November 8th, 2017
There has been a lot of commentary about the income gap and wealth gap in America. While many of the solutions need to be initiated at the federal level, we must roll up our sleeves at the state level to do what we can to build a stronger middle class. This paper—which is the first in a series—starts by defining the problem.
I should note that I was appointed as Chair of the Federal Reserve Board’s Consumer Advisory Council in 2006. I was appointed to the Council by Alan Greenspan. I quickly realized that we saw the economic problems of America through different lenses. Let me give you my perspective.
The Ownership Society and Economic Flotsam
The Income Gap. When I was a child in the 1960s, almost 55% of U.S. householdsfell into the category of “middle class,” earning in today’s dollars $35,000 to $100,000 per year. Today, about 45% of all householdsdo. The statistics do not show the real change, however, in large part because other members of the household have been added to or stayed in the workforce since the 1960s.
First, women in large numbers entered the workforce in the 1970s, 1980s, and 1990s. Median householdincome rose even though the incomes of individualsdid not. The climb ended in 1999. Since then, median householdincome has fallen.
Second, a significant share of middle class households—approximately 20%—are now headed by people over age 65. Some have higher income than their children due to retirement savings and pensions. Many have not left the labor market. Middle class householdsin this age group have more than doubled since 2000. But older Americans are getting pinched due to rising pharmaceutical and health care costs, not to mention housing.
The Social Security Administration recently calculated the salaries of the median employee born in each year since 1932. A typical 27-year-old man’s annual salary in 2013 was 31% less than a typical 27-year-old man in 1969.
The Wealth Gap. Income inequality is a major cause for erosion of the American middle class. But the wealth gap also undermines upward mobility.
Look at the statistics. According to the Federal Reserve, the wealthiest 5 percent of American households held 54 percent of all wealth in 1989. Their share rose to 61 percent in 2010 and 63 percent in 2013. By contrast, the rest of those in the top one-half of the wealth distribution—families with a net worth between $81,000 and $1.9 million in 2013—held 43 percent of wealth in 1989 but 36 percent in 2013.
The lower one-half of households held just 3% of wealth in 1989 but only 1% in 2013. These 62 million households had an average net worth of $11,000. One-quarter of these families reported zero wealth or even negative net worth.
Put differently, the richest 1% own 40% of the nation’s wealth. The bottom 80% own just 7%.
The total net worth of U.S. households earlier this year was $94.7 trillion. This sounds like a record level of purchasing power. Divided equally among 124 million U.S. households, this would average $760,000 per family. The average means nothing, though, because the bottom 50% of families in wealth average just $11,000 net worth.
The wealth imbalance is growing. According to Federal Reserve data, working families with a median income of $33,000 spend 15% on debt payments, a higher portion of their income today than three years age. Total household credit card debt is now at $12.7 trillion, higher than the post-recession peak.The Federal Reserve states that almost one-half of adults can’t pay for a $400 expense without selling something or borrowing money. The costs of student loans, child care, housing, and health care continue to spiral upward, impeding the ability of people to save money.
The Education Gap. Education has traditionally been the great equalizer in America, providing a way for people to separate themselves from the circumstances of their birth. In 2014, Minnesota adults between 25 and 64 had the following employment rates: 87% with a bachelor’s degree; 81% with an associate’s degree; 75% with a high school degree; and 58% with less than high school degree.
The data show the dynamic impact of education on income levels. In 2014, the annual median wage level for Minnesotans was $40,378. People with less than a high school education had a median wage of $21,937, high school graduates had $30,858, those with associate’s degrees had $36,333, people with bachelor’s degrees had $51,226, and individuals with graduate degrees had $66,580.
Economic inequality leads to an education gap which is getting more pronounced. The achievement gap between children from high- and low-income families is roughly 30 to 40 percent larger among children born in 2001 than among those born 1975.
The Gordian Knot
In short, we have a Gordian knot. The education gap contributes to income inequality, and income inequality contributes to the education gap.
The aspiration of this country is to build an ownership society with a strong middle class. In every way, shape, and form, we need to promote values premised on achievement, work ethic, and strong education. In coming papers, I will offer my thoughts on how to do so.
U.S. Census Bureau, 2014 American Community Survey—1-year estimates.
November 16, 2017
There has been a lot of commentary about the income gap and wealth gap in America. If a goal in this country is to build an ownership society with a strong middle class, we need to promote in every shape, manner, and form a nation premised on achievement, a work ethic, and a strong education.
This paper, the second in a series, discusses career and technical education.
Career and Technical Education. A clay brick is fragile; it shatters when it hits the ground. But a brick combined with other bricks creates an enduring structure that withstands the test of time. Career and Technical Education (“CTE”) is an important brick in building an Ownership Society.
Technology has changed the needs of industry, and our demographics have changed the needs of consumers. According to the U.S. Department of Education, jobs relying on education and training from associate degrees will grow faster than any other training source in coming years.55 million jobs are expected to open by 2020, and many will require some college or a two-year degree. This means that people who have undertaken career or technical training can be positioned for success. “Ready, Set, Go,” an amalgam of the Minnesota Department of Education, the Minnesota Office of Higher Education, and Minnesota State estimates that by 2020, at least 74% of all jobs in Minnesota will require some form of education beyond high school.
We are now in our eighth year of economic expansion, with the Minnesota economy adding at least 150,000 jobs over the past decade. Our unemployment hovers below 4%and, as a share of our working age population, a higher ratio of Minnesotans is working than in any other state.
These statistics present an opportunity for higher education institutions to partner with industry to produce a workforce skilled in CTE that receives higher median incomes.
The Shortage of CTE Teachers. The U.S. Department of Education reports that Minnesota has had a shortage of CTE teachers for over a decade.
According to the Minnesota Career and Technical Educator Licensing Task Force, many factors contribute to this deficit. First, the nationwide attrition rate for teachers has been approximately 8% per year. CTE teachers, who have skills and abilities in high demand, have a higher attrition rate as they leave the profession for higher paying jobs.
In addition, according to the Task Force, the licensing requirements for a CTE teacher are more complex than a standard teaching license. Prior to legislative changes this year, the Minnesota Board of Teaching required that a CTE educator have a baccalaureate degree, just like other secondary educators, but also to meet the technical skill components of standard subject area licensure (described as Core Skills for Teachers of Career and Technical Education Standards). Unlike other secondary teaching assignments, CTE educators are required not only to teach courses but also to have continuing expertise on technical advances in industry.
Lawmakers in 2011 and 2015 tried to address teacher licensure in a variety of areas, including CTE education. Commentators, including the Legislative Auditor, found that regulatory overlap and gaps still existed in mandates imposed by multiple regulatory agencies involved in teacher licensing. Legislation enacted this year created a Professional Educator Licensing and Standards Board to address some of the previous contradictory mandates by the multiple agencies involved in teacher licensing.
The Shortage of CTE Programs. There is also a shortage of CTE programs. A CTE program, to be qualified for CTE revenue and federal Perkins grant subsidies, must meet standards, including:
The Demand for CTE Jobs. According to the Minnesota Department of Employment and Economic Development, CTE occupations are projected to increase the most of all occupations through 2024. They include computer occupations (projected to increase by over 7,000 jobs, or 8.3%); healthcare practitioners and technical employees (projected to increase by over 20,100 jobs, or 12.3%); healthcare support (projected to increase by over 16,100 jobs, or 17.6%); personal care and service (projected to increase by over 21,800 jobs, or 13.8%); and construction (projected increase by over 8,700 jobs, or 7.7%).
DEED also prepared a table of education requirements for each of these jobs:
Brick masons and block masons
High School or Less
High School or Less
Plumbers, pipefitters and steamfitters
Heating, air conditioning, and refrigeration
mechanics and installers
Diagnostic medical sonographers
Computer systems analysts
Graduate or Professional Degree
Graduate or Professional Degree
Graduate or Professional Degree
CTE Initiatives in Secondary and Higher Education. The state and federal governments have undertaken numerous initiatives to coordinate the delivery of CTE. Agencies and programs that participate in these efforts include the U.S. Department of Education, the U.S. Department of Labor, the Minnesota Department of Education, Minnesota State (formerly called MnSCU), the Minnesota Governor’s Office, the Minnesota Department of Employment and Economic Development, the Minnesota Office of Higher Education, the Minnesota Workforce Development Board, the Minnesota Department of Labor and Industry, the Minnesota Jobs Skills Partnership, individual school districts, the Minnesota Department of Revenue, Minnesota Pipeline, and individual institutions. In addition, many building trade unions have been extremely active and effective in training apprentices for the construction trades.
Some of the programs are initiatives within a school district. Some are programs initiated by one college. Others are the result of leadership at the state level. Still others are financed the federal government. The following list—not meant to be exhaustive—describes some of the many different programs to facilitate technical and career education:
In Minnesota the College Occupational Scholarship Pilot Program was established to provide last dollar scholarships to cover tuition and fees not covered by state or federal grant aid for students seeking a credential in a designated high demand program area. A recipient must enroll within two years of high school graduation and maintain a GPA of 2.5. It is blended into several other programs mention above.
While the Minnesota program is a step forward, it does not make community colleges tuition free.
A different form of certification involves the intergenerational transfer of knowledge between older workers who want to update their technical skills to younger workers who want to gain expertise. MinnPost has written extensively on this. Certificatesare provided by colleges to people who complete a level of skill-based courses. For example, Hennepin Technical College offers over 70 certificates in over 25 different programs. The certificates do not require the time or expense of a degree and provide employer-relevant training.
Government and industry agree on the importance of CTE. Despite the best of intentions, some of these initiatives appear to be underfunded, duplicative, or unduly restrictive. The success of others has not been evaluated. And the involvement of so many government agencies creates a fragmented and patchy system.
I have heard from teachers, employers, students, and families who are confused about the maze of programs and changing rules. Many don’t even know programs exist. And I have heard from employers who want to do their part but who get frustrated by endless reporting, the byzantine applications, government delay, and the low-ball financial incentives for participating. Because of this, our education system is not always best-positioned to meet the dynamic needs of a changing workforce.
The good news is that there is projected to be increased future demand for employees who are trained to work in fields like information technology, health care, and the skilled trades. But to meet these needs, Minnesota will need to produce workers with the right skills who will be rewarded for their educational investment with jobs that pay a middle-class income.
At the state level, we should aggressively coordinate the myriad of programs described above. The coordinator should report to the Governor and have the authority and aptitude to innovate and cut through red tape. When I say “coordinator,” I am being polite. Think General George Patton. The coordinator should have the authority to marshal state and federal resources in the most efficient fashion possible in partnership with private industry. The coordinator should undertake the following steps:
Above all, the coordinator should be a champion for creating opportunities for students to get middle class jobs and be part of the Ownership Society. It is critical that Minnesota align its CTE delivery system so that industry need not look to other states for a skilled workforce.
December 5th, 2017
Our goal as a nation should be to create an Opportunity Society in which everyone has the opportunity to climb the economic ladder of upward mobility. This paper—the third in a series—discusses broadband and its potential for job creation in rural Minnesota.
Broadband. The definition of “broadband” changes with the advancement of technology and the needs of the economy. “Broadband” refers to high speed transmission technologies used to access the internet. It can include transmission systems such as cable, fiber optic, digital subscriber lines (DSL), T-Lines, Wi-Fi, wireless, and satellite.
For instance, three years ago, the standard was 10 mbps download and 1 mbps upload. For purposes of this paper, “broadband” is any technology which maintains a minimum transmission speed of 25 mbps download and 3 mbps upload. This is the standard speed established by both the FCC and the Minnesota Legislature. About 85 percent of wireline connections can meet this threshold. Unfortunately, only 14 percent of wireless connections do so. Satellite connections generally top off at 15 mbps. (With regard to the footnotes in this paper, please note that technology is rapidly-changing and becomes out of date almost as fast as ink can dry.)
Broadband is an Important Economic Development Tool. “The number one threat to community and economic development in the 21stcentury is the digital divide.” This is the first sentence in a news release issued on October 31, 2017 by the Blandin Foundation, a Minnesota Foundation that concentrates its work in rural Minnesota.
The “digital divide” describes the difference in access to broadband by connectivity, affordability, and familiarity. About 20% of households in rural Minnesota lack access to fixed, non-mobile broadband service.Nearly one-half of rural residents without a home broadband connection say they are not familiar with its advantages.And rural broadband is expensive: 22 percent of rural residents say they do not subscribe to broadband because it is too expensive.Telecommunications companies often deem infrastructure investment in less populated rural areas unsustainable.
The digital divide hurts our students, our health care delivery systems, and our businesses. Students have fewer options for learning, especially when 70 percent of assigned homework and research projects require a broadband connection.Medical technology is also limited, because medical providers require high-speed connections for telemedicine, which can immensely improve health care in rural areas. Broadband access also makes it easier to start and run businesses, expands the options available for job seekers in rural markets, and can improve agricultural applications.
Broadband accessibility has benefits for both urban and rural economic development. The benefits to urban businesses are through practical applications such as e-commerce. With technology, these businesses can reach out to rural communities, areas with more modest infrastructure costs, joining an international trend described as “rural sourcing.” The rural communities see benefits with income growth.
Broadband access also enhances the market reach of rural businesses which were previously restricted to local markets. With the right technology, a small business can reach across the world to market its services or products. A graphic designer or website developer can maintain a productive business serving an urban area while living in Greater Minnesota. A health care provider can eliminate unnecessary windshield time by telecommuting. There are hundreds of reports which document that broadband creates more businesses, increases median household income, and lowers unemployment.
In short, broadband matters. It can improve the rural economy, rural health care, rural education, and rural employment opportunities.Former Speaker of the House Margaret Anderson Kelliher, the Chair of the Minnesota Broadband Task Force, noted that areas with small numbers of broadband providers or low levels of broadband availability have significantly lower median household income. A 2015 report by the Internet Innovation Alliance (IIA) claims that access to the internet is associated with an American household saving, on average, $10,000 per year.
The Minnesota Goals. Minnesota ranks about 27thin broadband connectivity.About 20% of rural Minnesotans do not have access to broadband on an economically-feasible basis.
Laudably, Governor Dayton and Lt. Governor Smith have set a goal that Minnesota be one of the top five states for broadband access and speed.
The state legislature also set a goal that, by 2022, all businesses and homes in Minnesota have access to high speed broadband at a level of 25 megabits per second on downloads and 3 megabits per second on uploads. The legislature also established a goal that, by 2026, all Minnesota businesses and homes will have access to at least one broadband provider that can deliver 100 megabits on download and 20 megabits on upload.
The Current State of Broadband in Minnesota. For these goals to be met, state government must significantly intervene in the development of rural broadband.
The Governor’s Broadband Task Force determined in 2016 that it would cost $900 million to $3.12 billion to fully expand highspeed broadband statewide. The Obama Administration, through the “Connect America Fund,” initially offered $10 billion in subsidies to the largest telecommunications companies to provide service in rural areas. Unfortunately, many of the companies declined to participate. The recent change in the national administration offers little hope for improvement.
Other issues before the FCC can significantly impact rural broadband development. For instance, the FCC currently uses the same standard to define broadband as Minnesota, namely 25 mbps download and 3 mbps upload. Verizon and AT&T, however, have intensely lobbied the FCC against these standards, in large part because smartphone technology can’t meet these requirements. The newly-appointed FCC Chair Ajit Pai, a former attorney for Verizon, has concluded that rural America only needs slower speeds of 10 mbps download and 1 mbps upload,speeds attainable by wireless technology. If the FCC Chair succeeds in lowering broadband standards, rural economic development is hurt because the federal government will not support standards that allow seamless access to video and large packet data.
Moreover, the newly-constituted FCC in April voted to eliminate price caps in much of the businessbroadband market by imposing a new standard that deems certain local markets competitive even when there's only one broadband provider.
Prior to this vote, the FCC limited the prices of Business Data Services (BDS) provided by incumbent phone companies. These services are used for public entities like hospitals, schools, libraries, and police departments. They also connect bank ATM networks, retail credit card readers and provide enterprise business networks with access to branch offices, the internet, or the cloud.
Because of the April vote, the price caps will be eliminated in a county if 50 percent of potential customers "are within a half mile of a location served by a competitive provider." A county would also be considered competitive if 75 percent of Census blocks have a cable provider. Fewer than 10 percent of potential customers will be protected from price gouging under the new rule. The impact? AT&T immediately announced a price hike of 15% on business previously protected by the rule.
Another issue is “net neutrality,” which assured equal quality access to the internet by users.
There is also concern that the new federal administration will not provide the necessary financial support to the “Connect America Fund.” While the President says he supports rural broadband, the budget he proposed in April slashed rural development. It should be noted, however, that the President now states that he will include broadband in his infrastructure program.
In addition to the cost of installing broadband in rural communities, broadband suppliers must anticipate the nature of future competition. For instance, there is substantial discussion surrounding technology of utilizing “TV white space,” which arguably could reach a sizable portion of the underserved rural population.Microsoft recently announced that it will begin the implementation of “Airband” technology, connectivity utilized in Africa. Microsoft claims that using TV white space to deliver broadband internet in rural areas is 80 percent cheaper than fiber optic cable and 50 percent cheaper than LTE wireless technology.
And there is the potential to deliver broadband over or adjacent to power lines, known as “BPL” technology.
With this as background, a broadband provider must weigh the cost of installing long lengths of fiber optic (or copper or T lines) to households or communities where the monthly payments may not be able support the necessary investment in the infrastructure. Simply put, providers argue that they can’t get a return on investment when: 1) there is lower population density with fewer customers to generate revenue, 2) greater distance between customers means a greater expense in broadband, and 3) the cost of the “last mile” may be high.
This is no different than the issue facing Franklin Roosevelt with rural electrification, rural telephones, and rural roads.
The more things change, the more things stay the same.
How Do We Achieve These Goals? Many broadband programs have been launched which embrace the economic compact of opportunity, participation, and prosperity.
Governor Dayton’s Task Force on Broadband Technology has supported programs modeled on the success of rural electrification, including:
The Minnesota Office of Broadband Development was launched in 2014. In 2016, it managed a $35 million investment called the “Border to Border Broadband Development Program.” The $35 million was used as a matching inducement with private investment to leverage over $65 million in broadband development in approximately 72 projects.Eight public-private partnerships were highlighted at a recent broadband conference sponsored by the Blandin Foundation. The cooperative relationships vary from the Mille Lacs Energy Cooperative to the RS Fiber Cooperative serving Renville and Sibley Counties.
The Governor’s Broadband Development Task Force, chaired by Former Speaker Anderson, recommended last year that the state legislature appropriate $200 million for an infrastructure grant program and use the funds on a dollar-for-dollar matching basis to wring out $400 million in broadband development. As noted above, the Task Force noted that it will probably take at least $900 million to build out a broadband cable network for the entire state, and probably $3 billion to build out a complete fiber optic program for the entire state.
In 2016, Governor Dayton recommended funding of $100 million to develop rural broadband.Following the leveraged approach utilized with the first disbursement of the “Border to Border” Development programs, it was hoped that $200 million in broadband development could be achieved.
Unfortunately, at the end of the 2016 legislative session, only $35 million was appropriated for the “Border to Border Broadband Development Program.”In 2017, only $20 was appropriated by the state legislature. This was horribly deficient. Ironically, many rural legislators (who should be concerned with rural economic development and education) seemed more focused on tax revenue cuts that disproportionately benefit the metropolitan area.
Simply put, economic development in rural Minnesota is greatly dependent on broadband technology. But it does take investments to do this. It costs money, and to get the job done we need to explore more avenues of revenue:
If Minnesota is to achieve the goals the legislature set forth in statute, it cannot simply pass aspirational laws. The legislature must put its money where its mouth is and finance the activities that will bring these goals to fruition.
Why is rural development important?
Public investment in rural Minnesota serves the whole state:
The development of broadband, in the face of regulatory changes and modern technology, presents substantial challenges to state government. We should not hesitate to embrace this challenge and bring success to the entire state. Rural Minnesota deserves no less.
Search “broadband economic development” on Google, Yahoo, Bing, or any other search engine.
Kuttner, H. 2012. “Broadband for Rural America: Economic Impacts and Economic Opportunities.”
Minn. Stat. §237.012.
I write about higher education.
The cost of a four-year college education has risen 500% in 30 years, while median family income has increased only 20%. Total student debt tops $1.3 trillion—twice the level of ten years ago—and now surpasses the total debt for cars and credit cards combined. Over 40 million Americans owe money on student loans, and Minnesota has the 5th highest student loan debt in the country.
Student loan debt is one of the primary reasons younger people delay marriage, children, and home ownership. The income of people ages 25 to 34 has fallen every year since 2007 in every field but healthcare. About 25% of millennials with a bachelor’s degree move back home due to financial hardship, and 60% get financial help from their parents.
In addition to the ever-spiraling tuition rates, students have been exploited by a number of other factors:
As Attorney General, I have tried to use my limited authority to curb financial abuse of students. I recently concluded what is believed to be the first trial in the country by a state attorney general against a for-profit college, which ended up resulting in the decertification of the college. The college has been ordered to repay the students.
I have filed actions against companies that operate bogus “student loan forgiveness programs.” At the federal level, my office petitioned the U.S. Department of Education to develop guidelines to: 1) require predatory for-profit colleges to post collateral to pay for the discharge of student loan debt for students who were the victims of deceit by the college, and (2) de-bar dishonest student loan companies from participation in student loan programs. Simply put, a company should not participate in student loan servicing if it has a shoddy record in advising students on their best alternatives in taking out and repaying student loans.
Unfortunately, U.S. Secretary of Education Betsy DeVos recently announced that she is looking at junking these reforms.
I encourage you to write to Secretary DeVos and let her know your thoughts on the getting rid of these reforms that protect students.
As an aside, I should also note that some states have initiated “Hope Scholarships,” where a state resident who maintains a “B” average gets a scholarship to attend a state university. When I went to college, the cost was affordable. This meant that, with some help and by working three jobs in college, I was able to get a college degree without being laden-down with mountains of impossible debt. I hope that the Legislature might take a look at what other states have done surrounding “Hope Scholarships" and similar efforts. We need to make sure that our next generation of Minnesotans can dream of meaningful opportunities in our economy.