1.3 Economic Context: Schools for Knowledge Work

Not so long ago, the bulk of the wealth of the world was made up of tangible stuff. Iron. Oil. Gold.

In This Lesson

How does education help the economy?

Has knowledge work contributed to concentration of wealth?

Will California have enough knowledge workers?

Does California produce enough college graduates?

▶ Watch the video summary

★ Try the chapter Discussion Guide

In a memorable moment of the 1967 movie The Graduate, the future was plastic. Today, the wealth of the world is harder to pin down, isn't it? Brands. Technology. Contracts. Relationships. Does catching Pokemon count as wealth? How about TikTok views?

Our wealth is our people

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 exceeds the value of its tangible capital assets at least threefold. That is, the world's wealth isn't found in stuff, but in the knowledge, talent, and skills of people.

This relatively recent shift can be 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.

Creating intangible value is often called knowledge work. As this shift occurred, the labor market responded strongly. The shift is happening everywhere.

In America, wealth is becoming more concentrated

Today, most of the lifting in construction and shipping is done by forklifts and cranes, which only need one skilled operator. Tasks that can be automated are progressively being automated, which is changing the job market. In the past, the jobs vulnerable to outsourcing were mostly associated with manufacturing — the economy of "stuff." But technology made knowledge work portable, too. Facing this competition, the jobs that can pay a middle-class wage increasingly require a high level of intellectual adaptability, which the labor market has largely interpreted as a product of college education.

This competition has probably contributed to the long trend toward concentration of wealth. Economist Thomas Piketty, who has brought particular focus to this trend, assembled long-term data about income inequality in America. Since the 1980s, he shows, economic gains have concentrated in the "top 1%" of households. The share of the "bottom 50%" has steadily eroded.

Research by McKinsey, a consulting firm, estimates 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 less evident in other economies. (See chapter 1 of the World Inequality Report for a comparison to Western Europe.)

The world is flat. Knowledge work is portable.

Increasingly, when young people graduate from high school they need the same knowledge and skills to be career-ready as they do to go to college. All over the world, people are getting the educational preparation they need to compete in a global market for creative jobs that pay well.

Only about a third of California residents over age 25 have earned a Bachelor's degree or more.

College in America is expensive, both in terms of direct costs and in terms of time. Analysts worry that America is not producing enough college graduates to keep up. Only about a third of California residents over age 25 have earned a Bachelor's degree or more. As the US has become a knowledge economy, the earning potential of educated workers has exploded, while that of less-educated workers has stagnated.

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

Updated December 2024

Questions & Comments

To comment or reply, please sign in .

Michael Malione August 5, 2024 at 10:33 am

I'm just getting started working through these lessons. The analysis of tangible and intangible wealth is very interesting and thought-provoking but seems overly pat. Particularly telling is the share of of income per capita among the lower 50%ile dropping to all time lows in the years 2020 - 2022. It seems like there are some massive shifts that have happened in the time since this article was first written, which warrant examination in more detail.

Jeff Camp - Founder August 16, 2024 at 9:45 pm

I agree that the Ocean Tomo analysis of the market value of tangible and intangible value is simple, but that's kind of the point. There's no real question that over time education has become central to the creation of value all over the world. At the time of this exchange, the WID chart about income inequality is showing 2022 as the most recent data available -- about two years and one pandemic out of date. The slowness of data is a constant source of frustration in this work! I write/rant more about this in Lesson 9.5 and in this blog post with a snail on the cover.

Lori Gray October 20, 2021 at 5:39 pm

To both Teresa and Emily's points below, my husband attended a California community college for a couple of years, decided it wasn't the right environment for him, went on to become an electrician and earns more than me with my bachelor's degree. I am definitely pro-education (and college) but I feel as though this lesson doesn't touch on the knowledge gained outside the traditional classroom.

Teresa zamarripa October 6, 2021 at 10:13 am

As a high school counselor, I see that many of my students want to go to work more than go to college, or go learn a skill. Many of my students are Hispanic and many want to go to work as that is the culture of the people, they are workers.

Peter McManus February 19, 2021 at 6:48 am

I only went back to 2015 to read the comments below before making this post. Frankly, 2015 seems like a different world altogether. To connect the three lessons presented so far (these are great, by the way, and something I want to share with other parents), my opinion is it is becomes increasingly more vital that students know how to get the information they need and to be able to critically think about it as opposed to "knowing" a bunch of facts and procedures that may, or may not, be important in their lives. To that end, reading comprehension scores discussed in the first two lessons that address benchmark tests becomes much more important, but even with that, skills in being able to not just understand the message an author is conveying is not enough, the reader must be able to analyze the text and the author's presentation. Measuring that becomes much more challenging and most likiely can't be done through a bubble test.

Emily Weisberg April 9, 2020 at 2:14 pm

With the growing trend towards not earning a college degree, should we not also be putting emphasis on vocational training. We can't assume that all students who choose not to attend college are doing so because of a lack of funds. Often, students want to pursue lucrative careers in various trade industries. How can we work to support those students without stigmatizing the lack of a college degree?

Adeline Goik April 1, 2020 at 9:38 am

More opportunities for colleges should be available and it should be stressed more how important it is.

francisco molina August 12, 2019 at 9:26 pm

No everything is about money, the lack of necessary counseling is huge specially with students coming from Hispanic families without bilingual counselors.

Adeline Goik April 1, 2020 at 9:47 am

The US makes it too easy not to learn English. People can be here for 30-40 years and not be able to speak English and that is not just the Hispanic families. Don't get me wrong, I think it is great to know another language, but in the US English should be the spoken language.

Emily Cruz October 29, 2020 at 6:16 pm

The U.S has no official language because of its multiethnic background when it comes to the countries development, it was never a european created country. That being said, people can reach their 30's without being able to speak another language besides english. Since america was founded on the backs of POC, its vital we continue to spread culture diversity and even begin to enforce it. Therefore, bilingual counselors should not be an issue our parents and students are facing.

Nancy Buffum July 24, 2019 at 1:51 pm

Re: the wealth gap. Don't let the increasingly wealthy 1% who control USA economic policy also control the narrative so that we pass over the issues of low pay and undervalue of so-called unskilled work. US policymakers are on the hook for suppressing the minimum wage and workers' rights, discriminatory labor practices, the bloated and inequitable US health care system, and atrocious working conditions from international sweatshops to mega-corporations in the US. It's a separate topic worthy of a the very least a mention and a link. https://www.nytimes.com/2015/10/01/opinion/do-we-value-low-skilled-work.html

Captain_Diego Gonzalez October 7, 2017 at 1:45 pm

Many students don't have the financial resources to afford to obtain a bachelors degree, especially with the increasing costs every year. Education is becoming too expensive.

Sonya Hendren September 3, 2018 at 12:41 pm

I agree that college is too expensive. However, I was surprised to learn that in-state tuition at California colleges and universities is less expensive than in-state tuition in other states! See lesson 9.9

Noah Homer May 24, 2021 at 4:17 pm

I agree, that is why I am thinking of enlisting in the military to get free college.

Meilani Hendrawidjaja May 8, 2017 at 12:42 pm

Does California have enough college capacity to educate our ever growing population?

jacquelinebispo May 2, 2018 at 9:48 am

Unfortunately, no. "Nature of the beast". However, there are also technical schools that often get ignored. Career Technical Education (CTE) is a great option for many students and adults, especially those who know the technical or other career pathway they want to go into it, or where traditional college isn't the best path for them.

Meilani Hendrawidjaja May 8, 2017 at 12:40 pm

Only about a third of California residents over age 25 have earned a Bachelor’s degree or more. Is this due to cost? access to colleges? or just lack of interest from the kids?

iemailjillian February 29, 2016 at 6:18 pm

My children will truly benefit from these lessons. Thank you

hannahmacl March 15, 2015 at 12:42 pm

While the focus of this conversation is about attaining a college degree in the supposition that its knowledge-base is needed, it seems as though, in too many instances, it's often just a gate-keeper for many jobs that used to go to high school graduates. Also, as an increasing number of women graduate from college, the systemic social barriers (lack of available affordable or free child care, family leave, and social attitudes), are not being taken into consideration.

digtrz March 5, 2015 at 1:24 pm

I agree that kids today need to learn about balance. A quality education is important to allow students to have choices for what they want to do in the future. College education will allow more opportunities for jobs in which they can be financially successful and live comfortably (we all have different levels of comfort), however there are other methods to obtain that same goal. Our school system needs to be able to provide the students the education they need to get where they want to go.
The school system needs to keep in focus that not all students want to, or have the financial capability to go to higher education levels. Guidelines that are more challenging for students that are not college bound, such as the A-G requirements for college entry, in order to graduate from high school could be detrimental and cause the student to give up.

Jeff Camp - Founder March 5, 2015 at 2:01 pm

Thanks, Digtrz. I suspect you'll also be interested in lesson 6.2, which has more information about the availability of a-g courses in high schools.

jenzteam February 27, 2015 at 6:35 am

I believe schools need to focus on teaching kids "balance" in life - work vs. family. Just because you make a lot of money doesn't mean you are guaranteed to be successful. We should shift our focus to being healthy and happy, not just what jobs pay the most. Kids should be encouraged to expand their skill sets so they have options, and then find a job that they enjoy doing every day.
College is about the experience and knowledge growth - it is not a guarantee that you will somehow become rich or successful. I have a ridiculous amount of education and debt and can't get a job that pays enough to make bills because of the economy and where I choose to live. Yet, we have so much more time together as a family.
There is nothing wrong with being middle class and creating your own unique ways of providing for your family, even if it means thinking and working outside of the corporate box.

Emily RossBrown February 25, 2015 at 11:14 am

I wonder sometimes if we are not doing our children a dis-service by making them believe that a job that pays well is the be all and end all way to be fulfilled - education is vitally important, making a living wage is vitally important, but there are many, many more jobs out there that don't require vast amounts of time spent before a screen - as you say Sherry - grit and perseverance. There is no shame with getting your hands dirty by making something, coast line, forest, public gardens, city streets beautiful and places where people want to spend time.
To Dennis - yes, let's stop making excuses and raise the standards up instead of lowering them.

Sherry Schnell January 22, 2015 at 9:16 am

Under the theory that you get what you measure, I think public schools should be preparing (and measuring) the number of students who have the academic and social skills (like grit and perseverance) to graduate from college, not just get into college.

hetds June 14, 2015 at 10:08 pm

Agreed, but it seems many of our students are unwilling to go into debt via student loans, then graduate and join the ranks of the unemployed or underemployed.

One statistic reports that the average debt for a college graduate is $25,000.

And student debt can not be cancelled via bankruptcy.

Jeff Camp - Founder June 21, 2015 at 12:38 am

Hi, Hetds -- The topic of college debt is explored in Lesson 9.6.

dcima March 3, 2011 at 2:09 pm

Thank you for creating this forum...

Silicon Valley remains the global center of innovation because of the knowledge ecosystem that has evolved here. We are incredibly fortunate to have such a high level of “intangible value” in our region.

But Silicon Valley, like the rest of California and the nation, is not immune from budget crises and the lack of available talent. We know that the very technologies that have been invented here are “flattening” the world and, thus, we will continue to be in fierce competition with the rest of the globe for innovators and cutting edge companies.

To protect the knowledge work that is so vital to our economy and everyone’s prosperity, another intangible value will need to be brought forth: courage.

In education, in particular, we must muster the courage to:

* Collect and use data; to look honestly in the mirror about what is working; and to stick with things over the long term that do;
* Embrace what science tells us, particularly when it comes to investing in children ages 0-5;
* Give a little up front for a longer term gain and understand that quality is not found in the bargain aisle;
* Shed programs and people that do not demonstrate results or contribute to the core mission of educating students at all levels; and,
* Keep standards high and stop making excuses for a system that allows future innovators to drop out and vanish.

If we still want to put the “knowledge” into the world’s (and word) technology, it is vital that California and Silicon Valley have the courage to protect and foster its core.

Dennis Cima
Senior Vice President, Silicon Valley Leadership Group
www.svlg.org

You Earned a Ticket!

Lesson 1.3

Economic Context: Schools for Knowledge Work

Do you know what America’s most valuable resource is?