and selectivity level; as well as the likelihood of graduating. The details are spelled out in a newly released Brookings brief that notes that 170 of 853 unique schools, or 1 in 5 of those schools analyzed, have negative returns on investment.

With college costs at record highs, many students are incurring debilitating debt. Student loans are the second largest item on household balance sheets after mortgage debt. It may actually be irresponsible to tell young people that college is always the best choice, and that they will be able to find jobs that make these debt levels affordable. If a student is able to get into a school with high graduation rates, generous financial aid, and he or she chooses a major with high expected earnings – such as engineering or science -- they can greatly improve their lifetime prospects. But an expensive degree at a non-selective four-year school with a low graduation rate may not be a wise decision.

How can we help students make smarter investments in their postsecondary years? First, we need to make sure they have better information on financial aid, graduation rates, earnings levels, and other relevant information about the institutions they are considering. Some of this data exists, such as the PayScale college rankings and the Obama Administration’s College Scorecard, but should be more broadly publicized. Second, we should encourage more students to consider less traditional postsecondary alternatives such as job training programs, apprenticeships, vocational certificates, and associate degrees that train students in skills that are in high demand by employers. Finally, financial aid should be tied to academic performance: research suggests that students with financial aid that has strings attached are more likely to complete their degrees.

Authors

Isabel V. Sawhill

Publication: Real Clear Markets

Image Source: © Jason Reed / Reuters

Infographic: Should Everyone Go to College?

Isabel V. Sawhill and Stephanie Owen — Wed, 08 May 2013 16:33:00 -0400

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Should Everyone Go To College?

Authors

Isabel V. Sawhill
Stephanie Owen

Subsidizing Higher Education May Not Be Paying Off

Isabel V. Sawhill and Ron Haskins — Tue, 07 May 2013 00:00:00 -0400

A college degree has long been touted as a key component for a successful and prosperous life. But a more critical look reveals that coming in prepared and graduating is often the biggest challenge, especially for disadvantaged students. Senior fellows Isabel Sawhill and Ron Haskins discuss the findings from in the latest issue of The Future of Children journal which is devoted to post secondary education preparation as well as a new Center on Children and Families brief that examines the college return-on-investment.

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Subsidizing Higher Education May Not Be Paying Off

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Money Illusion, the Chained CPI, and the Benefits of Inflation

Isabel V. Sawhill — Wed, 17 Apr 2013 00:00:00 -0400

Economists have long recognized the fact that money illusion plays a role in how people behave. Money illusion is the tendency to evaluate the merits of a transaction based on nominal rather than real values.

In an interesting chapter by Eldar Shafir, Peter Diamond, and Amos Tversky in the path-breaking book, Choices, Values, and Frames, these authors reports on a number of experiments where, when presented with various choices, respondents behave in a way that suggests they are influenced by nominal and not just real values.

Keynes recognized that this was one reason why wages are “sticky” – that is, hard to reduce even when prices are actually falling. If prices are falling and nominal wages are reduced, workers are no worse off than before, but they will still resist any cut in their nominal wage because a loss in dollar terms is still hard to bear.

This tendency of behavior to be influenced by money illusion goes well beyond the reaction of employees to wage gains and losses. In the investment arena, a higher rate of inflation leads people to be less fearful about losing money since they tend to evaluate the losses in nominal terms. As a result, when inflation is higher, they tend to undertake more risky investments and end up earning more money by allocating a higher fraction of their portfolio to riskier assets.

Money illusion has played a role in the huge fuss being made about the proposal to change the inflation index for Social Security to the chained CPI. No one seems to realize that under the existing formula, seniors have been getting what could be characterized as an unwarranted adjustment in their benefits measured in real rather than nominal terms. The upward bias in the current inflation adjustment is well known to economists but not to the general public. The public believes that moving to a chained CPI is the equivalent of a benefit cut. A more accurate way of looking at it is as a corrective to what has been a small but automatic increase in real benefits for many years.

An economist reading the literature on money illusion and observing people’s behavior is likely to wring her hands over what seems like irrational behavior on the part of most people. The CPI brouhaha is a nice example. But clouds of irrationality do have a few silver linings.

First, in an inflationary environment, it is easier to reallocate resources from one area to another without lowering the morale of workers or the holders of capital. These reallocations are needed to spur the growth and efficiency of the market.

Second, government budgets often contain tax or benefit program formulas that are not indexed for inflation. Up until the 1980s, for example, income tax thresholds were not indexed with the result that as inflation increased people’s nominal incomes they were automatically moved into higher tax brackets and revenues flowed into the Treasury without anyone complaining very much. A more up-to-date example is setting a nominal threshold for paying an income-tested Medicare premium. If this is not adjusted for inflation, more and more people over time will be drawn into the system. The current thresholds are $85,000 of modified adjusted gross income for single tax filers and $170,000 for joint filers. While this encompasses a very small fraction of all Medicare enrollees now, it will cover far more beneficiaries a decade or two from now, thereby enhancing the solvency of the Medicare system. For better or worse, money illusion is a politician’s best friend.

Finally, there seem to be constant worries that the buildup of assets on the Fed’s balance sheet will lead to inflation. Granted unwinding their holdings could be tricky, but it’s time we stopped worrying so much about small amounts of inflation. Serious inflation is nowhere in sight and will not occur as long as the economy is operating so far below its potential. In addition, for some of the reasons cited above, a little more inflation would not be such a terrible thing.

Authors

Isabel V. Sawhill

Publication: Yahoo! Finance

Image Source: © Brendan McDermid / Reuters

Brookings Expert Roundtable on President Obama’s Federal Budget Proposal for FY 2014

Ron Haskins, Isabel V. Sawhill and Bill Frenzel — Thu, 11 Apr 2013 16:00:00 -0400

President Obama’s FY 2014 budget proposal offers a blueprint that will cut the deficit by $1.8 trillion dollars over the next decade, invest more in infrastructure and early childhood education and is intended to improve the nation’s failing fiscal health. But can it really do that? And more? We examine the budget proposal and its impact in this discussion.

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Around the Halls: The Obama Administration's Budget Release

Alice M. Rivlin, Isabel V. Sawhill and Bill Frenzel — Wed, 10 Apr 2013 12:00:00 -0400

With the release of the Obama administration's FY 2014 budget, Brookings experts weigh in on the president's proposals:

Alice Rivlin, Senior Fellow, member of the President’s Debt Commission:

The President’s budget offers specific proposals for creating jobs and investing in productivity while simultaneously reining in the rising debt. It creates the opportunity to jumpstart serious bipartisan negotiation on how to accelerate the recovery in the context of balanced comprehensive tax and entitlement reform that will put the budget on a sustainable path for the long-run future.

Isabel Sawhill, Senior Fellow and Co-Director of the Brookings Budgeting for National Priorities Project:

This budget begins the difficult process of reallocating funds from more affluent seniors to lower-income families and their children. Much more needs to happen on this front over the coming decade but the President's proposals to limit spending on Medicare and tax-favored forms of retirement saving for the most affluent, slow the growth of social security benefits for non-vulnerable seniors and invest in Pre-K programs are all steps in the right direction.

Read Sawhill’s related blog post: The President’s Budget: A Good Strategy for Difficult Times

William Frenzel, former House Budget Committee Ranking Member and Brookings Guest Scholar:

It does not pass muster as a Budget because it does not get us where we want to be in ten years. But, as an invitation to Republicans to re-engage in ‘grand bargain’ discussions, it demonstrates real leadership by the President.

Authors

Image Source: © Gary Cameron / Reuters

The President’s Budget: A Good Strategy for Difficult Times

Isabel V. Sawhill — Mon, 08 Apr 2013 15:08:00 -0400

The President’s budget will be released on Wednesday and its outlines have already been revealed to the media. According to most accounts, he will offer to slow the growth of entitlements, make some new productivity-enhancing investments in infrastructure and early childhood education, and insist on raising some new revenues by curbing deductions for the wealthy.

The big question is what will this accomplish in our current deeply polarized environment?

He has clearly chosen a more centrist approach than the two parties in Congress. His plan is more liberal than the House Republicans’ but more conservative than the Senate Democrats’. Democrats will be especially upset that he is proposing to change the inflation adjustment used for Social Security benefits and Republicans will continue to insist that new revenues are unacceptable. Finding a compromise in this environment will be almost impossible, especially if Republicans remain wedded to their mantra of no (more) new taxes.

At the same time, he may have moved far enough away from the usual Democratic position to interest some Republican senators in a deal. His plan to meet with members of the Senate right after the budget is released suggests that he plans to continue his so-called “charm offensive” and that he wants to find a way to make this budget work politically. If he is successful, and can get a plan agreed to in the Senate, he and his allies will be able to present such a plan to the House, putting them in the difficult position of either agreeing with most of the plan or looking even more recalcitrant than usual.

The House Republican budget plan involves abolishing the Affordable Care Act, making draconian cuts to Medicaid and other programs for the poor, shifting Medicare to a premium support plan a decade from now, and not only retaining, but adding to, the deep cuts to domestic discretionary spending included in the sequester. It says more about Republican ideology than it does about what the public supports. The voters favor a more balanced plan and one that protects the poor and avoids terminating many parts of the health care reform bill.

If I’m right that the President’s plan is much better aligned with public preferences than anything the House is contemplating, then even if he loses the political battle, he can win the public opinion war. Some Democrats argue that it is a mistake for him to compromise so soon in the process, but that argument ignores the impact his positions can have on how the voters judge his performance. There will be more battles to come with the expiration of the debt ceiling in May and the need to fund the government in 2014, not to mention the mid-term elections in the fall of that year.

With the public at his back, the President may ultimately prevail, as he did post-re-election with his plan to raise taxes on the wealthy. Whether he does or not, he has no other choice than to try to find a reasonable compromise. His willingness to talk about entitlements and to make specific proposals to reduce their growth needs to be part of the strategy. He can do this without giving up on the equally-important need to reform the tax system in a way that produces some new revenues.

Authors

Isabel V. Sawhill

Image Source: © Jason Reed / Reuters

Knot Yet: The Future of Marriage in the U.S.

Wed, 20 Mar 2013 09:00:00 -0400

Event Information

March 20, 2013
9:00 AM - 11:30 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

One of the major demographic and social changes of the last four decades has been the dramatic increase in the average age at which Americans first marry, from the early twenties in 1970 to the late twenties today. Delayed marriage in America has helped to bring the divorce rate down since 1980 and increased the economic fortunes of educated women, according to “Knot Yet: The Benefits and Costs of Delayed Marriage in America,” a new report from the National Marriage Project at the University of Virginia, the National Campaign to Prevent Teen and Unplanned Pregnancy, and the RELATE Institute.

But another important consequence of this change is that a majority of young adults under 30 now have their first child before they marry. “Knot Yet” explores the causes and consequences of this revolution in family composition and explains why premarital childbearing is associated with dramatically different family formation strategies. The great crossover in childbearing and marriage is concentrated among the 60 percent of young adults who have a high school degree but not a college degree.

On March 20, the Center on Children and Families at Brookings hosted a discussion to explore the policy and cultural responses that may help reconnect marriage and parenthood. One of the report’s authors summarized the findings and recommendations; several authors and critics, representing an array of political viewpoints, provided their reactions.

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A Balanced Budget Should Take a Backseat to Real Reforms

Isabel V. Sawhill — Thu, 14 Mar 2013 14:28:00 -0400

Both houses of Congress have now submitted their budget plans. The House plan is the handiwork of Republican Rep. Paul Ryan and balances the budget within 10 years by cutting spending. The Senate plan, offered by Democratic Sen. Patty Murray, puts the debt on a downward trajectory relative to the economy but is far less draconian. It includes a balanced mix of spending cuts and revenue increases but does not aim to balance the budget.

No one who has looked at the numbers thinks it's realistic to balance the budget within 10 years while simultaneously increasing defense spending and reducing the top tax rates (personal and corporate) to 25 percent. The only way Ryan is able to achieve this feat is by eliminating Obamacare and slashing funding for Medicaid and other domestic programs, including those targeted on low-income families.

That said, getting our fiscal house in order should be a high priority. The issue is not only how to do this—but also how quickly. Too much fiscal austerity in the near term could tank the economy. The spending cuts enacted in 2011 after the debt ceiling crisis and the tax increases agreed to in early 2013 will, in combination, halve the growth rate of the economy in 2013, according to the Congressional Budget Office. The Democrat's budget includes $100 billion of short-run spending on infrastructure, education and technology to help the economy recover more rapidly. Whatever one thinks of such stimulus measures, the fact remains that without stronger growth, businesses and households will not thrive, revenues will not recover and debt will continue to grow even if spending is reduced.

In my view, we should enact reforms to both taxes and entitlements now but phase them in gradually so as not to undermine the recovery. Whether we balance the budget at the end of 10 years is less important than whether Democrats and Republicans can set aside their starkly different priorities and enact these painful but much needed reforms. The big challenge is not balancing the budget; it's restoring confidence that our government can work.

Authors

Isabel V. Sawhill

Publication: US News and World Report

Payments to Elders Are Harming Our Future

Harry J. Holzer and Isabel V. Sawhill — Fri, 08 Mar 2013 00:00:00 -0500

Foolish, indiscriminate and badly timed cuts in the federal budget have begun. The primary reason is that Republicans have refused to budge any further on taxes. Still, Democrats must share some of the blame. By failing to propose more specific cuts to entitlement spending, they have forfeited the high ground and allowed a small but critical set of programs to absorb all of the pain.

The “sequester” is just the latest chapter in the muddled thinking that has characterized the story of the federal budget for the past several years. Alarmists who call for immediate spending cuts and immediate reductions in our debt-to-GDP ratio (now at 73 percent) overstate the dangers of current levels of spending and debt, and they understate the damage to employment and economic growth that results from recently enacted belt-tightening. That tightening, including the effects of provisions enacted in both 2011 and 2013, is expected to halve the growth rate in the gross domestic product this year, according to the Congressional Budget Office.

This self-inflicted wound to the economy and to jobs makes no sense. If anything, we should be using this period, when workers are underemployed and firms’ physical plant and financial resources are underutilized, to improve productivity by investing more in infrastructure and job training.

At the same time, those who argue that we can put off any serious discussion of debt reduction for a number of years — because of the temporarily stable debt-to-GDP ratio projected for 2015 to 2022 — understate the dangers that loom just beyond this period. The aging population and the growth of health-care costs make enacting reforms to entitlements imperative. Enacting them now would help the economy by reducing uncertainty. This would also instill more confidence in government, give people time to adjust and release the pressure on the small portion of the budget that so far has absorbed virtually all of the cuts.

The reluctance of our fellow progressives to consider sensible reforms to entitlement programs is puzzling. None of us wants to impose new burdens on vulnerable seniors or those who are about to retire. But any new provisions can be phased in gradually and structured in a way that protects the oldest and most fragile members of the population in addition to those with limited incomes.

With these caveats, progressives must begin to acknowledge a hard fact: Our very expensive retirement programs already crowd out public spending on virtually all other priorities — including programs for the poor and those that strengthen the nation’s future — and will do so at even higher rates in the next decade and beyond unless we reform these large programs.

Social Security and Medicare alone cost the federal government about $1.3 trillion last year, accounting for more than 37 percent of federal spending; they are slated, along with interest on the debt, to absorb virtually all currently projected federal revenue within the next several decades. In contrast, all nondefense discretionary spending — which includes outlays on education, job training, transportation, public safety, research and many other growth-enhancing programs — amounted to only 17 percent of the budget, and they will continue shrinking each year.

Given that Americans have always resisted paying high taxes — and we see little sign of that viewpoint changing — what will happen to other priorities as our spending on retirement programs soars? Even if revenue rises, how can we possibly begin to fund the investments — in early-childhood health and education programs, K-12 reforms, effective workforce policies, improvements to crumbling infrastructure and the advancement of science — that are so badly needed to generate broadly shared economic growth? For how long will we continue to sacrifice investments in our nation’s children and youth, as well as its future productivity, to spend more and more on the aged?

Our preference is to restructure the delivery of health care so that it delivers the same benefits in less costly ways. Growth in health-care costs has slowed over the past few years, and the Affordable Care Act may bring further progress. But such changes are likely to be insufficient, requiring some restrictions on eligibility or expenditures. Asking affluent seniors to pay more for their benefits would be a good place to start.

If the issues are fairness and growth, not the size of government per se, then the right thing to do is to ask the affluent to pay more. Cutting programs aimed at providing a way up the ladder for the young and the poor, and doing so at a time when the economy is weak, is just plain dumb.

Authors

Harry J. Holzer
Isabel V. Sawhill

Publication: The Washington Post

Let's Have More Immigrants, Not More Babies

Isabel V. Sawhill — Wed, 20 Feb 2013 12:04:00 -0500

Fertility has fallen in all advanced countries and will almost surely continue to fall in the future. In the United States, the fertility rate is now 1.93 children per women, a little below the replacement level of 2.1. It waxes and wanes with the state of the economy and other factors, but the long-term trend is pretty clear: women have fewer children as their own opportunities, along with their ability to control their reproductive destinies, expand.

Bear in mind that right now roughly a quarter of all childbearing in the U.S. is unintended. As women's employment opportunities continue to grow, as marriage rates continue to decline, and as the promise of newer and more effective long-acting contraceptives is realized, women will almost surely have even fewer children than they do today with some ,opting out of childbearing altogether. As one indicator of where we may be headed consider the data on the number of women who have remained childless by the age of 40-44. It was 18 percent in 2008, up from 10 percent in 1976, an increase of 80 percent.

Should this be a concern?

Most definitely, says Jonathan Last, in his new book, What to Expect When No One's Expecting. In his words, we can "forget the debt ceiling. Forget the fiscal cliff, the sequestration cliff and the entitlement cliff. Those are all just symptoms. What America really faces is a demographic cliff: The root cause of most of our problems is our declining fertility rate." These problems, according to Last, include not just an aging population but less innovation, lower productivity, slower growth, and less ability to project our military power around the world. Just look at Japan, he says, where consumers bought more adult diapers than baby diapers last year!

But is Last right? It's certainly true that the aging of the population is a big fiscal problem in Japan, and to a lesser extent, in the U.S. Spending on pensions and health care are rising sharply as the number of working age adults per elderly person shrinks. But the solution does not need to be more babies. We can solve the problem by allowing more immigrants to enter the country -- legally. What we need is a new immigration system that not only creates a path to citizenship for the 11 million who are here illegally now, but creates a reformed system that increases the numbers allowed to come into the country in the future in a way that is better aligned with our economic interests.

The fact is that immigration, done the right way, is good economic policy. It may also be good social policy as well.

The key point from an economic perspective is that the 7 billion people in the world are a potential pool of talent that any advanced country should want to attract. Ignoring that pool is the equivalent of General Motors recruiting all of its workers from Michigan while ignoring the other 49 states.

Fears that immigrants replace or undermine the wages of American workers are, for the most part, unfounded. They may have hurt the job prospects of some of our least skilled workers, such as high school dropouts, but they have become the backbone of many sectors of the economy from construction to agriculture, thereby producing jobs for Americans in businesses that would otherwise be unable to flourish.

If we move to a more employment-based immigration system in which the needs of the economy are given much greater weight and family reunification a smaller role, immigration can become a dynamic force for growth and a partial solution to our fiscal problems. Countries, such as Canada and Australia, in which skills-based immigration is the norm, have benefitted from such a system.

Immigration is often feared because immigrants are "different," because they place a burden on local social services, and fail to assimilate by learning English and the other hallmarks of our culture. Yet, we have been a nation of immigrants from the beginning with each new wave raising such fears and later becoming almost fully accepted into society.

With a more rational and controlled immigration system, one based more on employer needs, any short-run problems of adjustment would be far easier to deal with and the resulting longer term diversity would be a potential source of strength for the nation as a whole. In the meantime, if fertility does decline, and there are fewer American children to support, whatever resources parents and governments have to invest in the education and health care of the next generation will go much further.

Expecting women to rededicate themselves to producing children is not in the cards, even with the kind of family-friendly policies that Last and some others support. One only has to look at what is going on in Europe where such policies have been tried at great expense to see that they are not likely to be very effective. At 1.6 children per woman, the fertility rate in these countries is well below U.S. levels.

So no, Mr. Last, we don't need more babies; we just need more immigrants.

Authors

Isabel V. Sawhill

Publication: Real Clear Markets

Middle Childhood Success and Economic Mobility

J. Lawrence Aber, Kerry Searle Grannis, Stephanie Owen and Isabel V. Sawhill — Fri, 15 Feb 2013 15:17:00 -0500

Executive Summary

This study uses data from the Early Childhood Longitudinal Study, Kindergarten Class of 1998-1999 (ECLS-K) to analyze competencies that children need to master by the end of elementary school, the extent to which they are doing so, what might be done to improve their performance, and how this might affect their ultimate ability to earn a living and their chances of being middle class by middle age. Both academic skills and socio-emotional skills contribute to core competency. We measure core competence at age eleven using five outcomes: math skills, reading skills, self-regulation, behavior problems, and physical health.

62% of children have core competence by the spring of fifth grade, while 38% do not meet the benchmark on one or more of the five measures.
Though there are substantial gaps in achievement by gender, race, and socioeconomic status, differences by subgroup decrease in magnitude when we control for demographics and school readiness at age 5.
Achievement gaps by race and socioeconomic status widen over the course of elementary school; the gap between black and white children nearly doubles between kindergarten and fifth grade.

The paper concludes with a discussion of how middle childhood interventions such as a social emotional learning program or a whole school reform program like Success For All might improve short- and long-term outcomes for low-income children. Preliminary results from the Social Genome Model indicate that such programs might raise annual family income at age forty by four percent—approximately $2,400 for a family of four.

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Middle Childhood Success and Economic Mobility

Authors

J. Lawrence Aber
Kerry Searle Grannis
Stephanie Owen
Isabel V. Sawhill

President Obama's Pragmatically Progressive SOTU Speech

Isabel V. Sawhill — Wed, 13 Feb 2013 09:04:00 -0500

In his State of the Union address, President Obama made a passionate appeal to Congress to endorse an agenda that should have warmed the hearts of those who voted for him but which has little chance of being enacted, given the composition of the Congress. Raising the minimum wage, providing a high quality preschool experience to every child, enabling more families to refinance their mortgages, providing assistance to struggling communities, or creating new jobs are all worthy ideas. But it's not clear how to pay for them or enact them in the current environment.

On fiscal issues, the president made a strong pitch for replacing the arbitrary cuts called for by the sequester with a balanced package including new revenues from tax reform and some modest cuts to Medicare, for example by means-testing benefits. He got some of his biggest applause when he said it was time to put the nation's interest above that of one's party.

As expected, the president spoke of climate change, immigration reform and gun violence. I was more surprised by the promise to bring the troops home from Afghanistan sooner than expected and to appoint a commission on voting rights. He also challenged Congress to put his proposals to a vote, suggesting that it is only in partnership with Congress that anything can be accomplished, and implicitly criticizing those who have blocked action in the past.

My sense was that what we heard was the president's own values driving a pragmatically progressive agenda with much more confidence and backbone than we heard in the first term.

Authors

Isabel V. Sawhill

What Will Rubio Say in Response to the SOTU?

Isabel V. Sawhill — Fri, 08 Feb 2013 00:00:00 -0500

I have no idea what Senator Marco Rubio (R-FL) will say on Tuesday. But here’s a good guess: opportunity matters. We need to build a strong middle class. People should be given every chance to climb the ladder of opportunity. They don’t need handouts but they do need a helping hand. And we can’t forget about the immigrants who have made this country great.

Here’s what he probably won’t say: it costs money to provide opportunity. If we want more early education programs, more health care and nutrition, better teachers in the classroom, and more Pell grants so low-income and immigrant kids can go to college, taxpayers will have to pony up. Instead, he’ll claim that his vision is consistent with a more limited and less costly government.

The fact is these two goals – providing opportunity and limiting costs – need not be incompatible. We can invest more in less advantaged kids and keep the cost down if we just face up to the need to reallocate resources from the affluent elderly to struggling younger families and their children. And yes, that means curbing the growth of Medicare and Social Security.

It wouldn’t surprise me if Rubio softened the Republican message while evading the hard policy questions. But getting the message right isn’t a bad start.

Authors

Isabel V. Sawhill