Executive summary

Economic growth and innovation in the United States rely heavily on the advanced skills of its population. More than 7 000 post-secondary institutions serve about 20 million students across the country, in programmes that range from short-term certificates to doctoral degrees. Having a higher education qualification significantly increases the chances of individuals obtaining and keeping a well-paying job – to a greater extent in the United States than in most OECD countries. Employers, for their part, look to higher education institutions to equip graduates with the skills needed to adapt to changing work demands.

This review, conducted in 2018-19 by the OECD with the support of Lumina Foundation, explores how the higher education system in four US states – Ohio, Texas, Virginia and Washington – responds to the needs of the state’s labour market. This review was conducted under very different economic circumstances compared to those emerging in 2020, as the world is entering an unprecedented economic crisis resulting from the COVID-19 pandemic. However, many of the challenges it identifies may remain or deepen. Shortages in some in-demand occupations, in the health sector or digital technologies, are likely to persist. The availability of work-based learning opportunities will likely diminish due to steep declines in employment and profitability in many economic sectors. State per-student appropriations, lower in 2018 than prior to the 2008-09 recession, are likely to fall further. Policies to strengthen the responsiveness of higher education systems to changing labour market needs will be as important in the future as in the past.

Shortages in some occupations and employer concerns about transversal skills are common challenges

The four states experience labour market shortages in specific sectors and occupations, including information and communications technology jobs, health professions and education. Students appear to respond to labour market signals, with growing shares enrolling in programmes leading to well-paying jobs in science, technology, engineering and mathematics (STEM) and health fields. Recruitment challenges persist in the education sector, which is low paying across the four states. Even in high-paying occupations, the demand for workers in these fields exceeds the supply of graduates, and migration from other states and abroad is an important tool to meet skills needs. Furthermore, employers across industries and occupations met during OECD fact-finding missions to participating states highlighted certain skills gaps among graduates, including both job-specific technical skills and transversal skills such as communication or teamwork. Given their uncertainty about the skills of graduates, employers often emphasised their continued reliance on the four-year degree and institutional reputation as ways to make hiring decisions, in addition to developing tests of job applicants’ skills.

Graduate numbers, in total, are insufficient to meet state needs for highly educated workers

Ohio, Texas and Washington do not set specific policy targets related to the labour market outcomes of higher education graduates, while Virginia has a specific goal on graduate wages. In contrast, all four states have established higher education attainment targets. The higher education attainment rate has grown at a moderate but steady rate in all four states over the past decade. Growth has been swiftest in states that started with higher post-secondary attainment rates, but more will need to be done if states are to meet their targets. Two ongoing challenges appear to limit progress in raising attainment. First, despite state investments and stakeholder-led initiatives to lower the cost of attending higher education, many young people choose not to pursue higher education, particularly among low-income students, and ethnic or racial minorities who are under-represented in higher education. Second, many students who start higher education do not complete their programmes, especially among under-represented populations. This share is highest in two-year public institutions, where only one-fifth to one-third of students (depending on the state) complete their two-year programme within four years. In four-year public institutions, the share of students completing their programme within six years ranges from about half to close to three-quarters. Still, this leaves an important share of students who leave post-secondary education without a credential, facing poorer labour market prospects while often carrying student debt.

The earnings advantage of higher education varies significantly by the level and field of study, and by student demographics

In each of the four states, the bachelor’s degree is, on average, the undergraduate qualification associated with the largest earnings premium, while the returns on investment in certificates and associate’s degrees are, on average, markedly lower. While certificates, associate’s degrees, and apprenticeships in fields leading to high-demand occupations can offer initial earnings that are higher than the average starting salaries of graduates from bachelor’s degree programmes, the earnings advantage of shorter qualifications does not always persist. Across all study levels, graduates in science, technology, engineering and mathematics (STEM) and information and communications technology (ICT) consistently enjoy the highest earnings advantage. Within-field earnings are also dispersed, especially in general fields of study such as business and arts and humanities, where graduates may pursue a large range of occupations. On average, women, Black/African American and Hispanic/Latino graduates experience lower rates of employment and earnings after graduation than their peers with equivalent levels of higher education. These outcomes reflect, in part, a tendency for students from these groups to pursue fields of study and occupations where subsequent employment and earnings opportunities are comparatively poor. In the case of Black/African American and Hispanic/Latino graduates, these choices and outcomes are compounded by above-average levels of underlying socio-economic disadvantage and debt accumulated during study.

State governments can improve the responsiveness of higher education to labour market needs through enhanced strategic planning and co-ordination

Across the four states, as is common in the United States, higher education institutions have a high level of autonomy, the tools of higher education agencies to link strategic policy objectives and institutional behaviour are limited, and multiple actors are engaged in activities to improve the alignment between education and workforce needs. The multiplicity of stakeholders and initiatives engaged in supporting the alignment of higher education and the labour market, while positive at a local or sectoral level, appears seldom co-ordinated, making it difficult to scale up effective practices across states’ regions and economic sectors. To support better co-ordination of initiatives, potential success factors have been identified in this review that are relevant to all four states, in addition to the tailored policy recommendations provided to each state. These include:

• Processes to connect strategic policy goals for higher education and the institutional funding process, to ensure capacity exists to effectively orient the actions of the higher education system towards meeting policy goals.

• Processes to enable state agencies responsible for higher education, education and workforce development to regularly collaborate and co-ordinate efforts with each other and with key stakeholders. Sufficient human and financial resources need to be available to support such collaboration and co-ordination.

• Processes to incentivise collaboration between government agencies at the state and regional levels and to ensure stakeholders provide regular input into higher education policy and planning.

States can encourage institutions to focus on labour market relevance and promote state-wide pathways and student supports

State higher education agencies and institutions promote labour market relevant teaching and learning. However, there is wide variation across institutions and programmes in the extent to which practices shown to equip students with labour market relevant skills (such as work-based learning) are available to students. In addition, while there is widespread recognition that students need structured pathways and effective guidance to move through higher education and complete a credential, streamlining pathways and facilitating efficient transfers within the higher education system remains a challenge in the four states. To support labour market relevant offerings across programmes and facilitate state-wide pathways and student supports, potential success factors relevant to all states in addition to state-specific policy recommendations include:

• Mechanisms to provide state governments with an opportunity to identify programmes with poor labour market outcomes, the same way mechanisms exist for state-wide reviews of programme productivity or low-producing programmes, which could in turn help institutions focus their attention where it is most needed.

• Approaches to incentivise higher education institutions to encourage labour market relevant teaching and learning across all levels and fields of study. This can include supporting the recruitment of faculty in fields of study leading to high-demand occupations, the provision of high-quality work-based learning opportunities, and opportunities for faculty professional development.

• Approaches to facilitate the availability of state-wide, evidence-based student supports that effectively target students most in need, either financially or academically, for assistance in accessing and completing higher education.

• Mechanisms to streamline credential pathways and regional or state-wide transfer agreements between institutions. Information about pathways and transfers should be easy to understand and access by students and families. Examining transfer outcomes of students at two-year institutions may be important to identify ways in which to increase transfer efficiency and boost associate’s and bachelor’s degree attainment.

Adequate state funding is needed to support the provision of good quality and affordable study options relevant to labour market needs

The four states face an ongoing challenge with respect to higher education funding. To ensure that opportunities for study are diverse and equitable, states need to ensure the affordability of public higher education – either by providing state appropriations sufficient to contain tuition fees, or by providing robust need-based aid. At the same time, states need to take care that higher education revenues are sufficient to protect the quality of educational offerings as well as student guidance and support.

Recent state appropriation levels have not allowed real per-student funding to return to the pre-crisis levels of 2007-08 in any of the four states, and the likely impact of the COVID-19 pandemic is a further cause for concern. Potential success factors relevant to all states, in addition to state-specific policy recommendations, include:

• Sustained commitment from lawmakers to ensuring the sufficiency of state appropriations for higher education institutions. Per-student funding in the two-year sector should be a special focus of attention, given the lower per-student expenditures from which these institutions start, and the key role these institutions play in offering an entry route to higher education for under-represented populations and in meeting labour market needs in key economic sectors.

• Processes either to moderate student tuition fees across the board, while limiting negative impact on instructional quality, or to allocate additional resources to need-based student grant programmes. The latter is a more targeted and efficient way to increase post-secondary attainment than lowering tuition for all students.

• Approaches to introduce carefully designed performance-related funding that takes into account the labour market outcomes of graduates. These metrics should be used intelligently to ensure institutions are also incentivised to support disadvantaged populations. Such models should be designed in close co-operation with higher education institutions, in particular to protect institutions from financial shocks generated by sharp changes in any of the metrics used and provide institutions with adequate resources for their core instructional mission.

• Targeted funding to higher education institutions and other partners to expand the offer of opportunities for students to develop labour market relevant skills, ranging from increasing work-based learning options to incentivising students to pursue in-demand fields. Programmes to support students in choosing study fields should be designed in ways that make them easy to understand and access. They should also be developed in conjunction with broader policy efforts starting before higher education to enhance students’ academic preparedness and interest in pursuing fields of study that lead to occupations with good earnings prospects.

States can enhance the provision and use of high-quality and user-friendly information about post-secondary options and labour market returns

The four states provide information about educational and career opportunities, the labour market experiences of recent graduates, and monitor the supply and demand for graduates across occupations. Much of this information is made publicly available, but it is not consistently adapted to its intended audiences. To support the provision of high-quality and user-friendly information about post-secondary education, potential success factors relevant to all states in addition to state-specific policy recommendations include:

• Mechanisms to integrate workforce information in strategic planning and forecasting processes in higher education. This can include developing state-wide supply-demand analyses and considering approaches to systematically engage employers; identifying emerging trends and granular skills needs by occupation, industry and location; assessing institutional capacity to meet changing needs; and providing state-wide access to major data resources.

• Approaches to improve the quality and availability of data on graduate outcomes in the labour market. This could include providing debt and earnings data at the programme level by sub-population, and expanding coverage to include both public and private institutions where possible. Expanding the development of metrics or tools to measure the employment outcomes of graduates, for example by developing state-wide graduate outcome or employer surveys, could be considered. Such tools could help assess the signalling value of post-secondary qualifications, help assess skills use in the workplace and help better understand in-field job placement rates.

• Mechanisms to provide integrated information to students and families about educational opportunities and pathways, costs, outcomes and supports. Information about the expected return on investment in post-secondary education options can help students make better choices in terms of selecting their field of study and career path. However, the tailoring of information is crucial to ensure that it reaches students in a manner in which they can easily access and absorb it.