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The Human Capital Century

U.S. schools led the world during much of the 20th century.
Will they continue to do so?

he 20th century became the was shaped by egalitarian institutions (a
human-capital century. No commitment to equality of opportunity);
nation today—no matter by the factor endowments of the New
how poor—can afford not to World (lots of land relative to labor); and
educate its youth at the sec- by republican ideology, meaning democracy
ondary-school level and beyond. Yet at the and pluralism.
start of the 20th century even the world’s For much of the 20th century this tem-
richest countries—richer than many poor plate was synonymous with a set of“virtues.”

nations are today—had not yet begun the That is, the template consisted of charac-
transition to mass secondary-school edu- teristics that were virtuous. Among the
cation. With one notable exception: the virtues was mass secondary education that
United States. was:
The United States accomplished the
feat of mass education by creating a new • publicly funded,
and unique education pattern or gauge—
I will call it a “template”—that broke from
managed by numerous small, fiscally
the templates of Europe. The U.S. template • open and forgiving, W I N T E R 2 0 0 3 / E D U C AT I O N N E X T 73
• academic yet practical in its cur-
in 1990 and the vertical axis is the rate
of high-school enrollment in 1990. The
incomes may be low now, but they are
making the investments necessary to
• secular in control, and lowest of the four points in the figure nurture growth in the future.
• gender neutral in its admissions. represents the real per-capita income
and the high-school enrollment rate in
By contrast, nations in the south-
east quadrant, the bad quadrant, would
I call these characteristics virtues because the United States in 1900, just before the have had higher per-capita incomes in
they promoted and furthered mass edu- expansion of secondary-school educa- 1990 than the United States did in 1900
cation and thereby increased social tion as a result of the U.S.“high-school but lower current enrollment rates than
mobility and enhanced economic movement.” the United States had in 1900. In other
growth. The northwest and southeast quad- words, their investment in education
What brought about the human- rants of Figure 1 relative to the data relative to their per-capita income would
capital century? Why and how did the point for the United States in the year have been lower than in the United
United States lead the world in mass 1900 have unambiguous interpretations. States at the turn of the century. Note
education for much of the 20th cen- I term the northwest quadrant the that there are no nations in the bad
tury? And what does this history mean “good” quadrant and the southeast the quadrant and many nations in the good
for the future of education in the United “bad” quadrant. Nations found in the quadrant. One can do the same thought
States? good quadrant had lower real per-capita experiment for other years. Figure 1 also
incomes in 1990 than did the United contains a data point for the United
States in 1900 but a higher enrollment States in 1920. Once again, no country
The Human-Capital Century rate in 1990 than the United States had is located in the bad quadrant, the one
Even poor countries today have a far in 1900. In other words, they are cur- with higher per-capita incomes and
greater rate of secondary-school enroll- rently investing more in education rel- lower enrollment rates. The data point
ment than did the rich countries of the ative to their per-capita income than for 1940 places just a few countries in the
past. Consider Figure 1, on which the the United States did at the beginning bad quadrant. Only when the 1960 data
horizontal axis is real per-capita income of the human-capital century. Their point for the United States is considered

Investing in Human Capital (Figure 1)

Today, most poor countries have higher rates of secondary-school enrollment than the United States did in 1900,
suggesting that they are making investments to nurture economic growth in the future.

U.S. 1960 4 44 4
Gross Secondary-School Enrollment Rate – 1990

4 44 4 42
4 2
4 3 5 4
6 4
80% 3 4 6 4 3 5
(expressed as a percentage)

4 2
1 1 4 4
3 3 6
2 6
6 4 3
60% 12
5 U.S. 1940
6 3 3
1 3 21
1 3 6
3 3 131 2
40% 2
1 6 6
6 3 U.S. 1920
1 3 2
1 1 1 11 3
20% 1 1
1 1 1 1 3
1 5
11 1 5
1 1 11 1 U.S. 1900
1 1
$400 $1,100 $3,000 $8,100 $22,000

Gross Domestic Product/Capita in 1990 dollars

Notes: Numbers represent the geographic locations of countries: 1 = Africa, 2 = Central and North America and the Caribbean, 3 = Asia, including the non-African Middle East,
4 = Europe, 5 = Oceania, and 6 = South America. Enrollment rates and GDP per capita are plotted for the United States for the years 1900, 1920, 1940, and 1960.
Data for all other countries are plotted for 1990.

SOURCES: United Nations Organization for Education, Science, and Culture (UNESCO); Penn World Tables

74 E D U C AT I O N N E X T / W I N T E R 2 0 0 3

do more than two or three countries A remarkable notion had a mastery of mechanical drawing
fall into the southeast quadrant. and a familiarity with chemical and elec-
Two highly useful facts are embed- had emerged in the trical fundamentals.
ded in these data and the thought exper- A remarkable notion had emerged
iment. The first fact is that secondary United States around around 1900: that schooling could make
schooling took off in the United States the ordinary office clerk, shop-floor
from around 1910 to 1940. The second 1900: that schooling worker, and even the farmer more pro-
fact comes from the thought experi- ductive. The odd thing is that even
ment. The bad quadrant is virtually could make the though most industrial nations
empty until the point of comparison— acknowledged the change from physical
the enrollment rate in the United ordinary office clerk, capital to human capital, only one did
States—reaches high levels. Meanwhile, much about it until well into the 20th
the good quadrant is often brimming shop-floor worker, century.
with countries. This suggests that even
poor nations and poor people today are and even the farmer
investing in education at higher rates U.S. Leadership
than the United States did at the turn of more productive. The demand for educated labor in the
the century. Thus the 20th century United States increased, and almost
became the human-capital century. nationwide there was an outpouring
Nations can no longer afford to be left many, France, and the United States. It of public and primarily local resources
behind in educating their people because was not until the early 1900s that atten- to build and staff high schools. These
today’s technologies are produced by tion began to shift to the education of schools were academic (not industrial),
well-educated countries and are designed the people at the secondary and higher free, secular, gender neutral, open, and
for an educated labor force. levels. forgiving. The education change was
The notion that skills matter, that A “new” economy—as it was termed known then as the high-school move-
the wealth of a nation is embodied in its by contemporaries—had emerged in ment. In the United States as a whole,
people and that only an educated peo- the early 20th century. It involved a the enrollment rate for youths in all
ple can adopt new technologies (and greater use of science by industry, a pro- secondary schools—public high
adapt them and innovate them), was liferation of academic disciplines, a series schools, private secular and religious
voiced in America at the dawn of the of critical inventions and their diffusion high schools, and the preparatory
20th century. In 1906 the governor of (for example, small electric motors, the departments of colleges and universi-
Massachusetts appointed a commission internal combustion engine, the airplane, ties—soared from 1910 to 1940 (see
to study technical education and various chemical processes), the rise of Figure 2). The graduation rate,
assigned the chairmanship to Carroll big business, and the growth of retailing. expressed as a fraction of the relevant
Wright, one of the greatest U.S. labor A host of demand-side factors increased age group, also increased substantially
statisticians of all time, the first Massa- the relative demand for educated labor during this period. In 1910 just one
chusetts commissioner of labor, and the and enhanced the returns to education American youth in ten was a high-
first commissioner of the federal Bureau and training. school graduate. By 1940, the median
of Labor Statistics. The report con- These changes did more than youth had a high-school diploma. It is
cluded,“We know that the only assets of increase the demand for a small cadre of no wonder that those who lived
Massachusetts are its climate and its scientists and engineers; they increased through the early part of the period
skilled labor.” (Give the report’s author the demand for skilled and educated described the change, in a 1914 report
half credit.) The modern concept of the labor among the mass of workers. Firms from the California Department of
wealth of nations had emerged. What began to seek employees with a host of Public Instruction, as “one of the most
mattered was capital possessed by peo- general skills. They sought a white-col- remarkable educational movements of
ple—human capital. lar and clerical staff capable of using the modern times.”
latest office machinery, with modern The high-school movement was not
office skills (such as stenography and just an urban phenomenon. Nor was it
The New Economy typing), polished grammar, and some just a New England phenomenon,
In the 19th century, machines and nat- mathematical prowess.They also sought though it began there. It spread quickly
ural resources, not people, mattered to blue-collar workers who could decipher from New England towns to the rich
the industrial giants—Britain, Ger- manuals, who knew algebra, and who agricultural areas of the Midwest and W I N T E R 2 0 0 3 / E D U C AT I O N N E X T 75
to the western states. Because the
southern states had lower levels of edu- Graduation and Enrollment Rates in the U.S. (Figure 2)
cation attainment for much of the 20th The United States established its leadership of the human-capital
century and because the high-school century by expanding secondary school to the masses.
movement diffused slowly throughout

Public and Private Secondary-School Graduation

the South, the national data in Figure 2 100%

and Enrollment Rates in the U.S., 1890-1970

give a somewhat misleading impres- Enrollment Rate
sion of the speed at which the high- 80% Graduation Rate
school movement spread throughout
the rest of the country. The spread of
the high school was considerably faster
in most other regions of the country,
and graduation and enrollment rates 40%
were higher. Even before 1930 the grad-
uation rate for 18-year-olds in many
parts of the North, Midwest, and West
exceeded 50 percent.
In 1910, when the data on graduation 0%
1890 1900 1910 1920 1930 1940 1950 1960 1970
rates begin, New England was the lead-
ing region. But by the mid-1910s the
rich states of the Pacific had closed in on SOURCES: Author; U.S. Department of Education, 120 Years of American Education: A Statistical Portrait, 1993

New England. By the 1920s even the

sparsely settled and agricultural states Most of these systems had centralized turn of the 20th century break from
of the West North Central (states such bureaucracies and finances, and some the education and training templates
as Iowa, Kansas, and Nebraska) had had elaborate apprenticeship systems. of Europe and pioneer a novel form of
exceeded the rates achieved in New By the mid-1950s the U.S. lead in secondary education? Why did Euro-
England. Only the Middle Atlantic states the human-capital century was astound- peans believe that Americans were
were left behind, and they caught up ingly large. A wide gap existed between “wasting” resources by educating their
during the massive unemployment of Europe and the United States in the masses? Why did Americans reject a
the Great Depression, when jobs for education of youth. Across the 12 Euro- highly specific, on-the-job, industrial
teens evaporated overnight. In 1940, as pean countries reported in Figure 3, form of education (such as the British,
the world braced for yet another war, only one, Sweden, had a full-time, gen- Danish, and German apprenticeship
America could boast of having the most eral education enrollment rate for 15- to systems) in favor of one that was gen-
educated workforce in the world. It 19-year-olds that exceeded 20 percent. eral, school-based, and academic? The
accomplished this feat even though, for Just two nations had a full-time general answers to these questions concern basic
much of the period, it had open doors and technical education enrollment rate differences between the New World
to the poor of the world. Its success in that exceeded 30 percent. The U.S. and the Old World.
mass secondary education resulted from enrollment rate for the same age group Formal, general education is more
its education template and the associated in 1955 was almost 80 percent. Even if valued when geographic mobility and
virtues. one added to the European data youths technical change are greater. School,
In contrast to the United States, the in part-time technical education, enroll- not an apprenticeship and on-the-job
templates of Europe were character- ment rates would still be considerably training, enables a youth to change occu-
ized by quasi-public or private funding lower than in the United States. Only pations over a lifetime, to garner skills
and provision; by the high standards in the past three decades has the dif- different from those of his or her par-
of an unforgiving system; by the unity ference between the secondary-school ents, and to respond rapidly to techno-
of church and state; and by a “boys come enrollment rates of the United States logical change. The U.S. template was
first” attitude. The German, British, and Europe been largely eliminated. As not wasteful in the technologically
and French systems, while different in a consequence, the lower quality of U.S. dynamic, socially open, and geograph-
their details, had much in common— secondary-school education has become ically mobile New World setting. In
strict standards, individual account- a major domestic issue in the United fact, it probably enhanced the dynamism
ability, severe tracking at early ages, and States. of the New World.
higher education for a small, elite corps. Why did the United States at the In short, a host of changes beginning

76 E D U C AT I O N N E X T / W I N T E R 2 0 0 3

in the late 19th century increased the rates. That still left tens of thousands of were educated in the first half of the
demand for certain skills and knowl- fiscally independent school districts 20th century, inequality declined. The
edge. A set of republican institutions large enough to have established a pub- structure of wages narrowed, wage ratios
enabled the United States to respond to lic secondary school. These relatively for higher-skilled relative to lesser-skilled
the increased demand for skill. Together small, fiscally independent school dis- positions fell, and the returns to educa-
with a set of New World preconditions tricts implicitly competed with one tion decreased. All of the data sets I
(such as a high ratio of land to labor), another to attract residents. have examined show declining inequal-
these favorable circumstances led the In work that Larry Katz and I have ity for the period from the late 1910s to
United States to respond to the tech- done using archival records from a the 1950s.They also show rising inequal-
nological imperative in a particular way. unique state census, we found that an ity after the mid-1970s. If we think of the
By the early 20th century the United additional year of high school at the wage structure as being the result of a
States began to endow a large fraction start of the high-school movement in race between technology and education,
of its youth with skills in formal, school- 1915 added more than 12 percent to then education ran faster than technol-
based, academic settings, using a system the earnings of young men (18- to 34- ogy in the first half of the century, and
termed here the U.S. template. The year-olds). This return was almost dou- technology ran faster than education in
United States achieved mass secondary ble that of a year of secondary school in the second half. Interestingly, technology
(and later mass higher) education 1955. Returns were substantial even does not appear to have accelerated after
because of a set of virtues. The virtues within various occupations. That is, the 1970s. Instead, advances in attain-
enabled the supply-side institutions to even if a youth were somehow destined ment of education slowed down.
respond to the demand-side shift. to be a blue-collar or a white-collar
How did the virtues accomplish so worker, there would still be significant
much? Take the virtue of decentraliza- returns to further education. The return Have Our Virtues Become Vices?
tion, for example. If public support for to education, furthermore, was as high The U.S. system of education for much
school expansion were less than 50 per- for farmers as it was for those in non- of the 20th century was characterized by
cent in a state, the existence of numer- agricultural occupations. what I have called virtues.The U.S. tem-
ous small, fiscally independent districts What impact did the U.S. template plate succeeded during the first half of
would enable high schools to diffuse. have on economic growth and individ- the 20th century and for some time after,
People choose where to live, and small ual welfare? Consider the change in eco- performing better than those of other
districts are generally more homoge- nomic inequality. As more individuals nations. The system produced far more
neous than large districts with respect
to income, ethnicity, religion, and cul- Secondary-School Enrollment Rates in 1955 (Figure 3)
tural values. It is likely, therefore, that The rate of enrollment in full-time general secondary school in the United States
individual preferences for public goods reached nearly 80 percent by 1955. Meanwhile, much of Europe was still below 20 percent.
are more similar the smaller the geo- Even if we include full-time and part-time technical education, few European nations
graphic area is. Greater homogeneity had enrollment rates above 60 percent.
means that the public good—educa-
tion in this case—might be funded by 100% Full-time General
Secondary-School Enrollment Rates,

some of the districts, whereas there Full-time Technical

United States 1955
would be no funding if the district were 80% Part-time Technical
the size of the state. In much of Europe,
15- to 19-Year-Olds

in contrast to the United States, deci- 60%

sions about education were highly cen-
tralized. In Britain and France, for exam-
ple, national legislation was required to
fund expansion of secondary education,
and initially it spread more slowly there 20%
than in the United States.
About 130,000 separate school dis- 0%
tricts existed around 1925, but many ia



















were tiny common school districts of









the open country, and some did not



have the ability to set their own tax SOURCES: Author; U.S. Department of Education, 120 Years of American Education: A Statistical Portrait, 1993 W I N T E R 2 0 0 3 / E D U C AT I O N N E X T 77
educated citizens and workers. It did The egalitarian, tury. It is possible that these attributes
not, by and large, reinforce class dis- were virtues only at a time when the
tinctions. Instead, it enabled economic decentralized system nation had a very particular need—to
and geographic mobility and resulted bring general, formal education to the
in a large decrease in inequality in eco- of education in the masses. Now they may be vices as the
nomic outcomes. It may also have nation attends not only to the number
increased technological change and thus United States enabled of children in school, but also to the
labor productivity, although that is far quality of the education they are receiv-
more difficult to prove. economic and ing. A whole new set of virtues may
The virtues I have mentioned arise in the 21st century, qualities that
include: education that was publicly geographic mobility focus the nation on education perfor-
funded and provided, an open and for- mance and student achievement.
giving system, an academic yet practical and resulted in a large For now, the nation appears confused
curriculum, numerous small, fiscally about which attributes to elevate to the
independent school districts, and the decrease in economic status of virtue. In the past, the decen-
secular (not church) control of schools. tralized nature of the education system
However, these characteristics are no inequality. was a virtue in the sense that it promoted
longer seen as uniformly virtuous. To higher enrollment rates. Today, reform-
some they now constrain, rather than ers still pin their hopes on other strate-
further, education. For example: • Although a decentralized system
of small, fiscally independent dis-
gies that count on the power of decen-
tralized decisionmaking, such as school
• Public or community funding
and public provision were the hall-
tricts competing for residents once
fostered investments in education,
choice, charter schools, and vouchers. By
contrast, the standards and testing of the
marks of the common school sys- this system is now seen as produc- accountability movement are centralizing
tem. Now, however, vouchers— ing serious funding inequities. Most power within the system and creating a
public funding but private states now have equalization plans, more uniform curriculum at the state
provision—and charter schools are but some plans (such as that in Cal- level. Likewise, efforts to equalize fund-
being used and considered for use to ifornia) have led many to exit the ing across school districts place more
increase competition. public system and may actually financial responsibility at the state level
reduce spending per child in poor while removing financial discretion from
• An open and forgiving system
without tracking at early ages was
districts. localities.There are potential pitfalls in all
of these approaches. For instance, before
seen as egalitarian and nonelitist.
But this type of system is now
• The separation of church and
state encouraged a “common” educa-
moving ahead with voucher plans that
involve religious schools, the nation needs
viewed as lacking standards and tion for all. However, an insistence to think harder about separating theol-
accountability. Almost all states on the secular control of public ogy from geology, geometry, and biology.
today have standards for promotion funds meant that Catholic and Likewise, although funding disparities
from one grade to the next, high- other church-based schools could among school districts may be unjust,
school graduation, school funding, not receive publicly funded vouch- removing local fiscal incentives may alien-
and teacher retention. Some of ers, even in academically failing ate suburban taxpayers and erode their
these standards are strict and have school districts where other private support for public education. Without
serious consequences for those who schools are unavailable to poor stu- caution and care, today’s new virtues may
do not pass. dents. The recent Supreme Court become vices as well.
ruling in Zelman v. Simmons-Harris
• A general, academic education
for all may enhance flexibility at the
may widen the use of vouchers by
denominational schools, not just by
–Claudia Goldin is a professor of economics at
Harvard University. This article is adapted
beginning, but may, in the end, leave those in failing school districts. from an address given on June 19, 2002, at the
many behind. It may have worsened Federal Reserve Bank of Boston’s 47th annual
rising inequality in the 1980s. Some In short, the nation appears to be conference series. A different version is forth-
have recently espoused technical abandoning many of the very virtues coming in the conference proceedings, Educa-
and vocational training for certain that catapulted the United States to tion in the 21st Century: Meeting the
youths. the summit of the human-capital cen- Challenges of a Changing World.

78 E D U C AT I O N N E X T / W I N T E R 2 0 0 3