Not so long ago, the bulk of the wealth of the world was made up of tangible stuff. Iron. Oil. Gold. In a memorable moment of the 1967 movie The Graduate, the future was plastic.

In This Lesson

How does education help the economy?

What are intangible assets?

What is human capital?

What is knowledge work?

Has knowledge work contributed to inequality?

Do women out-perform men in education?

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Today, the wealth of the world is harder to pin down, isn't it? Brands. Technology. Contracts. Relationships. Trust. Power.

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Education serves many purposes. This lesson focuses specifically on the economic context of education, which is in a period of rapid change. As technology transforms work and creativity, how is it influencing the economic value of learning? What does this transformation mean for schools, educators, students and families?

Our wealth is in the capabilities of our people

Decades ago, Nobel prize-winning economist Gary Becker took a special interest in the growing capacity of people to create value, even from nothing. He estimated that the value of America's human capital far exceeds the value of its tangible capital assets. That is, the world's wealth isn't merely found in stuff you can touch. It's in the knowledge, talent, and skills of people who can do things of value.

This shift can be roughly quantified in the marketplace using the S&P 500 index, a measure of the market value of 500 large companies. In the mid-1970s, more than 80% of the market value of the S&P 500 could be attributed to tangible assets. By 2005, the ratio had flipped — 80% of the value was intangible, and the trend continued. In 2020, intangible assets accounted for 90% of the value of the S&P 500.

As technology evolves, it changes the tasks that employers will pay people to do.

Creating intangible value is often called knowledge work. As the economy shifted toward this kind of work, the labor market responded strongly, assigning high value to the kinds of work that tend to require college-level preparation. Diplomas, credentials, and grades gained value as signals of the capabilities of the humans that earn them. College education became the path to entry for most high-paying jobs.

Advances in technology can rapidly change the tasks that employers will pay humans to do. When a tool, a machine, an algorithm or a robot can do a job better and cheaper than a person, change is just a matter of time.

AI can do knowledge work, too.

The sudden arrival of generative artificial intelligence (AI) is profoundly changing the definition of work. In the process it is putting the value of many credentials into question. Lawyers, programmers, consultants, writers, and experts of many kinds are straining to adapt because AI can do many of the things that made people and businesses in these areas valuable. Educators must adapt, too.

In the Ed100 blog
Grade inflation

Because AI tools can defeat the educational purpose of many kinds of school assignments and tests, school systems must develop new ways to challenge students and assess their work. What does an A on an English essay assignment mean if the writing has mainly been done by AI? Course grades, already cheapened by rampant grade inflation, must be re-thought.

In 2026, a group of top education researchers tackled this kind of question as part of the Getting Down to Facts III project. They identified a short, specific list of “core capacities” associated with long-term outcomes for students, and the kinds of learning experiences that build those capacities. The report explores ways that educators and education systems can adapt to the realities of AI.

Technology can contribute to inequality

As technology advances, it changes the economic value of different kinds of work. In construction, shipping, manufacturing and many other industries, machines have taken over tasks once performed by people. Increasingly, software can do many kinds of knowledge work, too. When an expensive human task can be automated, businesses have a financial incentive to spend money on the automation.

This process helps explain part of the economic role of education. Economists use the term human capital to describe people's accumulated knowledge and capabilities. Education has purposes far beyond preparing people for work, of course, but it is also an investment in human capital — especially as technology changes which skills are valuable.

Globalization has reinforced these changes. Historically, the jobs most vulnerable to outsourcing or automation were mostly associated with agriculture and manufacturing — the economy of "stuff." Technology made knowledge work portable, too. Over time, many jobs that pay middle-class wages have come to require greater intellectual adaptability and specialized skills, often signaled in the labor market by a college degree.

The economic gains associated with technological change and globalization have not been shared evenly. Since the 1980s, income in the United States has become substantially more concentrated. Long-term data assembled by economist Thomas Piketty and colleagues show that the share of national income going to the top 1% has risen, while the share going to the bottom 50% has eroded.

Educational attainment and income both tend to vary in durable patterns by race and ethnicity. McKinsey, a consulting firm, estimated in 2019 that the racial wealth gap in America suppresses the overall economy by billions of dollars per year. The growing concentration of wealth in America is evident in other economies, but to a lesser degree. (See chapter 1 of the 2022 World Inequality Report (WIR) for a comparison to Western Europe. The 2026 WIR emphasizes that concentration of wealth is a growing issue globally.)

Knowledge work is portable, and increasingly vulnerable

The COVID-19 pandemic accelerated an existing trend toward virtual work, virtual meetings and virtual education. Jobs that felt safe were suddenly vulnerable as people around the world could compete for them. AI has continued the trend, replacing some knowledge work functions entirely.

As job requirements change, people all over the world are looking for their role. The people best positioned to thrive have hard-to-replace skills and connections, especially skills gained through human interaction and experience. Colleges have been a tremendous engine for building these kinds of advantages, which helps explain why for many years an ever-rising fraction of the population has invested time and money in college programs.

More than a third of California residents over age 25 have earned a bachelor's degree or more. Women graduate at a significantly higher rate.

Even so, this is an unsettling moment for higher education. A college degree has been a costly but fairly reliable ticket to high-paying jobs. Over time, the percentage of Americans earning a bachelor's degree or higher has increased steadily, especially among women:

A degree takes a long time to earn, and rising interest rates multiply the cost of college loans.

Clearly, degrees from reputable colleges will continue to serve as trusted signals, opening doors to opportunity as they have in the past. Many students will continue to invest in their future employability through college programs.

But the system seems ripe for disruption. There are ever-improving ways to learn very advanced things that once could only be learned at a college, in person, from a professor. As innovations produce new, more efficient pathways for motivated people to skill up, employers will want efficient ways to identify talent. If a college's degrees are an inefficient signal, they will become less used. Economies around the world will evolve.

The next lesson examines the terrible cost of failing to educate students.

Updated September 2026