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Fall 2014

From classroom to career:
An overview of current workforce
development trends, issues, and initiatives

Published by the Community Development and Policy Studies Division

of the Federal Reserve Bank of Chicago

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Fall 2014
Extensive interviews conducted over the past two years as part of the
Community Development and Policy Studies division’s Industrial Cities
Initiative emphasized workforce development as a central concern among city
leaders in the Seventh District. In an effort to clarify specific concerns falling
under the umbrella of this multi-faceted topic, this edition of Profitwise News
and Views explores a range of current issues. Among other topics, we highlight:
workforce-focused programs and research around the Federal Reserve System;
trends in educational attainment and (resulting) wage disparity; skills gaps
among those seeking work; employer efforts to train workers; and examples of
current workforce development initiatives in the District.

The Federal Reserve Bank of Chicago

The Federal Reserve Bank of Chicagoand its branch in Detroit serve
the Seventh Federal Reserve District, which encompasses
southern W
isconsin, Iowa, northern Illinois, northern
IOWA
Indiana, and southern M ichigan. As a part of the Federal
Reserve System, the Bank participates in setting national
monetary policy, supervising banks and bank h olding companies, and
providing check processing a nd other services to depository institutions.

WISCONSIN
MICHIGAN

ILLINOIS
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Introduction

by Emily Engel, Daniel DiFranco, and Ryan Patton
Earlier this year, Community Development and
Policy Studies (CDPS) staff at the Federal Reserve
Bank of Chicago released a report on its Industrial
Cities Initiative (ICI).1 The report features a
quantitative assessment of ten Midwestern “industrial
cities” that is augmented by more than 175 interviews
with city leadership. The report explores whether –
and to what extent – these cities have been able to
withstand a decline in manufacturing employment
since the 1960s. Workforce development was the
most common and the most vexing issue identified
by leaders in every ICI city profiled in the report.
Challenges faced by Seventh District communities
concerning workforce development – an umbrella
term that describes coordinated efforts to prepare
and match workers with living-wage jobs in a manner
consistent with market realities – are especially
daunting given the varying underlying issues. A
high school graduate deciding which post-secondary
credential to pursue, for instance, faces a very
different set of circumstances than an ex-offender
addressing a criminal history during the employment
application process. Likewise, successful efforts must
effectively coordinate the resources, responsibilities,
and interests of numerous stakeholders, including
CDCs, private industry, the educational sphere,
and multiple layers of government. To complicate
matters even further, local efforts that aim to ground
connections between education and employment
outcomes invariably take place within the context of
a shifting global marketplace.
Fortunately, the dynamism of devoted practitioners,
researchers, and policymakers is commensurate
with the set of issues they've chosen to confront;

accordingly, it's important to survey from time-totime the landscape of current approaches. Toward
this end, this edition of Profitwise News and Views
offers the following collection of articles and insets.
This edition begins by documenting a key labor
market shift impacting virtually every facet of
modern workforce development. Specifically,
Employment Polarization and its Discontents: A Tale of
Two Tails describes the steady replacement of middlewage (and presumably middle-skilled) jobs by lowand high-wage jobs. The significance of this single
descriptive fact, we argue, is a matter of perspective.
On the one hand, employment prospects of high
school graduates have become compromised to the
point of undermining this group’s attachment to the
labor force. On the other hand, the rising cost of skill
is a likely culprit behind widespread perception of a
‘skills gap’ among employers.
While the first article focuses mostly on the impact
of collapsing demand for middle-skilled workers, Is
a College Education Worth the Cost? A Risk/Reward
Perspective examines the puzzling trend of slowdowns
in educational attainment despite rising demand for
high-skilled workers. In the process, the article cites
research showing investments in college education
generally outperform investments in stocks and
bonds by a wide margin. However, as with any
investment, there is risk. After touching upon
several sources of risk, the article focuses on the most
concerning: the high incidence of students enrolling
in but not completing college. Using national data,
the article concludes with a discussion of how this
trend has affected states in the 7th District.

Profitwise News and Views Fall 2014
— 1—

While low educational attainment is certainly
disadvantageous, it is not the only barrier to
employment and economic mobility. Life challenges
such as long-term unemployment, lack of childcare
options, and health/healthcare issues also separate
potential workers from gainful employment. To
provide insight into strategies for addressing obstacles
to work, The Cara Program: Workforce development
one life at a time, highlights a Chicago-based
community organization that provides a persistently
challenging – yet highly supportive – environment
within which individuals may cultivate the soft skills
necessary for navigating the modern workplace.
In addition to their main program, Cara also
administers smaller programs that focus on formerly
incarcerated individuals. The barriers to employment
this group faces are often so high that Cara operates
a separate landscaping social enterprise through
which those with criminal records may obtain
work experience. The lengths through which Cara
must go to facilitate re-entry of ex-offenders into
the workforce points to a much broader national
problem, the key features of which are documented
in the inset entitled Second chances in the land
of opportunity.

Whether through increasing formal educational
attainment or addressing broader life challenges,
the task of connecting today's workers with today's
jobs is both important and immediate. Accordingly,
considerations of workforce development over
longer time horizons can lose urgency, though much
research has underscored the value of early education
in improving employment outcomes decades later.
Our section entitled Early childhood education:
“Workforce development” for the long run highlights
the work of advocates to bring this research to bear
on policy. Emerging insights into developmental
psychology and brain science, they argue, point to
early-childhood as a critical window within which
the development of key emotional skills may be set
on course at relatively low cost.
We also note the efforts of individual Reserve Banks
across 12 districts reflect the Federal Reserve System's
commitment to promoting workforce development
as a means toward enhancing the economic vitality
of communities. While by no means a comprehensive
list, we highlight various System initiatives in
this vein.

Profitwise News and Views Fall 2014
— 2—

Workforce development guides
community outreach efforts across the
Federal Reserve System
The Kansas City and Atlanta Feds cohosted a
conference entitled, “The Future of Workforce
Development: Where Research Meets Practice,” in
September 2012. The conference provided a forum
to exchange views on “challenges employers face
in finding skilled workers and the need for job
applicants and workers to keep up with changing
technologies. Panelists also discussed the need
to strengthen partnerships between educational
institutions and industry, changes in demographics
affecting the work place, and the value of encouraging
entrepreneurship.” The two Banks extended
this discussion in a similar conference entitled,
“Transforming the U.S. Workforce Development
Policies for the 21st Century.”
In the same vein, the Philadelphia Fed spearheaded
efforts to convene community development
professionals, academics, and leaders from the
public and private sectors in a “Reinventing Older
Communities: Bridging Growth & Opportunity”
conference held in May 2014, an event co-sponsored
with seven other Federal Reserve Banks – Atlanta,
Boston, Chicago, Cleveland, New York, Richmond,
and St. Louis. The conference included topically
focused sessions, such as: “On the Road to Jobs:
Transportation’s Role in Connecting Low- and
Moderate-Income Workers to Employment.” In
this session, panelists outlined “the features of an
equitable, regional transportation system with the
power to create opportunity and jobs for traditionally
underserved populations” along with the implication
of these features in terms of “how new transportation
projects – large and small – are being approached
differently to create jobs and training opportunities
for low- and moderate-income workers.”

special case of workforce development during a
downturn in a piece entitled “Lessons for a New
Context: Workforce Development in an Era of
Economic Challenge.”
Most recently, in June 2014, the Chicago Fed
hosted a roundtable entitled: “A Conversation
on Apprenticeships in Manufacturing.” This
session explored expanding relationships between
community colleges, trade organizations providing
training, and manufacturers needing skilled workers.
At the session, Secretary of Labor Thomas Perez
called the apprenticeship model a “linchpin” and a
“catalyst” towards sustainable economic vitality and
job growth in the country. It was one in a series of
roundtables across the country to raise awareness of
and gain feedback on Department of Labor efforts to
boost both training and employment.

Notes
1. Federal Reserve Bank of Kansas City, 2012, “Kansas City Fed Brings Experts Together
to Address the Future of Workforce Development,” Community Connections, Fall,
available at http://www.kansascityfed.org/publicat/community/connections/fall2012.pdf.
2. Federal Reserve Bank of Atlanta, Community Development, available at http://
www.frbatlanta.org/pubs/partnersupdate/14no1_workforce_dev_conference.cfm.
3. Federal Reserve Bank of Philadelphia, Reinventing Older Communities: Bridging
Growth & Opportunity, available at http://www.philadelphiafed.org/communitydevelopment/events/2014/reinventing-older-communities/agenda.cfm.
4. Federal Reserve Bank of San Francisco, Arizona Workforce Development Forum,
available at http://www.frbsf.org/community-development/events/2012/may/
arizona-workforce-development-forum.
5. Cytron, Naomi, “Workforce Development Needs for Immigrant Job-Seekers,”
Federal Reserve Bank of San Francisco, available at http://www.frbsf.org/communitydevelopment/files/Cytron_Naomi_CI_spring_2009.pdf.
6. Giloth, Robert P., “Lessons for a New Context: Workforce Development in an Era of
Economic Challenge,” Federal Reserve Bank of San Francisco, available at http://www.
frbsf.org/community-development/files/Giloth_Robert.pdf.
7. Keller, Jason, 2014, “CDPS hosts a conversation on apprenticeships in
manufacturing,” CDPS Blog, Federal Reserve Bank of Chicago, August 6, available at
http://cdps.chicagofedblogs.org.

Recent activities coordinated by the San Francisco Fed
provide several additional examples of involvement
in the workforce development area. Among other
things, FRBSF held a forum focusing on the Arizona
workforce, the findings of which helped to inform
a subsequent paper that examined the “Workforce
Development Needs for Immigrant Job-Seekers.”
Furthermore, San Francisco also investigated the

Profitwise News and Views Fall 2014
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Employment polarization and its
discontents: A tale of two tails
The term "skills mismatch"– also referred to as "skills
gap" and "skills shortage" – evokes a view of the
labor market that gained currency in fields ranging
from business to politics and even community
development (at least in colloquial usage; see inset for
a more formal use of the term). Corporate leaders like
Jeff Immelt and Ken Chenault, for example, opined
in the Wall Street Journal that “there are more than
two million open jobs in the U.S., in part because
employers can’t find workers with the advanced
manufacturing skills they need. The private sector
must quickly form partnerships with community
colleges, vocational schools, and others to match
career training with real-world hiring needs.”2 Wide
acceptance of this notion is further exemplified by –
as an article written in The Atlantic observed – one
rare area of agreement among the 2012 presidential
candidates “that skills of U.S. workers don’t match
the needs of the nation’s employers.”3 Even we
in Community Development and Policy Studies
(CDPS) have employed this narrative on occasion to
frame the challenges of connecting individuals with
career paths through education.
This once mainstream view has since been challenged.
In a New York Times article entitled "Skills Don't Pay
The Bills," for instance, Adam Davidson makes the
case that the skills gap perception is largely driven by
unreasonable expectations surrounding how much
skill money can buy: "At GenMet [a Wisconsinbased metal-fabricating manufacturer], the starting
pay is $10 an hour. Those with an associate degree
can make $15, which can rise to $18 an hour after
years of good performance. From what I understand,

a new shift manager at a nearby McDonald's can
earn around $14 an hour."4 Similarly, a 2013 Boston
Consulting Group study that found no unusual
increases in the wages of manufacturing occupations
between 2005 and 2010 bluntly stated "trying to
hire high-skilled workers at rock bottom rates is not
a skills gap."5
Such counterpoints beg the questions: are employers
justified with appeals for public-private partnerships;
i.e., deploying taxpayer dollars at community
colleges to address employer training needs? Could
it be that what's changed is employer willingness
to compensate and train employees, as opposed to
factors more deeply rooted in the workforce?
The terms “mismatch,” “gap,” and “shortage”
represent reactions to a profound shift that warrants
exploration. Importantly, however, the reactions are
those of employers; as such, adopting these terms in
the policy arena – whether deliberately or just for the
sake of convenience – risks steering public discussion
away from even considering questions like the ones
posed above.
In contrast, the alternate term “employment
polarization" avoids this hazard by simply referencing
the shift itself: mounting evidence suggests that
demand for high- and low-skill work has increased,
while demand for middle-skill work has decreased.
There are many ways to interpret this single, powerful
phenomenon; which interpretation one gravitates
toward is likely to depend on one's perspective.
After describing polarization in greater detail, this

Profitwise News and Views Fall 2014
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Is there a skills mismatch: a technical view
With unemployment rates remaining high, even after
the recession, many have speculated about a possible
skills mismatch in the labor market. Economists at
the Federal Reserve are especially interested in signs
of a skills mismatch because it leads to unemployment
that cannot be directly influenced by monetary policy.
Though some industries and trade organizations
have reported ongoing mismatch for several decades,
monetary policymakers are typically concerned
with how mismatch might relate to the short-term
unemployment rate. They generally view the notion
of a mismatch through the framework of labor search,
where workers and jobs fail to match due to either wages
or limited mobility. Mismatch is then considered a
relatively temporary state until workers or wages adjust.1
In a July 2012 Chicago Fed Letter, senior economists
Jason Faberman and Bhashkar Mazumder presented
statistical evidence for a state of mismatch in the postrecession period.2 Their results were mixed, suggesting a
possibility of mismatch among workers in occupations
requiring a moderate amount of skills.
One way to measure (the degree of) mismatch is to
compare the job vacancy rate and the unemployment
rate. As jobs become increasingly available, one
would expect unemployment to decrease. If, however,
unemployment moves relatively little, then the skills
of available workers may not meet the requirements of
open jobs. Indeed, Faberman and Mazumder report
that overall increases in the job vacancy rate did little
to abate the unemployment rate following the latest
recession. Economists at the New York Fed analyzed
these data further and developed an index of mismatch
in the overall labor market.3 On their measure,
mismatch spiked considerably during the recession but
has since subsided to prior levels.

between 2007 and 2011. Employment of high-skill
workers fell only 0.5 percent over the same period,
indicating their relative scarcity and demonstrating
the differential effects of the recession. However, they
find little evidence of supply constraints for those
sometimes reported to be scarce, such as “installation,
maintenance, and repair workers.”
On the demand side, they analyze online help-wanted
ads by skill level. Using this data, they find a general
increase in the demand for labor across all skills, but
especially for jobs requiring a moderate level of skills.
Taken together, the persistently low employment rate
of middle skill workers combined with rising demand
for the same skill level may be evidence of mismatch.
Workers with mid-level skills may not have the right
skills for the available middle-skill jobs. Based on these
results, Faberman and Mazumder report that any
mismatch in the labor market would likely be most
prominent for this group.

Notes
1. Shimer, Robert, 2007, “Mismatch,” American Economic Review, Vol. 97, No. 4,
September, pp. 1074-1101, though a more recent model by Shimer allows mismatch
in equilibrium.
2. Faberman, R. Jason, and Bhashkar Mazumder, 2012, “Is there a skills mismatch in
the labor market?” Federal Reserve Bank of Chicago, Chicago Fed Letter, July, No. 300.
3. Şahin, Ayşegül, Joseph Song, Giorgio Topa, and Giovanni L. Violante, 2011,
“Measuring mismatch in the U.S. labor market,” Federal Reserve Bank of New York,
working paper, revised July.

Low levels of mismatch in the overall labor market,
however, do not preclude the possibility of significant
mismatch within certain submarkets.
To explore this possibility, Faberman and Mazumder
look for imbalances in the supply and demand of
labor by skill level. On the supply side, they illustrate
the relative abundance of workers in the middle range
of skills by comparing employment levels before and
after the recession for all skill groups. Employment
for middle-skill workers fell the most at 9.1 percent

Profitwise News and Views Fall 2014
—5—

article will explore two such perspectives: that of 1)
high-school-educated men, and 2) employers in the
manufacturing industry.

Overview of employment polarization
The term “employment polarization” describes a
broad, secular increase in high- and low-skilled
employment in conjunction with shrinking
employment among middle-skilled occupations.
David Autor – from whose work this article draws
heavily – is one of many economists who have
documented and sought to explain this shift. In a
report released jointly by the Center for American
Progress and the Hamilton Project, for example,
Autor depicts this trend by graphing changes in
employment share across the full range of skill for
the past three decades (see figure 1a).
To interpret this graph, it’s helpful to compare each
curve with the horizontal axis at 0 percent. If the
composition of employment with respect to skill level

were constant over time, we’d expect employment at
each skill percentile to grow (or shrink) at the same
rate as employment in general; in this case, the series
would coincide with the x-axis. In contrast, a skill
percentile gained employment share during a given
decade if the corresponding section of the curve
is in positive territory, lost employment share if in
negative territory, or retained a constant share of
employment if at zero.
Using this as a guide, it’s clear that U.S. employment
shifted sharply from lower- to higher-skilled work
in the 1980s, and, less dramatically, from highand mid-skilled to low-skilled work in the 2000s.
Interestingly, the 1990s is a microcosm of all three
decades combined: that decade’s u-shaped pattern
signifies the same “hollowing out” of middle-skilled
occupations that characterizes the cumulative 30year period in general.
Figure 1b uses a similar scheme to depict wage
changes with respect to skill level.7 According to

Figures 1a and 1b.
Smoothed changes in employment by
occupational skill percentile 1979-20076

25

15

20

10

15

Percent change relative to the median

Change in employment share (percent)

Percent changes in male and female
hourly wages relative to the median

10
5
0

5

0

−5

−10

−5

−15

−10
0

20

40

60

80

100

5

Skill percentile (ranked by occupational mean wage)

1979-1989

1989-1999

1999-2007

Source: David Autor calculations based on data from the U.S. Census Bureau.

Profitwise News and Views Fall 2014
— 6—

20

35

50

65

Hourly earnings percentile

1974-1988

1988-2006

80

95

Figure 2. Labor force participation across the work-span by birth cohort
Male, high school degree

Male, bachelor degree and above
100
Percent in labor force

Percent in labor force

100
90
80
70

95
90
85
80

20

30

40

50

60

20

30

40

Age

Female, high school degree

60

Female, bachelor degree and above
90
Percent in labor force

80
Percent in labor force

50

Age

70

60

20

30

40

50

80

70

20

60

30

40

Age

50

60

Age

Decade of birth
1940s

1950s

1960s

1970s

1980s

Source: Current Population Survey as obtained through IPUMS.

this graph, real wages have grown consistently
and markedly in high-skill occupations, but have
declined or remained stagnant in middle- and lowskill occupations. Together, these figures illustrate a
coincidental increase in both employment share and
wages at the higher end of the skill spectrum; this
in turn suggests a shift in demand for highly skilled
workers (as opposed to changes in the preferences or
composition of the workforce).
In the course of examining demand-related factors
that may account for this shift, Autor suggests that
a “cumulative decline of at least a trillion-fold in the
cost of computing” over the past six decades created
“enormous incentives for employers to substitute
information technologies for expensive labor in
performing [routine] workplace tasks.”8 According to
this explanation, the relative ease with which many

middle-skill occupations could be automated helps
explain their decline. At the same time, workers with
the skills necessary for interacting with new laborsaving technologies have seen their wages increase.
While non-technological factors such as increased
competition from abroad and the declining
influence of unions may account for some degree of
polarization in the U.S., similar shifts are occurring
in industrialized economies worldwide.9 For Autor,
this suggests that employment polarization is
essentially a result of automation’s effect on the
premium employers are willing to pay for skill sets,
and a parallel decline in employers’ willingness to
hire people to perform routine tasks.

Profitwise News and Views Fall 2014
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over the alternatives. As figure 2 shows (page 7),
participation across working life follows a distinct
pattern depending on gender and education.
For men with higher levels of education, the
likelihood of participation builds in the 20s
and peaks in the 30s. In contrast, participation
among men with a high school diploma but
no post-secondary experience is highest at the
start of the work span, and declines steadily
from there.

Figure 3. Relationship between male
employment to population rates and male
earnings for persons ages 25-39, 1979-2008
Percentage point change in male employment to population rates

10

0

−10

−20

−30
−20

0

20

40

Percent change in male hourly wages
Observed values
Fitted values

Black
White
Other

Less than high school
High school graduate
Some college
College graduate
Post college degree

Source: Melanie Wasserman and David Autor calculations
based on Census IPUMS 5 percent samples for 1980, 1990,
and 2000 and American Community Survey (ACS) 2009.

High-school-educated men: A view
from the supply side
The data support a fairly predictable trend: it’s
becoming increasingly difficult for individuals with
only a high school diploma to find well-paying
jobs. Less obviously, the evidence also suggests that
disadvantages corresponding to having only a modest
level of education are particularly acute among men.
Rates of labor force participation – the fraction of
individuals who are either working or looking for
work – helps illustrate these assertions insofar as
they capture the tradeoff between work and leisure
or household production. Wages for individuals
who work, in other words, are presumably high
enough to justify their preference for employment

Participation among women of both education
levels follow a distinct S-shape, the first dip of
which most likely corresponds to having children
and subsequently caring for them. The timing and
extent of this dip, however, varies by education level:
the dip occurs early and is not very pronounced for
high-school-educated women, and occurs later and
within a more well-defined timeframe for women
with a bachelor’s degree or higher. This difference
is consistent with the commonly accepted idea that
more highly educated women tend to delay having
children because of the relatively high opportunity
cost this demographic faces in terms of lost wages
and advancement.
For men and women with at least a bachelor’s
degree and – for the most part – women with high
school diplomas, participation patterns across the
generations are consistent not only in terms of their
shape, but also in terms of their levels. For men
with only a high school diploma, however, each
generation is progressively less likely to participate
across all phases of working life aside from the period
immediately preceding retirement. To provide a full
sense of the cumulative difference, a high-schooleducated man born in the 1940s was 9.4 percentage
points more likely to be working or seeking work
at the age of 32 than his counterpart born in the
1980s.10 Furthermore, the pace of this downward
progression between generations shows no sign of
slowing, as indicated by the relatively even spacing
between the curves. (In fact, if the progression were
depicted in terms of a percent of a percent, the trend
would actually appear to be accelerating due to the
constant decline despite the shrinking base.)
It’s important to note that participation rates by
themselves are purely descriptive; to make the case
that the lower participation we observe among high-

Profitwise News and Views Fall 2014
— 8—

Figure 4. Labor force participation of high-school educated men across the work-span by birth cohort
Single or no spouse present

Married with spouse present
10

Percent in labor force

Percent in labor force (percent)

10

8

6

8

6

20

30

40

50

60

20

30

Age

40

50

60

Age

Decade of birth
1940s

1950s

1960s

1970s

1980s

Source: Current population survey as obtained through Integrated Postsecondary Education Data System.

school-educated men stems from declining demand
for middle-skilled occupations, one would first need
to acknowledge that the decision to participate is
also influenced by (within-household) factors like
the divisions of chores and caregiving responsibility.
Likewise, factors outside the household – such as
the generosity of unemployment benefits and other
government transfers – may also be relevant. In
Wayward Sons, David Autor and Melanie Wasserman
propose an interesting third possibility: the lack of
same-sex role models in increasingly common singlemother family arrangements may negatively affect
both educational and labor force outcomes for young
men.11 Accordingly, it could be that participation
of men with only a high school degree has declined
because of a deterioration of soft skills within that
subgroup. Such a scenario, while unfortunate, would
be independent of employer demand.
As a first step toward disentangling supply-side
factors like these from employer demand, Autor
and Wasserman present summary evidence relating

employment-to-population ratios to wages. To
construct figure 3,12 Autor and Wasserman segment
men into groups based on race and education, and
then plot changes in the employment-to-population
ratios of these groups against corresponding
wage changes. The signature of a demand shock –
equilibrium quantity and price changing in the same
direction – is apparent given the strong, positive
relationship between the two aggregate variables.13
Given wage stagnation within the middle portion
of the skill spectrum, it seems plausible that it’s the
demand-oriented forces of polarization – not some
change in men’s preference for leisure of household
production – that explain intergenerational declines
in male high school graduate labor force participation.
What might these trends imply for a male high
school graduate? Perhaps these changes aren’t
entirely negative – declining opportunities in the
employment sphere, for example, may have induced
men to contribute more to caregiving and household
chores, the responsibility for which tends to fall

Profitwise News and Views Fall 2014
— 9—

disproportionately on women. However, as figure 4
shows, the intergenerational decline in participation
observed among high-school-educated men is
noticeably more pronounced for the single male,
suggesting labor force disconnection is not necessarily
occurring in conjunction with a renegotiation of
household production.
Davidson hints at a likelier interpretation of
polarization from the perspective of this deeply
affected subgroup: “In retrospect, the post-World
War II industrial model did a remarkably good job
of supporting a system in which an 18-year-old had
access to on-the-job training that was nearly certain
to pay off over a long career…Manufacturers, of
course, have responded over the past 20 years by
dismantling it.”14 To a male of modest education,
polarization may equate to a breakdown of
this model.

Employers in manufacturing: A view
from the demand-side
Just as high-school-educated men are struggling with
less demand for middle-skill labor, some employers
face challenges accessing the sort of higher skilled
labor technology has made so valuable. Among
manufacturing employers, the character of this
challenge is often subtle: while increased openings
for high-tech sounding job titles like “industrial
engineer” and “programmer of computer numerically
controlled (CNC) machines” represent obvious
increases in demand for skill along the extensive
margin, anecdotal evidence suggests demand
increases along the intensive margin have also taken
place through evolving job descriptions.15 For example,
Valley Industrial Association president Cindy Tomei
points out that the same high school graduate who
was qualified to be a welder in the 1980s may not
be qualified to be a welder in today’s world. Because
of the increased need to interact with complex
machinery, an ideal candidate would possess some
post-secondary training. While a four-year bachelor’s
degree would not be necessary, apprenticeships or
coursework at a community college – perhaps even
an associate degree – are desirable.16
Incremental demand increases like these along the
intensive margin – a phenomenon hereafter referred
to as “upskilling” – are particularly difficult to grasp

given a natural tendency to qualitatively group
occupations into “low-”, “middle-”, and “high-”
skilled. In manufacturing, much of the increase
in demand for skill corresponds to differences in
degree rather than differences in kind. Specifically,
it seems qualifications of traditionally middle-skilled
jobs have progressed over time toward the threshold
of what one might call high-skilled. The fact that
qualifications haven’t quite crossed that threshold
should not be mistaken for stasis.
In any event, Tomei outlines a broadly shared set
of concerns to which these demand increases have
given rise:
• First and foremost, there are too few qualified
applicants to meet demand. Applicants might
lack the right “hard skills” such as moderately
advanced math ability and the ability to interpret
blueprints, as well as “soft skills,” like the ability
to communicate effectively and maintain a
consistent work ethic. For one employer, the
problem is so severe that “if a qualified welder
showed up at the door, they would hire them
whether they had a job or not.”
• A perception problem. Many parents of high
school students, for instance, are steering their
children away from employment opportunities in
manufacturing, which they believe to be insecure
and entailing unpleasant work conditions.
This perception might partially explain the
disappearance of shop class from high school
curricula, and hinders efforts to appeal to women,
who are vastly underrepresented in the field.
• A deepening of these problems will occur in the
near future as a large wave of older workers begins
to retire.
In terms of the scope of the perceived skill shortage:
• The shortage applies to high- and upper-middle
skilled positions. (Employers are not having
trouble filling positions at the lower end of the
skill spectrum.) Tomei notes that occupations
in particularly high demand include welders,
machinists, and persons who can maintain and
repair equipment.

Profitwise News and Views Fall 2014
— 10 —

One way businesses are expanding the pool of
skilled workers is through strategic partnerships
with community colleges aimed at developing
curricula specifically tailored to employer needs. For
example, Caterpillar has partnered with Waubonsee
Community College in Aurora, Illinois, to design
welding and safety training classes. Waubonsee
also partners with the Valley Industrial Association
(VIA) to market and deliver a supervisory program
to VIA member companies. Class topics range from
management skills to workplace safety.2
A different type of private sector effort is JPMorgan
Chase’s “New Skills at Work” program. This
program involves a $250 million investment spread
over five years – $15 million of which is earmarked
for the Chicago area – making it the largest privatesector initiative to address worker skills assessment
and development. Funds will be directed toward the
following goals:
• Build a demand-driven system through crosssector gatherings to encourage collaboration,
share findings, and formulate strategies;

10,242
8,068
6,230

6,825

8,000

8,866

7,808

10,000

4,378
2,369

2,000

1,441

2,276

4,000

3,580

3,731

4,842

6,000

0

-4,549

-6,000

-2,174

-2,650

-3,401

-4,000

-2,009

-2,000

-5,135

Another possible explanation for the supply/wage
disconnect is that firms may be tightly constrained in
their ability to raise wages, at least in the short run.
Manufacturing is a globally competitive industry,
and profit margins may be lower following the Great
Recession. Whatever the case, employers genuinely
perceive a shortage of skilled workers, and many are
seeking alternative ways to develop new talent.

12,000

1,404

Is there a “skills gap”? Manufacturers often note a
lack of qualified applicants for skilled positions, but
a growing number of researchers take issue with the
term. Paul Krugman, for example, refers to the skills
gap as a “zombie idea” that refuses to die, regardless
of any evidence produced against it.1 In economics,
a shortage of workers should lead firms to raise
wages, thereby attracting talent from other parts of
the economy. Yet real wages in manufacturing have
remained flat or fallen. Consequently, some have
even suggested the term merely provides a talking
point that enables employers to deflect responsibility
for investing in workers.

Metros with biggest shortfall of workers in
skilled trades, tech, and business/finance

-6,404

Employer involvement

-8,000

.C.

n, D

gto

in
ash

ston

Hou

las

Dal

ton

Bos

W

Estimated annual Related 2012
job openings,
graduates
2013-2015

ago

Chic

New

ty

k Ci

Yor

ttle

Sea

Projected shortfall

Source: EMSI 2013.4 Class of worker.3

• Invest in the best training and make targeted
investments to strengthen and scale the most
effective workforce training programs; [and]
• Rely on data and sponsor a data-driven analysis
of skills demand to supply gaps in local markets.4
To help implement this program, JPMorgan has
enlisted the help of a number of partners, including:
the National Academy Foundation; The Aspen
Institute’s Forum for Community Solutions;
the Institute for Public Policy Research; Jobs for
the Future; the National Fund for Workforce
Solutions; Participle; Women Like Us; Year Up; and
YouthBuild USA.
Following the recommendations of a report from
Economic Modeling Specialists Intl. (EMSI), “New
Skills at Work” will be focused regionally. According
to this report, shortages for specific skills are easier

Profitwise News and Views Fall 2014
— 11 —

to assess locally as opposed to nationally as cities
vary significantly in terms of their industry mix.
For example, San Francisco has a regional cluster of
technology companies, so their worker needs lean
toward technology/engineering positions. Chicago,
on the other hand, may face larger shortages in the
manufacturing sector.5
To identify specific areas of focus, the report examined
“2012 graduates in regional educational programs” to
estimate annual job opening projections from 2013
to 2015. Using this approach, the report projected
worker shortfalls exceeding 4,500 in Washington,
DC, Houston, and Dallas, and shortfalls exceeding
2,000 in Boston, Chicago, New York City, and Seattle.
Still, while many cities may face a shortage, others are
facing a potential surplus of workers. For example,
both Tulsa, Oklahoma, and Baton Rouge, Louisiana,
will have more graduates than job openings in the
skilled trades.

Notes
1. Krugman, Paul, 2014, “Jobs and Skills and Zombies,” The New York Times, March 30,
available at http://www.nytimes.com/2014/03/31/opinion/krugman-jobs-and-skillsand-zombies.html?_r=0.
2. Engel, Emily, 2013, “Community Colleges and Industry: How Partnerships Address
the Skills Gap,” ProfitWise News and Views, available at http://www.chicagofed.org/
digital_assets/publications/profitwise_news_and_views/2013/PNVNov2013_FINAL.
pdf.
3. New Skills at Work & JPMorgan Chase & Co., available at http://www.
jpmorganchase.com/corporate/Corporate-Responsibility/new-skills-at-work.htm.
4. Interestingly, the Boston Consulting Group study (described below) reaches a
different conclusion. According to their methodology – which identifies shortages by
focusing on changes in occupational wages in relation to inflation – regional shortages
for a particular skill set are more likely to crop up when the market for it is relatively
small.
5. EMSI, 2013, “Analyzing Local Skills Gaps As Part of JPMorgan Chase’s ‘New Skills
at Work’ Initiative,” available at http://www.economicmodeling.com/wp-content/
uploads/EMSI-SkillsGap-Brief.pdf
6. Ibid.

The EMSI report ultimately concedes that the term
“skills gap” is somewhat subjective, noting that “some
refer to the skills gap as a compensation gap, claiming
that employers are unwilling to bump up wages to
bring in the talent they need. Others call it a training
gap, claiming that employers aren’t doing enough onthe-job training, or that educational institutions aren’t
in tune with employers’ needs.”6 Regardless of how
they are characterized, however, employers share a
set of concerns that run deeply enough to spur them
into action.

Profitwise News and Views Fall 2014
— 12 —

Figures 5a and 5b.17
Real median earnings of welders and machinists
compared to earnings by educational attainment

$50,000

1.5

Machinist and welder earnings as a fraction of earnings by educational
attainment: Comparison between 1992−1996 and 2009−2013

$45,000
1
$40,000

.5
$35,000

$30,000

0
1995

2000

2005

2010

2015

Associate degree

Year

Machinist
High school diploma

HS Graduate

Machinist

Welder

1992-1996

Associate degree

HS Graduate

Welder

2009-2013

Associate degree

Source: Current Population Survey as obtained through IPUMS.

• The paucity of skilled applicants has been a
concern for quite some time, perhaps as early as
the 1980s. It reached a tipping point during the
Great Recession, however, when a labor surplus
– as indicated by high rates of unemployment –
failed to ease the shortage.
Interestingly, Tomei notes the difficulties employers
face tend not to be discussed alongside matters
of compensation. (Instead, these discussions are
dominated by other concerns like union membership
and industry pay standards.) Presumably, competing
more aggressively for local talent through higher
pay is not an attractive option for employers who
already must compete globally on the price of goods.
Given high levels of unemployment, it may also be
perceived as an unnecessary option.
Data support the notion that manufacturers are
reluctant to bid up wages as a means to meet demand.
According to self-reported weekly earnings of fulltime workers in the Current Population Survey (CPS),

for instance, the gap in wages between welders and
associate program graduates did not close significantly
since the early 1990s (specifically, welders earned 89
percent of what associate graduates earned between
1992 and 1996 versus 91 percent between 2009 and
2013; see figure 5b). While we may not necessarily
expect the gap to close completely, we might at
least expect a greater degree of closure as employers
require additional post-secondary training beyond
high school. However, as figure 5a shows, wages have
remained steady in relation to the channel bounded
by the median wages of high school graduates at
the low end, and associate program graduates at the
high end.
Over this same period, the relationship between the
wages of machinists and associate program graduates
was actually reversed: whereas machinists typically
earned 1.08 times the annual wages of associate
program graduates between 1992 and 1996, that ratio
dropped down below parity to .97 between 2009 and

Profitwise News and Views Fall 2014
— 13 —

Figure 6. Skilled labor is more of a draw to the
U.S. than perceived shortages are a deterrent18
“Was better access to a skilled workforce a strong factor
in moving production to or from the U.S.?”
50
~5x
40

Respondents (%)

37
30

20

10
8
0
Production moved from the U.S.

Production moved to the U.S.

Source: BCG manufacturing survey, February 2012.

2013. According to the Bureau of Labor Statistics
(BLS) bulletins and CPS data, this may partly reflect
a skewing of the machinist age distribution toward
the younger end in conjunction with mass layoffs
that disproportionately affected mid-career workers
during the 2001 recession.19
Drawing upon data from the BLS and U.S. Bureau
of Economic Analysis, a Boston Consulting Group
(BCG) report found similar wage inertia. According
to their analysis, nation-wide wages among highly
skilled manufacturing occupations grew on a
compound basis by about 2.5 percent between 2005
and 2010 – a rate similar to that of inflation. Broadly
speaking, this rate falls short their definition of a
“significant skills gap,” which “can be said to exist
when wage growth has outpaced inflation by at least
3 percentage points annually for five years.”20
At the MSA level, the BCG’s findings were more
nuanced – severe shortages according to their
definition were in fact apparent in 47 of 389 local
submarkets. The BCG contends, however, these
limited shortages are local in nature and not indicative

of a broader, structural problem: specifically, MSAs
in which a shortage was observed may have had
difficulty accommodating demand increases given
the relatively small size of their manufacturing bases.
On the other hand, deeper markets like Detroit,
Chicago, Houston, Los Angeles, and Minneapolis
are such draws internationally that gaining access
to skilled labor is five times more likely to prompt
the onshoring of production to the U.S. than its
offshoring (see figure 6).21
How can such lack of observable wage movement
be reconciled with talent shortages which – as the
BCG study notes – factor into the perceptions
of manufacturers both in the U.S. and abroad?22
Resolving this incongruence may hold the key
to understanding employment polarization from
the manufacturer point-of-view. Peter Cappelli,
Research Associate at the National Bureau of
Economic Research, for instance, suggests that
employers have shifted from a traditional model of
labor, where companies respond flexibly to shifts in
the labor market, to a model that more closely regards
employees as inputs into a supply chain. Under this
second model, employers produce a specific amount
of goods at a set price, and a worker either has the
required skills or does not.23 From this perspective,
high school graduates’ inability to keep pace with
technology-induced upskilling bears resemblance
to a supplier failing to accommodate changes in
part specifications.
Though largely critical of this perspective, Cappelli
provides some reasons why it may be reasonable.
For one, workers today switch employers far more
often than they did in the past. This means that
employers are hiring much more often, not just for
entry-level jobs, but also for positions across the
skill and experience spectrum. While it may be
simple to train a young high school graduate for a
new position, finding an experienced worker to fill a
more senior role could require a more intense search.
Filling vacancies across all levels in the organization
aligns more closely with the idea of filling a piece in a
supply chain. Moreover, even training young workers
is risky when the workforce increasingly changes
jobs. Employers may be reasonably concerned
that investments in training will be lost if the
employee leaves soon afterwards for better pay with
another firm.24

Profitwise News and Views Fall 2014
— 14 —

Conclusion

expanded rapidly…to meet the needs of an advancing
manufacturing sector.”25

The secular increase in both relative employment
and wages at the higher end of the skill spectrum
likely points to a widespread increase in demand
for skill without a commensurate increase in
supply. For a manufacturer, characterizing this
trend as an interruption in a defined supply chain
is understandable. What this perspective misses,
however, is that expectations surrounding who the
appropriate supplier is – and how much they should
charge – are anchored in a time when barriers to entry
for high school graduates were much lower. It may
very well be that large numbers of male high school
graduates are disengaging from the labor force despite
employment opportunities in manufacturing. To
describe this as a "skills gap," however, is already well
on its way toward arguing education is flawed and
requires remediation. Understanding this disconnect
as an outcome of technology-driven upskilling,
on the other hand, disentangles prescription
from description, and allows the policymaker to
confront the true breadth of complex issues that
require sorting.

Even if one accepts a public role in the administration
of employment-oriented education programs,
deciding which ones should be funded and to what
extent is still complex. That said, the broadness
with which skills may be applied might provide
a useful litmus test: programs that offer broadly
applicable skills may be classified as "investments in
the workforce", while programs that offer narrower
skills appear more like subsidies. Interestingly,
when participants of the CDPS survey were asked
“to what extent are companies in your area willing
to train workers?” several respondents expressed an
openness towards providing specific training for
candidates who meet basic general requirements.26
At first blush, such feedback suggests room may in
fact exist for solutions that would pass this litmus
test. Regardless of who is responsible for upgrading
the qualifications of the traditionally middle-skilled,
it’s important to emphasize that any success in this
area would constitute a striking achievement in
workforce development.

Key among these issues is the potential blurring
between education and job training. To take two
hypothetical examples, an informed taxpayer may
have qualms about a public-private partnership that
trains an individual to operate a machine used by
manufacturer X but not manufacturer Y. The same
taxpayer may be only slightly more comfortable
with a partnership that provides skills that can be
applied broadly in manufacturing, but not some
other industry. In these cases, the public share of
partnership dollars bears a close resemblance to an
employer or industry subsidy.
These examples are of course extreme, and are
offered merely for the sake of illustration. As Alan
Greenspan noted at the 2000 National Skills
Summit, updating public curricula in conjunction
with the evolution of employer needs may be
warranted, and there are precedents for it. “Early last
century,” he noted, “advances in technology began
to require workers with a higher level of cognitive
skills, for instance the ability to read manuals,
to interpret blueprints, or understand formulae.
Our education system responded: In the 1920s
and 1930s, high school enrollment in this country

Profitwise News and Views Fall 2014
— 15 —

Is a college education worth the
cost? A risk/reward perspective
If the sheer number of zeroes above the dotted line
somehow weren’t enough to make a 17-year-old
cringe at the thought of signing for a college student
loan, reading just about any magazine would. A
recent TIME article with the headline, “Student
loans are ruining your life. Now they’re ruining the
economy too,” tells of a dental student who lives with
his parents and is considering joining the military
to repay his $400,000 debt.27 Another account in
The New York Times profiles a student who borrowed
$97,000 and now struggles to pay her bills working
for a photographer.28 To a young person faced with
an important life decision, these stories inevitably
raise the question: Is college worth it?
Broadly speaking, the answer is ‘yes’. In his book
The New Geography of Jobs, Berkeley economist
Enrico Moretti writes, “Not only is college a
good investment, it is one of the best investments
around.”29 Summarizing research from the Brookings
Institution, he considers a hypothetical 17-year-old
with $102,000 and asks whether she would do better
going to college or making a financial investment. He
reports that, “Investment in a college degree delivers
an inflation-adjusted annual return of more than 15
percent, significantly larger than the historical return
on stocks (7 percent) and bonds, gold, and real estate
(all below 3 percent).”
Still, while college makes sense in the aggregate, it
does not guarantee a better job or higher lifetime
earnings. The value of college degrees (based
on course of study, ranking/perceptions of the
institution conferring the degree, and many other

factors) differs significantly in the marketplace.
Returns can be negative, and the variance among
outcomes is significant. Furthermore, there is risk
that the degree will not be attained at all due to
unforeseen events. The high cost of higher education
represents sunk cost, and students who fail to finish
but incur debt are particularly worse off.
To understand the value of a college education
more fully, we examine the college premium along
with other data that shows why higher education
remains an excellent investment for most people.
Like all investments, however, with reward comes
a degree of risk deriving from three major sources:
1) choices made along the path toward attaining a
degree; 2) unemployment, and; 3) non-attainment/
delayed attainment. We conclude with a brief
comparison of graduation rates across states in the
Seventh District and consider the relative success of
Iowa’s institutions.

Reward
The college premium
Income inequality is in the political spotlight right
now, and for good reason. The U.S. has experienced a
pattern of increasing income inequality over the last
several decades. The Congressional Budget Office
reports that the median wage rate for men in the 10th
percentile increased by 8 percent between 1979 and
2009, while the median wage rate for those in the
90th percentile increased by 40 percent (see figure
7).30 Increases in the median wage rate for the often

Profitwise News and Views Fall 2014
— 16 —

Figure 7. Hourly wages at selected percentiles
for workers ages 16 to 64

Figure 8. Median hourly wage by educational
attainment, men ages 16-64

$50

$40

$45

$35

$40
$30
Hourly Wage (2009 dollars)

Hourly wage (2009 dollars)

$35
$30
$25
$20

$25
$20
$15

$15
$10
$10
$5

$5
$0

$0
1979

1986

1989

1999

2007

2009

1979

Year

10th percentile

50th percentile

1989

1999

2009

Year

90th percentile

Source: Congressional Budget Office. "Changes in the
Distribution of Workers' Hourly Wages Between 1979 and
2009." CBO study, Washington, DC, 2011.

mentioned 99th percentile (i.e., “the 1 percent”) were
even higher.
Evidence suggests that the rising college premium
– i.e., the disproportionate increase in the wages
of workers with a college degree compared with
those with a high school degree or less – is largely
responsible for the often noted gap between “haves”
and “have-nots.” Splitting the same wage data by
educational attainment, it becomes clear that wages
increased for those with a bachelor degree or higher
and fell for those with only a high school degree or
less (see figure 8). In his analysis, Moretti reports the
same basic results even when dropping the CEOs
and financiers from the data.
Economist David Autor of MIT documents the same
trends in his report on job polarization for the Center
for American Progress.31 He presents the following
figure (figure 9), showing differences in the weekly
wage ratios between college educated workers and
those with only a high school degree. His findings

Less than high
school
Bachelor degree

High school/GED

Some college/
associate degree
Graduate degree

Source: Congressional Budget Office. "Changes in the
Distribution of Workers' Hourly Wages Between 1979 and
2009." CBO study, Washington, DC, 2011.

show the college wage premium has been increasing
since about 1980.
The sharp increase in the college premium stems
from structural changes in the nation’s labor market.
As reported in the previous article, globalization and
technological changes have caused job opportunities
in the U.S. to polarize. Middle-skill jobs for those
with a high school education have been disappearing,
while the demand for skilled labor continues to
increase. In their book, The Race between Education
and Technology, economists Larry Katz and Claudia
Goldin document an increasing demand for skilled
labor since the beginning of the First World War.32
So what happened in 1980? Very simply, the relative
supply of college graduates began to trail the rising
demand for a highly educated workforce. As college
graduates became increasingly scarce relative to
demand, their wages went up.

Profitwise News and Views Fall 2014
— 17 —

Autor offers a concise picture of this supply-anddemand relationship, as shown in figure 10. Beginning
around 1980, it’s clear that the relative wages increase
almost perfectly with the decline in the relative
supply. The finding of this relatively straightforward
analysis, Autor confirms, is supported by many more
rigorous studies that arrived at the same conclusion.

Figure 9. College/high school weekly wage
ratio, 1963-2008
2

1.9

Wage Ratio

1.8

1.7

1.6

1.5
1964

1973

1982

1991

2000

2009

Source: Autor, David. The Polarization of Job Opportunities:
Implications for Employment and Earnings. Policy Report,
Washington, DC: Center for American Progress and The
Hamilton Project, 2010.

Figure 10. Detrended changes in college degree
vs. high school diploma relative supply and
relative wages
15

5

0

5

0
−5

Change Relative Supply (%)

Change Relative Wage (%)

10

−5

−10
−10
1963

1978

Change relative wage (%)

1993

2008

Change relative supply (%)

Source: Autor, David. "The Polarization of Job Opportunities:
Implications for Employment and Earnings." Policy Report,
Washington, DC: Center for American Progress and The
Hamilton Project, 2010.

The decline in relative supply has come
disproportionately from men. Between 1940 and
1980, the rate of baccalaureate attainment among
men ages 25-34 increased three-fold, reaching 26
percent.33, 34 This rate fell to 23 percent in 1990, and
grew slowly to 26 percent in 2000 and 27 percent
in 2010.35 Baccalaureate attainment among young
women grew at approximately the same rate as men
between 1940 and 1980, but then continued to grow
from 20 percent in 1980 to 35 percent in 2010.36, 37
In fact, the slow growth in attainment among men
appears to be driving the plateau in college completion
rates that is boosting the college wage premium. As
Autor states, “…a major proximate cause for why the
wage gap between college-educated workers and high
school-educated workers has expanded sharply over
the past three decades is that male four-year college
attainment stagnated throughout the interval.”38, 39
In the current labor market, a college degree is
more important for success than ever. The earnings
premium for college graduates is rising, while middleskill jobs for high school graduates are disappearing.
Anecdotal accounts about high student debt may
give pause to many students considering the costs
and benefits of attending college, but prospective
students would be well advised to consider the cost
of not attending college in their decision making.

Putting cost into perspective
Despite overwhelming evidence on the benefits
of college, rising tuition and unmanageable debt
have emerged as prominent themes in accounts of
struggling graduates. Indeed, average real tuition
and fees at private nonprofit institutions have risen
by 25 percent over the past 10 years, outpacing
growth in median family income.40 Average in-state
tuition and fees at public four-year institutions has
risen even faster, at 51 percent. Following a major
recession, and given the costs of college are high and
paid up front, the increased cost creates even greater
hardship for many.

Profitwise News and Views Fall 2014
— 18 —

Ultimately, the decision to pursue a degree and incur
significant costs and debt should be understood
in terms of expected return. Avery and Turner
demonstrate that the net present value of average
lifetime earnings for college graduates more than
justifies the cost. In their analysis, the average
college graduate would have earned approximately
$1.2 million net of tuition by age 64, compared to
$780,000 for the average high school graduate.42
Given the high returns to college, it’s not entirely
clear whether students are borrowing too much or
not enough. Avery and Turner report that many
students drop out due to high-interest credit card
debt, or work part-time jobs that cause grades to
suffer. Borrowing more in the form of low-interest
student loans would seemingly be a better option for
these students.

Risk
Given the (macro-level) evidence that a college degree
is a value-added investment net of associated costs,
why is the media narrative so negative? Journalists
have tended to focus on downside risk, which makes
for compelling reading. While the risks may be
covered disproportionately in the popular press, they
are real.

Figure 11. 2010 wage distribution by educational
attainment, workers ages 16-64

$40,000

Some college

High school

GED

$60,000

Less than high school

$80,000

Associate degree

$100,000

Bachelor degree

Graduate
degree

$120,000

Annual wages

However, a few points are worth noting. First, a study
by the College Board reports that even as published
tuition has increased, net tuition at private nonprofit
institutions (that is, published tuition minus grant
aid and tax benefits) has actually fallen 8 percent over
the same period. This is a better measure of financial
burden since it indicates what most people actually
pay. Second, net tuition at public institutions –
where state subsidy offsets tuition costs – is only
25 percent that of private nonprofit institutions.
Figures on aggregate student debt have also been
widely publicized. The Student Loan Debt Clock at
FinAid.org provides a striking representation of
growth in total debt outstanding, currently estimated
at over $1 trillion and rising.41 Yet even as total debt
continues to grow, research economists Avery and
Turner report that the average amount a student
borrows has remained fairly constant in real terms.
Growth in total debt can largely be traced to more
students entering college and a higher fraction choosing
to borrow.

$20,000

$0
Educational Attainment

25th percentile

Median

75th percentile

Source: ACS 2010 as obtained through IPUMS USA. Steven
Ruggles, J. Trent Alexander, Katie Genadek, Ronald Goeken,
Matthew B. Schroeder, and Matthew Sobek. Integrated
Public Use Microdata Series: Version 5.0 [Machine-readable
database]. Minneapolis: University of Minnesota, 2010.

The educational path
While average returns are high, some students have
low or even negative returns to college. There is
no common path through higher education, and
outcomes vary greatly by degree level, institution,
and choice of major. We examine the distributions
for each of these factors in sequence.
First, students pursuing postsecondary education
choose to pursue either an associate degree or
a bachelor degree. Previous comparisons point
primarily to advantages of a four-year college degree
over a high school diploma, but options at the twoyear level have greatly expanded and are generally
much more affordable. While earnings for workers
with a four-year degree are higher on average, they
also have a much wider distribution than two-year
degrees. The 75th percentile of income for workers
with a bachelor degree earns $21,000 more than the
75th percentile of those with an associate degree.

Profitwise News and Views Fall 2014
— 19 —

Figure 12. Wage distribution by major (2009)
$102k

Engineering

Business

Physical sciences

$75k
$53k

$40k

3%

5%

$60k

Some college/
associate degree

$87k

$59k
$38k

4%

8%

$70k
$32k

Psychology and
social work

$42k
$30k

25th percentile

Bachelor degree
& higher

$90k

Humanities and
liberal arts

Education

Figure 13. Unemployment rate at recession end
by educational attainment (age 25+)

$47k

High school graduate,
no college

5%

10%

$62k

Less than high
school diploma

$55k
$42k
$32k

Median

8%

Unemployment rate

75th percentile

Note: Sample limited to full-time, full-year workers with a
Bachelor degree (but no higher).
Source: Carnevale, Anthony, Jeff Strohl, and Michelle Melton,
2011. "What's It Worth? The Economic Value of College
Majors." Georgetown University Center on Education and
the Workforce. May 24, 2011. http://cew.georgetown.edu/
whatsitworth (accessed May 19, 2014).

Yet this difference in income drops to $10,000
at the median and roughly $6,000 at the 25th
percentile. Already it’s clear that some workers
with bachelor degrees will earn less than those with
associate degrees.
It’s worth noting that wages for workers with
associate degrees are often jointly reported with
wages for those with only some college, but there is a
meaningful distinction in the data. Those with some
college credit but no degree look similar to those
with only a high school education, while those with
an associate degree earn significantly more. It may be
that some portion of employers value degrees more
than simply years of schooling.43
Second, students choose from a wide range of
institutions for competitive admission, all of which
vary in resources, tuition, scale, fields of study, and
instructional mode. Of these factors, resources seem

16%

2001 Recession (Nov. 2001)

Great recession (June 2009)

Source: Current Population Survey and Haver Analytics.

to be particularly important. Economists Bound
and Turner report substantially greater earnings for
students who attend schools with greater resources
per student. Even more, they highlight a number of
studies which document gains even when controlling
for family background and scholastic achievement.
Summarizing the work of Hoekstra, they state, “…
for those at the margin, attending the flagship school
increases earnings by 20 percent.” This link between
institutional resources and student outcomes is
particularly concerning in light of substantial
“undermatching,” where highly qualified students
(mostly from households in the bottom quartile of
family income) fail to enroll in very selective colleges.
Lastly, there is broad dispersion of earnings across
groups of college majors. Students in a technical
field tend to earn more than humanities or education
majors. Researchers at Georgetown University
analyzed earnings data from the American
Community Survey for full-time, full-year workers
aged 18-64 with a bachelor degree. They report that
engineering majors have the highest annual median

Profitwise News and Views Fall 2014
— 20 —

Figure 14.
Bachelor graduation rate by sector

Bachelor cohort share by sector

80%

80%

60%

60%

40%

40%

20%

20%
0%

0%
2002

2004

2006

2008

2010

2012

2002

2004

2006

Year

2008

2010

2012

2010

2012

Year

Associate graduation rate by sector

Associate cohort share by sector

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%
0%

0%
2002

2004

2006

2008

2010

2012

2002

Year

Public

2004

2006

2008
Year

For-profit

Private

Source: U.S. Department of Education. Institute of Education Science, National Center for Education Statistics.

earnings at $75,000, while education, psychology,
and social work majors have the lowest at $42,000.44
Significant dispersion of earnings exists even within
groups. Engineering majors report the highest
annual earnings, but also one of the widest ranges.
Median earnings for petroleum engineers top the list
at $120,000, more than double the median earnings
of biological engineers at $55,000. At the other
side of the spectrum, earnings of education majors
vary much less in dollar amount. Early childhood
education majors report the lowest median at
$36,000, while secondary education majors report
one of the highest among educators at $46,000.

Unemployment
In addition to wage differences relating to specific
decision points along the educational path,
macroeconomic unemployment risk also contributes

to the volatility of returns on investment in a college
education. In relative terms, college graduates are
shielded from this risk compared to non-graduates.
While the most recent recession was severe for workers
in general, those with a college education were half
as likely to be unemployed than those with only a
high school diploma (5 percent vs. 10 percent; see
figure 13). Furthermore, research from economists
Nir Jaimovich and Henry Siu suggests that many
of the middle-skill jobs lost in the recession will
likely be eliminated through efficiencies or replaced
by automation.45
From a different perspective, the stakes for college
graduates in terms of return-on-investment can be
quite high. Financial arguments in favor of college
often measure the present value of income earned
over a career. These estimates of lifetime earnings can
be quite sensitive to when a career starts in earnest.

Profitwise News and Views Fall 2014
— 21 —

Integrated Postsecondary Education
Data System
The National Center for Education Statistics
provides data on graduation rates by cohort for
postsecondary institutions in the United States
through the Integrated Postsecondary Education
Data System (IPEDS). All institutions that apply
for Federal financial assistance under Title IV of
the Higher Education Act of 1965 are required to
complete the surveys. Graduation rates represent
the fraction of full-time students who completed
their program within 150 percent of the normal
program length (e.g., six years for a bachelor degree
or three years for an associate). IPEDS classifies these
cohorts according to three levels: bachelor degrees,
other undergraduate degrees or certificates at fouryear institutions, and degrees or certificates at twoyear institutions. Data are released according to the
year that a cohort finishes (e.g., 2012 data represent
graduation rates of four-year students who began in
2006 and two-year students who began in 2009).

Viewed through this lens, the two percentage point
difference between the 2001 and 2007-09 recessions
is small but consequential.
The interaction of college attainment with
unemployment is ultimately two-fold: while a
degree helps to insure against the incidence of
unemployment, it also magnifies the (financial)
consequences of unemployment should it occur.

Non-completion risk
Financial valuations of college degrees often
invoke comparisons with stocks and bonds. While
earnings on these investments begin to accumulate
upon purchase, however, educational investments
start accumulating value only after a degree has
been attained. Accordingly, return-on-investment
may suffer if attainment is delayed or fails to take
place altogether.
Unfortunately, the Integrated Postsecondary
Education Data System (IPEDS) data suggest this
risk is significant (see inset). Though the national

These statistics have been criticized in recent years,
since they only track the graduation rate of full-time,
first-time students in an institution, and exclude
those who transfer or take longer to complete their
degree. A more constructive assessment is that the
data measure how efficiently schools bring students
through their programs. Viewing the data along
these lines highlights an important fact: extended
enrollments are common at the bachelor level, and
are the norm at the associate level.
These nuances in the data impact our use of the term
"graduation rate." Specifically, "graduation rate"
in the context of bachelor degrees refers to the sixyear graduation rate; for associate degrees, it refers
to the three-year graduation rate. Importantly, the
remaining percentage of students includes those who
transferred or took substantially longer to attain a
degree. In terms of the discussion on risk, students
in this latter group have likely experienced some
undesirable outcome. It's not always clear, however,
whether that outcome is non-attainment or just
delayed attainment.

graduation rate for bachelor degrees has been
climbing over the past decade, it is still surprisingly
low – just 59 percent in 2012 (see figure 14 for
breakout by sector). According to Avery and Turner,
a little over half of all students who anticipate
completing a bachelor degree fail to do so within six
years and accumulate an average of $7,413 in debt.46
Overall graduation rates from two-year colleges are
even lower at only 34 percent.
This gap in completion rates by degree level
corresponds largely to differences in the performance
of public institutions. As figure 14 shows, the
majority of students at both levels are enrolled in
public institutions. However, while public institution
completion rates are comparable to those of private
institutions at the bachelor level, completion rates
at the associate level lag significantly behind those
of private and for-profit institutions. At this latter
level, for-profit institutions lead with a 63 percent
graduation rate, while public community colleges
struggle around 20 percent.

Profitwise News and Views Fall 2014
— 22 —

Figure 15.
Graduation rates for bachelor degrees at 4yr public schools, 2012

Graduation rates for associate degrees at 2yr public schools, 2012

WI

60%

WI

MI

62%

MI

IN

55%

IL

U.S.

20%

8%

U.S.

21%

IL

70%

0%

13%

IN

63%

IA

29%

30%

IA

40%

60%

80%

0%

5%

10%

15%

20%

25%

30%

35%

Source: U.S. Department of Education. Institute of Education Science, National Center for Education Statistics.

Given the extent to which higher completion rates at
the bachelor level are linked to the strength of public
institutions, the growth in for-profit institution
market share over the past decade is concerning.
In addition to lower completion rates, graduates
of for-profit schools report higher debt, greater
unemployment, and lower earnings than similar
peers in public or nonprofit schools.47 While public
schools still enroll the majority of the cohort, forprofit schools have nearly doubled their share of the
cohort since 2002.
Low graduation rates at community colleges are
especially troubling given their important role in
providing a bridge to the middle class. Indeed, these
figures have prompted the attention of researchers,
philanthropists, and politicians alike. A study
by Jenkins and Cho at Columbia University’s
Community College Research Center shows that
offering guided pathways to help students navigate
through programs may be a key to improving success
rates. They document improved outcomes for students
entering a program in their first year of study, yet
many students enroll without choosing a program
until their second year or later.48 Building on this
research, the Bill and Melinda Gates Foundation has

dedicated $35 million to the Completion by Design
Initiative, which is currently piloting programs at
community colleges in five states to streamline the
student experience.49

A closer look at graduation rates in the Seventh District
As leaders across states in the Seventh District seek to
increase employment, it’s worth broadly examining
how graduation rates compare to the nation overall,
and which states are leading the district. Toward that
end, we restrict the comparison to public institutions
since they account for the majority of students and
are most connected to state-level governance. The
IPEDS data classifies cohort outcomes into four
categories. After 150 percent of normal program
time, students have either graduated, transferred,
remained enrolled, or dropped out. Figure 15 shows
the graduation rate by state for bachelor programs,
with the U.S. included as a benchmark. Here we see
that Iowa leads the pack with a graduation rate of
70 percent, or 13 percentage points greater than the
national rate. The other four states are clustered more
closely around the national rate.
At the community (i.e., two-year) college level, Iowa
leads again in the graduation rate, followed closely

Profitwise News and Views Fall 2014
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Figure 16.
2012 Graduation rates for bachelor degrees at 4yr public schools,
Iowa and comparison states (population appx. 3 million)
AR

Share of cohort at 4yr public schools enrolled in a flagship institution,
Iowa and comparison states (population appx. 3 million)

42%

AR

24%

MS

50%

MS

UT

50%

UT

65%

KS

63%

KS

54%

IA

IA

70%

0%

10%

20%

30%

52%

40%

50%

60%

70%

80%

83%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Source: U.S. Department of Education. Institute of Education Science, National Center for Education Statistics.

by Wisconsin. Indiana and Michigan are far below
the national level. Michigan’s poor graduation rate is
mitigated by a high transfer rate, but the same is not
true for Indiana.

The Iowa advantage
Policy wise, is there anything we can learn from Iowa's
relative success at the four-year level? After all, Iowa’s
population is only a quarter of Illinois’s. Comparing
states of similar population, Illinois’s rate is on par
with Pennsylvania (63 percent) and significantly
better than Ohio (55 percent). Yet even among its
peer states of approximately 3 million people, Iowa
stands out by an impressive margin. Kansas, Utah,
Mississippi, and Arkansas each have rates between
42 percent and 54 percent. Iowa’s graduation rate of
70 percent ranks as fourth highest in the U.S.
Understanding exactly how students are dispersed
within the state’s respective public sector may hold the
key to unlocking Iowa’s success. Examining the data
from this angle reveals that Iowa's bachelor degree
students are concentrated in only three schools,
whereas bachelor degree students in comparison
states are spread across six to ten schools (or 11-15
schools in the Seventh District). Importantly, two

of these three schools – the University of Iowa (UI)
and Iowa State University (ISU) – comprise Iowa's
flagship schools. Consequently, the share of students
enrolled in a flagship school (83 percent) exceeds that
of the next closest comparison state by 18 percentage
points (see figure 16).
Robert Berdahl, former president of the Association
of American Universities (AAU), noted Iowa’s
flagship schools in a speech given while chancellor
of UC Berkeley in 1998. After detailing how many
states moved to create university systems in the
1960s without “any clearly defined educational
purpose,” he cites Iowa as an exception. “Iowa
refused to add universities during the expansion
of the 1960s, choosing instead to invest in and
expand its two flagship campuses, Iowa State and
the University of Iowa, as well as its one teachers’
college, which became the University of Northern
Iowa. No public university was built in Des Moines,
the largest city in the state. As a result, with a
population base roughly the same as Oregon, or
slightly less, it has two excellent and thriving AAU
universities, while Oregon has eight underfunded,
struggling institutions.”50

Profitwise News and Views Fall 2014
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Table 1. Per-student funding by state, 2-year
public schools
On-time
completion
rate

State

Local

Federal

Total

IA

30%

$1,506

$828

$1,592

$3,926

IL

21%

$967

$1,326

$883

$3,176

IN

8%

$1,568

$41

$1,446

$3,056

MI

13%

$844

$1,471

$1,521

$3,836

WI

29%

$875

$4,047

$1,438

$6,359

U.S.

21%

$1,450

$930

$1,316

$3,696

Source: U.S. Department of Education. Institute of
Education Science, National Center for Education Statistics.

Concentrating students in fewer schools may work
along two dimensions to improve graduation rates.
First, the schools appear to be more selective, since
a smaller fraction of the cohort is enrolled in a
bachelor program. Second, students who are on the
margin may achieve higher graduation rates than
they otherwise would at a smaller institution with
fewer resources. A more detailed analysis is required
to determine exactly which forces are at play in Iowa.

The Indiana challenge
In contrast to Iowa’s successful four-year system,
Indiana’s unique consolidated system of community
colleges faces a number of serious challenges.
Ivy Tech Community College of Indiana – the
administrator of this system – has 31 degree granting
locations but struggles with a graduation rate of 8
percent. Its transfer rate is also among the lowest at
16 percent, but its dropout rate, while higher than all
but Michigan, is reasonably close to other states in
the district. Students in the Ivy Tech system remain
enrolled longer than their peers in other states. After
three years, 62 percent of the cohort was still enrolled
in 2012, more than 20 percentage points higher than
the statewide rate for public two-year schools in
neighboring Illinois.
Just as access to flagship-caliber resources helps
explain Iowa’s success in the four-year arena, limited
access to funds may help account for Indiana’s
struggles at the two-year level. Though Ivy Tech
receives considerable funds from the state, the school
is comparatively under-funded from local sources, at

only $41 per student. Iowa and Wisconsin, on the
other hand, lead the district in graduation rates from
community colleges and receive the greatest amount
of grants and appropriations per enrolled student.
In an effort to close this gap, Ivy Tech is requesting
an additional $83 million in state funding to hire
more academic counselors, full-time faculty, and
IT equipment.
A deeper dive into the data, however, suggests
that state leaders are correct in their wariness that
the current system will be able to translate dollars
into higher completion rates.51 After all, Michigan
spends nearly as much per student as Iowa but
performs only slightly better than Indiana. Likewise,
Wisconsin’s per student expenditures are double
that of Illinois's, yet their combined graduation
and transfer rates (45 percent and 46 percent,
respectively) are virtually the same. Therefore, in
an effort to increase the effectiveness with which
any additional funds are spent, Ivy Tech is also
focusing on offering streamlined programs with less
flexibility and more guidance. One such offering,
the Associate Accelerated Program (ASAP), allows
students to earn an associate degree in one year by
attending seven hours a day and studying with the
same group of peers and teachers.52 Much like other
schools around the nation, Ivy Tech hopes this highly
structured approach will reduce attrition and boost
graduate rates.		

Conclusion
The combination of sharp wage growth among
workers with a post-secondary degree and stagnant
wage growth among the less educated makes a
compelling argument in favor of investing in
college, even after cost is taken into account. Clearly,
however, a number of risk factors can compromise
the value of such an investment both before and after
a degree has been attained. Descriptive evidence in
the form of Iowa's relative success in the four-year
arena suggests outcomes may be improved through
policies that steer qualified students seeking bachelor
degrees toward well-funded public institutions. At
the two-year level, the link between resources and
graduation rates is less clear. Educators at community
colleges are placing greater emphasis on simplifying
aid and providing guidance to students with the goal
to improve graduation rates and ultimately guide
students toward fruitful paths.

Profitwise News and Views Fall 2014
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Skills for a “stronger middle class”

Notes

In today’s environment, community colleges play
a vital role in helping middle-class Americans gain
skills valued and in demand among employers. The
Obama administration has made community college
workforce programs a policy priority. Earlier this year,
President Obama launched two competitive grant
initiatives aimed at scaling up successful community
college workforce programs: “American Jobs Training
Investments” and “American Apprenticeships Grants.”

1. The White House Office of the Press Secretary, 2014, “Remarks by the President and
the Vice President on Skills Training,” press release, Community College of Allegheny
County, Oakdale, Pennsylvania, April 16, available at http://www.whitehouse.gov/thepress-office/2014/04/16/remarks-president-and-vice-president-skills-training.

The American Jobs Training Investments Program
(AJTI) encourages community colleges to “figure out
what skills local employers are looking for, and then
partner with them to help design the curriculums and
prepare the students for those jobs.”1 Community
colleges that create these opportunities will be
rewarded with grants from a $500 million fund
set aside by the Trade Adjustment Assistance and
Community College and Career Training Program
(TAA-CCCT). During the last three years, funds
from the TAA-CCCT have helped community
colleges coach unemployed and underemployed
workers in their communities. In 2014, the AJTI is
directing funding toward three principal areas to get
more people back to work in living wage jobs:

4. Ibid.

2. The White House Office of the Press Secretary, 2014, “FACT SHEET – American Job
Training Investments: Skills and Jobs to Build a Stronger Middle Class,” press release,
April 16, available at: http://www.whitehouse.gov/the-press-office/2014/04/16/factsheet-american-job-training-investments-skills-and-jobs-build-stron.
3. Ibid.

1. Scale in-demand job training across the country
through national industry partnerships.
2. Advance education and training to ensure a seamless
progression from one stepping stone to another.
3. Improve statewide employment and education
data integration and use.2
Community colleges will also benefit from $100
million in grants from the American Apprenticeships
Grants Program made possible through H-1B funds.
The program funds projects that provide training to
workers for skills essential in high-growth industries.
Data has shown that “87 percent of apprentices are
employed after completing their programs and the
average starting wage for apprenticeship graduates
is over $50,000.”3 The grants competition will focus
on launching models in high-growth fields, aligning
future opportunities, and scaling models that work.4
This initiative should help equip the next generation
with the skills to succeed.

Profitwise News and Views Fall 2014
— 26 —

The Cara Program: Workforce
development one life at a time
How does one go from homelessness and poverty
to holding a steady job? This is the sort of question
Tom Owens was asking when he started Cara
(which means “friend” in Gaelic) in 1991. Owens
recognized that – while many excellent resources
exist to help people develop hard technical skills –
some individuals face barriers to employment that go
beyond the scope of traditional workforce training,
such as underdeveloped soft skills, criminal records,
limited/no work experience, and lack of professional
role models. However, he supposed that if a person
had housing, transportation, childcare, appropriate
work attire, and a platform of soft and hard skills on
which to build, then they would stand a solid chance
of succeeding in the workforce. Furthermore – if
such a program were to exist – the benefits would
likely extend beyond its participants and into the
larger community.

Within a highly structured and supportive
environment grounded in these principles, Cara’s
“students” work at Cara four days a week to simulate
a traditional job. The day is spent on activities that
promote team building, conflict management,
resume development, financial literacy, budgeting,
and professional growth; class topics range from
banking to a variety of “soft”54 and life skills. The
latter class focuses on interpersonal and less tangible
skills – often ignored in traditional worker training
programs – needed to succeed in the workforce.

Twenty-three years later, The Cara Program has
evolved into a thriving job training institution for
people impacted by a variety of life challenges. Cara
organizes its activities according to the philosophy
that life challenges are best met with life skills, and
has identified five transformation concepts aimed at
fostering such skills:

The program emphasizes developing and testing
skills under realistic conditions. In fact, students have
a “termination” class where students role play as the
CEO of a company and employees facing termination.
Even though the class is a simulation exercise, the
terminated student/s typically experience anger and
point fingers. Letting natural emotions bubble to the
surface helps students practice conflict management
in heated situations, and to better cope with stressful
situations that may arise in the workplace. Still,
the environment is deeply supportive. Mentorship
also occupies a central place in Cara’s curriculum.
Mentors help students navigate professional issues
and personal matters like childcare or housing.

• Change your behavior,

Entering the program

• Look with new eyes,

Prospective students come to the program through
referrals. Once referred, they must pass a phone
screening, an in-person interview, and a drug test
(they must remain sober and drug-free during the
program). The first two weeks are critical and there

• Know the deepest truth of who you are,
• Think outside the box, and
• Don’t relax.53

Profitwise News and Views Fall 2014
— 27 —

Table 2. Social return on investment (SROI)55
Our social impact:
Annualized contributions to society
Income taxes paid, social security, sales tax dollars spent

$1,261,663

Annualized savings to society
Temporary assistance for needy families, food stamps, unemployment, health care, substance abuse treatment, housing, recidivism
and rearrest for prison and jail, children returned through the Department of Children and Family Services, Medicaid.
Total one-year social impact

+$6,508,221

$7,769,884

Determining the social return on investment:
Present value of social investment (over five years)*
*'Present value' = 'Total one-year social impact' x 5; then discounted based on 30-year treasury bond data, plus an additional 20% to
acknowledge the risk inherent in this work.

$24,100,706

The Cara Program's one-year program cost

÷ $4,423,270

Social return on investment

545%

is some attrition. However, almost 70 percent of the
students succeed and finish the program.
Student Demographics:56
• 54 percent are women.
• 77 percent have a high school diploma/GED.
• 51 percent have a prior conviction.
• Average age: 39.
That Cara uses community support as a basis for
lifting expectations across the board is perhaps best
exemplified by their daily “Motivations” Program.
Motivations starts promptly at 8:30 a.m. and, like a
job, students must attend in business attire ready to
participate. Students gather into a circle, and a leader
starts the activity by asking a thought provoking
question, such as:
• Who or what gives you great joy and why?
• At this point in your life, what motivates you?
Be specific.
• What is the one thing you would like to improve
about yourself? How will you do this?
• What is your definition of success?
• What are you afraid of, and how are you
overcoming that fear?

After the question is asked, the leader selects a
student to answer the question. Following that, the
chosen student leads the group in song, and then
selects another student to respond to the question.
The next student steps into the motivational circle
and repeats the exercise.
This exercise has multiple functions: developing
timeliness, responsibility, and, of course, motivation.
Also, because the students are given this question to
consider the preceding day, Motivations functions as
a sort of “homework.” Importantly, students who are
unprepared are not given a pass. Instead, someone
from the staff explains to the student in a firm but
caring manner how the expectations of the exercise
were not met, and helps the student recognize the
importance of meeting expectations going forward.
Ultimately, the program is designed to make students
“interview ready” so that they can achieve their main
goal of transitioning out of the program and into a
job. To make this concept of readiness concrete,
the Cara team created the following checklist
of requirements:
• Had a sample application and resume approved
• Secured stable housing and childcare
• Prepared an interview prep folder, completed
interview class and class homework
• Achieved a satisfactory score in mock interviews

Profitwise News and Views Fall 2014
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• Obtained appropriate documentation of
education, background, and medical conditions,
as applicable
• Consistently adhered to The Cara Program’s dress
code policy

stability, and lasting benefits, but also provides a
model of professionalism for the next generation.
The long-term goal is to break the cycle of poverty
and homelessness.

• Demonstrated adequate skills in conflict
management, time management, team building,
professionalism, and communication57
Once a student secures a job, Cara maintains contact
with the student and their workplace for at least a year.
This follow-up is intended to encourage continuity
and ensure that students are comfortable in their
new roles. Through a series of phone calls with both
the students and their supervisors, Cara builds a full
picture of the students’ progress. Moreover, Cara
remains alert to the forces not directly job-related
that could lead one to resign, such as lack of housing
stability, childcare, etc. Former students may qualify
for rental assistance and emergency utility payments.
Additionally, once placed into a job, former students
receive $50 in a savings account as seed funds to
encourage savings.58
After one year, 70 percent of the students remain
employed at their new positions. In comparison, oneyear job retention rates for the nation are 50 percent.
The average wage of an employed Cara student is
$10.50, higher than the Illinois minimum wage
of $8.25.59
The program – while clearly effective – is expensive
to run and requires substantial support from private
donors. To emphasize the value of investing in the
program, analysts from Cara have devised a method
for calculating its social return on investment (SROI).
The calculation looks beyond the job placement itself
and examines future savings to society, both in the
form of revenues received and costs avoided. As table
2 shows, Cara estimates that every dollar invested
in the program yields $5.45 (over five years) “in tax
contributions, social security, sales taxes paid, and
costs avoided (in shelter expenses, cash assistance,
unemployment benefits, healthcare costs, food
stamps, rearrests cost, and the like).”60
Cara has placed over 3,250 students into permanent
employment since its inception.61 Helping one
generation find a secure job provides income,

Profitwise News and Views Fall 2014
— 29 —

Second chances in the land
of opportunity
America has long been known as the “land of
opportunity.” Yet for those who have been arrested
or convicted of a crime, second chances in the labor
market are often elusive. Since many states hold
employers liable for criminal actions of employees,
firms are reluctant to hire applicants with criminal

or even arrest records. Summarizing results from
a multi-city survey, Berkeley economist, Steven
Raphael, states that “over 60 percent of employers
surveyed … would ‘probably not’ or ‘definitely
not’ hire applicants with records.”1 Additionally,
in Chicago, 92 percent of employers require
background checks on all job applicants.2 While
employers understandably wish to limit their
liability, this practice imposes significant costs on
society – primarily because those with criminal

Intern demographics
Education attainment

5%
White

Race

38%
Less than the 12th grade

3%
Hispanic 1%
Other

49%
High school diploma
91%
Black/African American

13%
GED

Conviction history

Incarceration history

26%
No conviction

65%
Felony conviction

25%
Recently incarcerated

9%
Misdemeanor only

50%
Never incarcerated
25%
Formerly incarcerated
(>2 years ago)

Source: Cleanslate, powered by The Cara Program, Performance Update as of December 31, 2013, available at http://www.
cleanslatechicago.org/sites/default/files/uploads/2014_CLSLT_PerformUpdate_Q1_03.pdf.

Profitwise News and Views Fall 2014
— 30 —

records represent a large fraction of the population
and potential labor force.3
What most people do not realize is how integrated
the unemployment rate is with people who have
criminal histories. In Federal Reserve Chair
Janet Yellen’s first public speech, “What the
Federal Reserve is Doing to Promote a Stronger
Job Market,” at the 2014 National Interagency
Community Reinvestment Conference in Chicago,
she discussed long-term unemployed and why the
recovery could still feel like a recession, since (at
the time) “the national unemployment rate is still
higher than it ever got during the 2001 recession.”
Yellen mentioned several Chicago residents (by
name) who were long-term unemployed, two of
whom were ex-offenders. Though she did not
mention they were ex-offenders, some media outlets
commented that Chairman Yellen’s mention of
these individuals drew attention to people who
were somehow less worthy of employment due to
their records. However, a 2012 study in the journal
Pediatrics (cited in a countering Washington Post
article following the conference) found that about
one third of the U.S. population is arrested (though
much less are convicted) at least once by age 23.
Further, research from the Center for Economic
and Policy Research (CEPR) calculates that
reduced employment among ex-offenders cost the
economy roughly 1.5 million workers in 2008, or
0.8 percentage points in the overall unemployment
rate.4 With the national unemployment rate
currently at 5.9 percent, a decrease of 0.8 percentage
points would be significant. In terms of output,
CEPR estimates the cost at over $57 billion of
lost GDP.
The Equal Employment Opportunity Commission
(EEOC) offers regulatory guidance for employers
hiring people with arrest or conviction records.
This EEOC guidance, under the Civil Rights Act
of 1964, explains that only convictions signify
criminal conduct; arrests alone do not. It also guides
companies to understand that arrest means only
that an individual was suspected of wrongdoing;
conviction means an individual is legally
responsible for an act of wrongdoing, but even so a
particular act may or may not make a person unfit
for certain jobs.5 The commission urges employers
not to exclude candidates solely on the basis of a

conviction, if the related offense is not pertinent
to the position to which they applied, and several
lawsuits have been filed on this theory. Additionally,
there are negative effects of incarceration on young
people and their future work prospects, according
to the National Association for the Advancement of
Colored People: “Jail reduces work time of young
people over the next decade by 25-30 percent
when compares with arrested youths who were
not incarcerated.”6
The Cara Program, which is described in more depth
in this edition, seeks to help the hardest people to
employ. In addition to training students, The Cara
Program also runs Cleanslate, a social enterprise
that employs students with particularly high barriers
to employment (see the intern demographics
on educational attainment, conviction history,
and incarceration history). Cleanslate provides
neighborhood beautification services throughout
Chicago, giving students work experience in
plowing snow, trimming lawns, and removing trash
from streets.7

Notes
1. Raphael, Steven, 2007-08, “The employment prospects of ex-offenders, Focus,
Vol. 25, No. 2, Fall-Winter, available at http://www.irp.wisc.edu/publications/focus/
pdfs/foc252d.pdf.
2. Shriver Center, “Illinois Legislation Will Give Thousands of Individuals with
Criminal Records a Chance to Take Care of Themselves and Their Loved Ones,”
available at http://povertylaw.org/about/media/community-justice-legis.
3. A study in the Official Pediatrics Journal estimates the arrest prevalence rate
among youth to be 25 percent to 41 percent by age 23. "Cumulative Prevalence
of Arrest From Ages 8 to 23 in a National Sample" in the Official Journal of the
American Academy of Pediatrics, available at http://pediatrics.aappublications.org/
content/129/1/21.abstract.
4. Schmitt, John, and Kris Warner, 2010, “Ex-offenders and the Labor Market,” Center
for Economic and Policy Research, November, available at http://www.cepr.net/
documents/publications/ex-offenders-2010-11.pdf.
5. EEOC Enforcement Guidance, “Consideration of Arrest and Conviction Records in
Employment Decisions Under Title VII of the Civil Rights Act of 1964,” available at:
http://www.eeoc.gov/laws/guidance/arrest_conviction.cfm#I.
6. National Association for the Advancement of Colored People, “Criminal Justice
Fact Sheet,” available at http://www.naacp.org/pages/criminal-justice-fact-sheet.
7. Cleanslate, The Impact, “We Do the Numbers,” available at http://www.
cleanslatechicago.org/cs/impact.

Profitwise News and Views Fall 2014
— 31 —

Early childhood education:
“Workforce development”
for the long run
In the midst of last year’s federal budget showdown,
Austan Goolsbee defended funding for early
childhood education in a Wall Street Journal
editorial.62 Goolsbee, an economics professor at
the University of Chicago and former chairman of
President Obama's Council of Economic Advisers,
reasoned that while budget cuts may save money in
the short term, these savings are more than offset in
the long term by costs stemming from incarceration,
teen pregnancy, and other unwanted outcomes
that impact low-income youth and young adults
disproportionately. Extensive research links quality
early education programs with accelerated cognitive
development and acquisition of key emotional skills.
Accordingly, he reasoned that early childhood
education programs may be a low-cost way to steer
at-risk youth toward, ultimately, meaningful careers
and full participation in the economy. Goolsbee
noted, “It seems the best job-training program
for a 25-year-old is a quality preschool program at
age four.”63
Policy arguments like his rest on substantial
interdisciplinary effort to understand how – and
to what extent – early learning opportunities,
supportive interaction, and engagement between
pre-school educators and young children correlate
with better self-awareness and educational/academic
success, and influence a range of social, academic,
and professional outcomes throughout life. The two

most important aspects (to cognitive development)
of interaction, as noted in a recent article appearing
in The Economist, are intellectual stimulation –
talking, reading, and answering questions – and
emotional support, all of which must also take place
at home where very young children spend most of
their time. Therefore, in addition to citing studies
demonstrating measurable returns of early education
programs, the article concludes that maximizing
those returns “includes lending a helping hand to
parents who struggle.”64
One review of the broad literature contends that
“self-control” or “self-regulation” unites all the social
and behavioral sciences. Self-control is an umbrella
construct that bridges different behaviors, such as
impulsivity, conscientiousness, delay of gratification,
and “intertemporal choice” (i.e., the ability to choose
wisely between options). The same review cited a
study showing that “childhood self-control predicts
physical health, substance dependence, personal
finances, and criminal offending outcomes.…
Adolescents with low self-control made mistakes,
such as starting smoking, leaving high school, and
having an unplanned baby, that could ensnare them
in lifestyles with lasting ill effects.”65
While genetic factors (and certain environmental
factors) are fixed, brain regions that mediate selfcontrol are still highly impressionable in early
childhood, when children are developing language,

Profitwise News and Views Fall 2014
— 32 —

cognitive, and interpersonal skills rapidly. Much
research supports the idea that this period of
accelerated learning is a critical time window within
which children acquire life-changing emotional
skills, given access to high-quality childcare and preschool facilities (and a supportive home environment).
Early interventions also have the potential to stem
existing negative behaviors before they progress into
social and academic problems in adolescence.66
As a key behavioral determinant, self-control, as
measured by incidence of undesired behaviors/
outcomes, provides a vital benchmark for policy
researchers and advocates of increased investment
in childcare and pre-school facilities. With few
exceptions – some low-income children grow to
healthy and productive adulthood – the frequency
of risky behavior correlates strongly (and inversely)
with income. According to the Office of Assistant
Secretary for Planning and Evaluations’ July 2009
Research Brief; “Youth from low-income families
engage in more risk behaviors during adolescence
(3.5 mean cumulative risks) than youth from
middle-income (3.2 mean cumulative risks) and
high-income (2.9 mean cumulative risks) families.”67
The community development field has long
recognized that investment in quality childcare
(facilities and providers) aligns multiple economic
and health-oriented goals. Childcare loans and
investments, whether directly, in partnership with,
or through community development financial
institutions (CDFI), represent a staple product for
banks seeking Community Reinvestment Act (CRA)
credit. IFF – formerly Illinois Facilities Fund – a
nationally recognized CDFI in Chicago with many
bank, philanthropic, and government investors, that
has financed childcare service providers in low- and
moderate-income families since the early 1990s,
partnered with Action for Children and Chicago
Metropolis 2020 to produce The Economic Impact of
the Early Care and Education Industry in Illinois. The
report, and others like it that IFF has produced, echo
Goolsbee’s sentiments: “An investment in Early Care
and Education is much more than an investment in
children. It is an investment that helps guarantee the
long-term stability of Illinois’ economy, its families
and future workforce.”68
A few early childhood programs have incorporated
emerging insights into the interplay between self-

Figure 17. Major findings: HighScope Perry
Preschool study at age 40
Arrested 5+ times by 40

Earned $20K+ at 40

Graduated high school

Basic achievement at 14

Homework at 15

IQ 90+ at 5

10%

No-program group

20%

40%

60%

80%

100%

Program group

Source: HighScope Perry Preschool Study http://www.
highscope.org/content.asp?contentid=219

control and the developing brain. Tools of the Mind,
for instance, is explicitly geared toward stimulating
regions of the brain believed to involve self-control.
Encouragingly, participants in this program have
scored higher than their non-participant peers in
general measures of “school-readiness,” thereby
suggesting that certain exercises accomplish
more than simply “teaching to the test.”69 While
scientifically-designed programs may be especially
effective, even traditional games typical of a preschool program show promise in terms of fostering
self-control. Games like “Simon Says,” for instance,
ostensibly help kids learn to manage their impulses
by challenging them to focus on a subtle stimulus
[words] while resisting the urge to react to a
compelling stimulus [action].70
While time must pass before cutting-edge early
childhood programs may be fully evaluated, early
panel studies provide hope that current academic
insights may indeed translate into practical and costeffective policy applications. The HighScope Perry
Preschool Study, for instance, followed the lives of
123 children born into poverty in the United States.
“From 1962 to 1967, at ages 3 and 4, the subjects

Profitwise News and Views Fall 2014
— 33 —

Figure 18. HighScope Perry Preschool Program
public costs and benefits

Benefits

$2,768
$7,303

Costs

$14,078

$171,473

$15,166

0

40,000

Total Public Benefit
$195,621

$12.90 return per dollar invested

80,000

120,000

160,000

200,000

Constant 2000 dollars ($), 3% discount rate

Welfare
savings

Education
savings

Taxes on
earnings

Crime
savings

Source: HighScope Perry Preschool Study http://www.
highscope.org/content.asp?contentid=219

were randomly divided into a program group that
received a high-quality preschool program based
on HighScope’s participatory learning approach
and a comparison group who received no preschool
program. In the study’s most recent phase, 97
percent of the study’s participants still living were
interviewed at age 40. Additional data were gathered
from the subjects’ school, social services, and arrest
records.”71 The study found that those in the program
group were more likely to graduate high school,
earned more money, and were arrested less often (see
figure 17).

Scientifically rooted arguments in favor of early
childhood education have gained traction at the
highest level of policymaking. In his 2013 State
of the Union Address, President Obama offered
a less optimistic but still impressive estimate of
financial return (likely based on different or fewer
criteria): “Every dollar we invest in high-quality early
childhood education can save more than seven dollars
later on – by boosting graduation rates, reducing teen
pregnancy, even reducing violent crime. In states that
make it a priority to educate our youngest children,
like Georgia or Oklahoma, studies show students
grow up more likely to read and do math at grade
level, graduate high school, hold a job, [and] form
more stable families of their own.”72 The president
followed up his statement with an announcement
of the “Early Learning Initiative.” This program,
which focuses on education from birth to five years
of age, will: (1) provide high-quality preschool for
every child; (2) increase the supply of effective early
learning opportunities for young children; and
(3) extend and expand evidence-based, voluntary
home visiting.73
Early childhood education, while a demonstrably
effective workforce development strategy in the longrun, isn’t naturally the type of policy proposal that
sways legislators facing imminent budget shortfalls
and deadlines. In Goolsbee’s mind, the conundrum
evokes the “The forester's motto [which] says that the
best time to plant a tree was 20 years ago and the
second best time is today.” Even so, he asks, “Is it too
late to get an arborist into the budget negotiations?”

In addition to documenting a number of benefits
accrued to its program participants, its social return,
the study also argued that early childhood education
is a smart financial investment, and estimated the
return. Specifically, according to their calculations,
there was a $12.90 return on each dollar invested
per student. As figure 18 details, the return stemmed
from educational savings, taxes paid, welfare/public
assistance not paid, and savings from reduced
criminal activity.

Profitwise News and Views Fall 2014
— 34 —

Notes

14. Davidson, Adam, 2012, “Skills Don’t Pay the Bills,” The New York Times, November
20, available at http://www.nytimes.com/2012/11/25/magazine/skills-dont-pay-thebills.html?pagewanted=all&_r=0.

1. http://www.chicagofed.org/webpages/region/community_development/
community_economic_development/ici/ici_profiles.cfm.
2. Immelt, Jeff and Ken Chenault, 2011, “How We’re Meeting the Job Creation
Challenge,” The Wall Street Journal, June 13, available at http://online.wsj.com/news/
articles/SB10001424052702304259304576380323311523538.
3. Kiviat, Barbara, 2012, “The Big Jobs Myth: American Workers Aren’t Ready for
American Jobs,” The Atlantic, July 25, available at http://www.theatlantic.com/
business/archive/2012/07/the-big-jobs-myth-american-workers-arent-ready-foramerican-jobs/260169/.
4. Davidson, Adam, 2012, “Skills Don’t Pay the Bills,” The New York Times, November
20, available at http://www.nytimes.com/2012/11/25/magazine/skills-dont-pay-thebills.html?pagewanted=all&_r=0.
5. Ibid.
6. Data and code for both charts obtained from http://economics.mit.edu/faculty/
dautor/data/autor. Both charts appear in Autor, David, 2010, “The Polarization of Job
Opportunities in the U.S. Labor Market,” The Hamilton Project and Center for American
Progress, April, available at http://economics.mit.edu/files/5554. Per that source:
"Data are Census IPUMS 5 percent samples for years 1980, 1990, and 2000, and U.S.
Census American Community Survey 2008. All occupation and earnings measures
in these samples refer to prior year’s employment. The figure plots log changes in
employment shares by 1980 occupational skill percentile rank using a locally weighted
smoothing regression (bandwidth 0.8 with 100 observations), where skill percentiles
are measured as the employment-weighted percentile rank of an occupation’s
mean log wage in the Census IPUMS 1980 5 percent extract. Mean education in each
occupation is calculated using workers’ hours of annual labor supply times the Census
sampling weight. Consistent occupation codes for Census years 1980, 1990, and 2000,
and 2008 are from Autor and Dorn (2009a)."
7. Unlike figure 1a, which depicts shares, however, the sum of the areas above and
below the x-axis is not constrained to equal 0 percent – in other words, it’s possible for
wages to grow or decline across all skills levels.
8. Autor, David, 2010, “The Polarization of Job Opportunities in the U.S. Labor Market,”
The Hamilton Project and Center for American Progress, April, available at http://
economics.mit.edu/files/5554.
9. Ibid.
10. Author calculations of data obtained from: Miriam King, Steven Ruggles, J. Trent
Alexander, Sarah Flood, Katie Genadek, Matthew B. Schroeder, Brandon Trampe, and
Rebecca Vick. Integrated Public Use Microdata Series (IPUMS), Current Population
Survey (CPS): Version 3.0. [Machine-readable database]. Minneapolis: University
of Minnesota, 2010, available at https://cps.ipums.org/cps/. Note that all CPS data
referenced in this article was obtained through IPUMS.
11. Autor, David, and Melanie Wasserman, 2013, “Wayward Sons: The Emerging Gender
Gap in Labor Markets and Education,” Third Way, March, available at http://economics.
mit.edu/files/8754.

15. Economists use the term “intensive margin” to describe a subtle but significant
form of demand. In contrast to seeking more of something (the “extensive margin”;
e.g., hiring an additional worker), demand increases along the intensive margin
correspond to seeking more out of something (e.g., training a worker to become
more productive and/or replacing an existing worker with a more productive one).
In this article, “upskilling” refers specifically to demand increasing over time along
the intensive margin by virtue of employers’ raising qualification standards for the
same job title.
16. Author interview with Cindy Tomei, president, Valley Industrial Association.
17. Sample limited to full-time civilian workers aged 25 and over who were part of
an outgoing rotation group during the month of March, who were not self-employed,
and who reported non-zero earnings. The annual earnings of individual workers were
calculated by multiplying the response to the question "how much do you usually earn
per week at this job before deductions?" by 52. In cases where the annual earnings
implied by the hourly rate of an hourly worker exceeded this value, the higher implied
value was used. All amounts were then expressed in terms of 2013 dollars using CPI-U
research series.
Points on the graph correspond to the five-year moving average of the median
earnings – adjusted by the recommended weighting variable – of workers belonging
to the indicated occupation and educational attainment groups (e.g., the point
indicated as "2000" corresponds to the timeframe 1996-2000). Taking the moving
average serves two purposes: broadening the sample size (particularly important for
the machinist group), and smoothing out short-term changes.
The series starts in 1992 because, prior to that year, education was largely tracked
in terms of years of schooling rather than attainment. Note that – for the sake of
identifying high school graduate earning consistently – individuals who attended
college without attaining a degree were omitted from the high school graduate group.
Also, note that observations from 1994 are omitted due to difficulty differentiating fulltime workers from part-time workers during that year. Accordingly, years prior to 1999
technically correspond to four- rather than five-year moving averages.
18. The Boston Consulting Groups’ (BCG) survey analysis was based on responses from
106 companies with U.S. manufacturing operations and with sales greater than $1
billion. BCG notes that a company’s size can impact its view on the skills gap discussion.
For example, a large company might be able to ‘build’ a worker given their resources
with training and their networks with community colleges, while a smaller company
might not. More information on the survey is available at http://www.bcg.com/media/
pressreleasedetails.aspx?id=tcm:12-104216.
19. Bureau of Labor Statistics, U.S. Department of Labor, 2002, “Extended Mass Layoffs
in 2001” (Report 963), August, available at http://www.bls.gov/mls/mlsreport963.
pdf. According to this report, two out of five individuals who filed an initial claim for
unemployment benefits in response to a mass layoff event were between the ages
of 30 and 44. Age and occupation data from the Current Population Survey in turn
suggests that the relative representation of younger machinists increased around the
same time, while that of older machinists remained stable.

12. Data and code for chart provided by Melanie Wasserman and David Autor. Graph
originally appears in Autor, David and Wasserman, Melanie, 2013, “Wayward Sons: The
Emerging Gender Gap in Labor Markets and Education,” Third Way, March, available at
http://economics.mit.edu/files/8754. Please refer to endnote 22 of that source for the
authors’ detailed methodology.

20. Sirkin, Harold L., Michael Zinser, and Justin Rose, 2013, “The U.S. Skills Gap:
Could it Threaten a Manufacturing Renaissance?,” August 28, The Boston Consulting
Group, available at https://www.bcgperspectives.com/content/articles/lean_
manufacturing_us_skills_gap_could_threaten_manufacturing_renaissance/.

13. Ibid.

22. Ibid.

21. Ibid.

Profitwise News and Views Fall 2014
— 35 —

23. Cappelli, Peter, 2014, “Skill Gaps, Skill Shortages and Skill Mismatches: Evidence for
the U.S.,” National Bureau of Economic Research, August, working paper, No. 20382,
available at http://www.nber.org/papers/w20382.pdf.
24. Ibid.
25. The Federal Reserve Board, 2000, Remarks by Chairman Alan Greenspan on the
evolving demand for skills, April 11, available at http://www.federalreserve.gov/
boarddocs/speeches/2000/20000411.htm.
26. General feedback from CDPS Survey, administered February 2014.
27. Frizell, Sam, 2014, "Student Loans Are Ruining Your Life. Now They're Ruining the
Economy, Too," Time, February 26, available at http://time.com/10577/student-loansare-ruining-your-life-now-theyre-ruining-the-economy-too/.
28. Lieber, Ron, 2010, "Placing the Blame as Students Are Buried in Debt," The New
York Times, May 28, available at http://www.nytimes.com/2010/05/29/your-money/
student-loans/29money.html?pagewanted=all.
29. Moretti, Enrico, 2012, The New Geography of Jobs, Houghton Mifflin Harcourt.
30. Congressional Budget Office, 2011, "Changes in the Distribution of Workers' Hourly
Wages Between 1979 and 2009," February 16, available at http://www.cbo.gov/sites/
default/files/02-16-wagedispersion.pdf.
31. Autor, David, 2010, "The Polarization of Job Opportunities: Implications for
Employment and Earnings," April, a paper released by The Center for American
Progress and The Hamilton Project, available at http://economics.mit.edu/files/5554.
32. Goldin, Claudia, and Lawrence Katz, 2008, The Race between Education and
Technology, Harvard University Press.
33. Autor, David, 2010, "The Polarization of Job Opportunities: Implications for
Employment and Earnings," April, a paper released by The Center for American
Progress and The Hamilton Project, available at http://economics.mit.edu/files/5554.
34. Steven Ruggles, J. Trent Alexander, Katie Genadek, Ronald Goeken, Matthew B.
Schroeder, and Matthew Sobek. Integrated Public Use Microdata Series: Version 5.0
[Machine-readable database], Minneapolis: University of Minnesota, 2010.

42. Avery, Christopher, and Sarah Turner, 2012, "Student Loans: Do College Students
Borrow Too Much – Or Not Enough?," Journal of Economic Perspectives, pp. 165-192.
While it is straightforward to verify that college graduates generally earn more than
high school graduates, economists debate the extent to which a college education
truly causes higher earnings. It may be that colleges simply attract people who
would earn more regardless. Some portion of workers, successful entrepreneurs for
example, choose not to attend (or complete) college and still earn high incomes.
Avery and Turner report that the additional net present value of lifetime earnings for
college graduates disappears only when 25 percent or less of the observed difference
in earnings can be attributed causally to completing college, an unlikely proportion.
43. In economics, this is known as the diploma or “sheepskin” effect. It posits that
employers are not necessarily looking for the knowledge attained from coursework,
but rather a signal of productivity.
44. Carnevale, Anthony, Jeff Strohl, and Michelle Melton, 2011, "What's It Worth?:
The Economic Value of College Majors," available at http://cew.georgetown.edu/
whatsitworth.
45. Jaimovich, Nir, and Henry E. Siu, 2012, “The Trend is the Cycle: Job Polarization
and Jobless Recoveries,” August, the National Bureau of Economic Research, working
paper, No. 18334.
46. Avery, Christopher, and Sarah Turner, 2012, "Student Loans: Do College Students
Borrow Too Much – Or Not Enough?," Journal of Economic Perspectives, pp. 165-192.
47. Deming, David J., Claudia Goldin, and Lawrence F. Katz, 2012, "The For-Profit
Postsecondary School Sector: Nimble Critters or Agile Predators," Journal of Economic
Perspectives, pp. 139-164.
48. Jenkins, Davis, and Sung-Woo Cho, 2012, "Get With the Program: Accelerating
Community College Students' Entry into and Completion of Programs of Study,"
January, CCRC working paper, No. 32, available at http://ccrc.tc.columbia.edu/
publications/get-with-the-program.html.

35. Ibid.

49. Completion by Design, 2013, “Designing for Completion: The practice and the
progress of the Completion by Design initiative,” October 14, available at http://
completionbydesign.org/about-us/news/designing-for-completion-mid-initiativeupdate.

36. Autor, David, 2010, "The Polarization of Job Opportunities: Implications for
Employment and Earnings," April, a paper released by The Center for American
Progress and The Hamilton Project, available at http://economics.mit.edu/files/5554.

50. Berdahl, Robert M., 2014, “The Future of Flagship Universities,” UC Berkeley Office
of the Chancellor, available at http://chancellor.berkeley.edu/chancellors/berdahl/
speeches/future-of-flagship-universities.

37. Steven Ruggles, J. Trent Alexander, Katie Genadek, Ronald Goeken, Matthew B.
Schroeder, and Matthew Sobek. Integrated Public Use Microdata Series: Version 5.0
[Machine-readable database], Minneapolis: University of Minnesota, 2010.

51. Wall, J.K., 2014, "Ivy Tech seeking millions to churn out more degrees," Indianapolis
Business Journal, March 1, available at http://www.ibj.com/ivy-tech-seeking-millionsto-churn-out-more-degrees/PARAMS/article/46405

38. Autor, David, 2010, "The Polarization of Job Opportunities: Implications for
Employment and Earnings," April, a paper released by The Center for American
Progress and The Hamilton Project, available at http://economics.mit.edu/files/5554.

52. Ibid.

39. There is no consensus in the literature as to the reason for this phenomenon, but
the late Gary Becker and colleagues at the University of Chicago argued that women
have outpaced men because women as a group have superior noncognitive skills,
which include perseverance, motivation, and self-control. They report that women
have higher average grades and standardized test scores, as well as lower variance
among scores than men. Autor has linked the gap in male educational attainment to
changes in family structure, income, and parental education.

54. The U.S. Department of Labor describes soft skills in six broad categories:
communication; enthusiasm and attitude; teamwork; problem solving and critical
thinking; networking; and professionalism. See “Soft Skills to Pay the Bills – Mastering
Soft Skills for Workplace Success” at http://www.dol.gov/odep/topics/youth/
softskills/.

40. College Board, 2013, “Trends in College Pricing: 2013,” available at https://trends.
collegeboard.org/sites/default/files/college-pricing-2013-full-report-140108.pdf.
41. FinAid, Student Loan Debt Clock, available at http://www.finaid.org/loans/
studentloandebtclock.phtml.

53. The Cara Program, Life & Career Skills, “Building a Framework for Success,”
available at http://www.thecaraprogram.org/life-career-skills.

55. The Cara Program, “Social Return on Investment (SROI),” available at http://www.
thecaraprogram.org/sites/default/files/uploads/SROI%20flyer%20ao%200212%20
%282%29.pdf.
56. The Cara Program, The Cara Program’s Service Delivery Model, available at:
http://www.thecaraprogram.org/sites/default/files/uploads/FY13%20Service%20
Delivery%20Model.pdf
57. Ibid.

Profitwise News and Views Fall 2014
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58. Ibid.
59. The Cara Program, 2013, Performance Update, RY14 Results as of December 31,
available at http://www.thecaraprogram.org/sites/default/files/uploads/014_TCP_
PerformUpdate_02.pdf.
60. The Cara Program, The Impact, “Performance Updates,” available at http://www.
thecaraprogram.org/impact/numbers.
61. The Cara Program, About Us, available at http://www.thecaraprogram.org/about.
62. Goolsbee, Austan, 2013, Pre-K Education Is a Long-Term Winner: At $10,000 per
child yearly, high-quality early education is a bargain, The Wall Street Journal,
December 8, available at http://online.wsj.com/news/articles/SB10001424052702304
096104579238604245143082.
63. Goolsbee, Austan, 2013, Pre-K Education Is a Long-Term Winner: At $10,000 per
child yearly, high-quality early education is a bargain, The Wall Street Journal,
December 8, available at http://online.wsj.com/news/articles/SB10001424052702304
096104579238604245143082.
64. The Economist, 2014, “Choose your parents wisely,” July 26, available at http://
www.economist.com/news/united-states/21608779-there-large-class-divide-howamericans-raise-their-children-rich-parents-can.
65. Moffitt, Terrie, et.al., “A gradient of childhood self-control predicts health, wealth,
and public safety,” Proceedings of the National Academy of Sciences of the United States
of America, available at http://www.pnas.org/content/early/2011/01/20/1010076108.
full.pdf+html.
66. Amanda R. Tarullo, Jelena Obradovic, and Megan R. Gunnar, 2009, "Self-Control
and the Developing Brain," Zero to Three, available at http://web.stanford.edu/
group/sparklab/pdf/Tarullo,%20Obradovic,%20Gunnar%20(2009,%200-3)%20SelfControl%20and%20the%20Developing%20Brain.pdf.
67. U.S. Department of Health & Human Services, 2009, “ASPE Fact Sheet, Vulnerable
Youth and the Transition to Adulthood, Youth from Low-Income Families,” July,
available at http://aspe.hhs.gov/hsp/09/VulnerableYouth/3/index.shtml#_edn2.
Please note that the fact sheet sites the following as risky behaviors: “consuming
alcohol before age 13, using marijuana before age 16, using other drugs before age 18,
selling illegal drugs before age 18, engaging in sex before age 16, stealing something
worth less than $50 before age 18, stealing something worth more than $50 before age
18, destroying property before age 18, committing other property crime before age 18,
being a member of a gang before age 18, getting into a fight before age 18, carrying a
gun before age 18, and running away from home before age 18.”

68. IFF, 2005, “The Economic Impact of the Early Care and Education Industry in
Illinois,” Executive Summary, January, available at http://www.iff.org/resources/
content/3/1/documents/eissummary.pdf.
69. Amanda R. Tarullo, Jelena Obradovic, and Megan R. Gunnar, 2009, "Self-Control
and the Developing Brain," Zero to Three, available at http://web.stanford.edu/
group/sparklab/pdf/Tarullo,%20Obradovic,%20Gunnar%20(2009,%200-3)%20SelfControl%20and%20the%20Developing%20Brain.pdf.
70. Amanda R. Tarullo, Jelena Obradovic, and Megan R. Gunnar, 2009, "Self-Control
and the Developing Brain," Zero to Three, available at http://web.stanford.edu/
group/sparklab/pdf/Tarullo,%20Obradovic,%20Gunnar%20(2009,%200-3)%20SelfControl%20and%20the%20Developing%20Brain.pdf.
71. HighScope, 2005, Inspiring Educators to Inspire Children, HighScope Perry
Preschool Study, “Lifetime Effects: The HighScope Perry Preschool Study Through Age
40,” available at http://www.highscope.org/content.asp?contentid=219.
72. The White House, 2013, “Remarks by the President in the State of the Union
Address,” February 12, available at http://www.whitehouse.gov/the-pressoffice/2013/02/12/remarks-president-state-union-address.
73. Fact Sheet on President Obama’s Plan for Early Education for all Americans,
available at: https://www.acf.hhs.gov/sites/default/files/occ/fact_sheet_president_
obama_508.pdf?nocache=1365545777.

Biographies
Emily Engel is a senior research analyst in the
Community Development and Policy Studies
division at the Federal Reserve Bank of Chicago.
Daniel DiFranco is a senior research analyst in the
Community Development and Policy Studies
division at the Federal Reserve Bank of Chicago.
Ryan Patton is a former associate economist in the
Community Development and Policy Studies
division at the Federal Reserve Bank of Chicago.

Profitwise News and Views Fall 2014
— 37 —

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