Looking at Education: Tooling and Retooling as Unemployment Remains High

by: Tematica Research

It used to be the view that a higher education was extremely important because for most people a college education become the necessary admission ticket to good jobs and a middle class lifestyle. Notice I said, “used to be the view,” for that ideal seems to have vanished with the notion of lifetime employment at a particular company or in a particular industry.

Most, if not all, advice from career counselors, headhunters and the like to people looking to switch careers and industries is to evaluate your existing skill set and determine what skills are transferable and what skills you will need to develop. Given the restructuring and downsizing of the U.S. auto industry, do those former auto plant workers have the skill set to enter some of the industries that President Obama is touting as job growth drivers?

While CareerBuilder coined this “re-train and re-tool” in its joint survey with Harris Interactive, I see a larger issue at hand given the test scores and related metrics that point to the need to tool and re-tool the U.S. population.

Consider that in the fall of 2010, nearly 49.4 million U.S. students attended public elementary and secondary schools and those institutions spend roughly $540 billion during the 2010-11 school year. Based on some simple math, we find the national average current expenditure per student was $10,931, which to more than a few is a sizable dollar amount. The question to ask when we put on our investor hat is whether or not we are getting a good return on that expenditure? It would appear the answer is "no."

Late last year, the Organization for Economic Cooperation & Development, which represents 34 countries, released its 2009 Program for International Student Assessment, which the U.S. government considers to be one of the most comprehensive measures of international achievement. How did we do? Fifteen-year-olds in the U.S. ranked 25th among peers from 34 countries on a math test and scored in the middle in science and reading.

As Education Secretary Arne Duncan commented at the time, “The brutal fact here is there are many countries that are far ahead of us and improving more rapidly than we are. This should be a massive wake-up call to the entire country.” Now layer in U.S. Bureau of Labor Statistics data that shows approximately 61 million working adults in the United States do not have more than a high school education and approximately 32 million people have some college experience, but no college degree. In total, those two cohorts represent 30 percent of the domestic population. Keep in mind, state budget deficits are forcing incremental cuts in a number of areas, including both educational programs and teachers.

When pondering this and taking into account the current unemployment rate of 9.1 percent as of May, I wonder how those unemployed will fair the longer they are out of work? Will they have the background that will enable them to be a contender for a slot in those industries that are expanding. With the Bureau of Labor Statistics expects biomedical engineers and network systems and data communications analysts to be the fastest-growing occupations between 2008 and 2018, how are the current students that fall in the middle of the pack for mathematics and reading going to fare? I suspect employers will have a difficult time filling positions that require significant math and technical skills, such as engineering and engineering technicians.

Aside from the stigma associated with being out of work for a prolonged period of time, the question of needing to keep a skill set current becomes an important one. As Julian L. Alssid, executive director of the Workforce Strategy Center in New York said “When employers are choosing the right candidate for their organizations, they want to see years of experience and an education that isn’t outdated.” Moreover, given the economic status quo employers are less willing to invest in training instead preferring to find the right combination of credentials and practical experience.

At the heart of the matter lies the issue of how does the domestic population beef up its education and skill-set to enter the work force or re-train, re-educate or re-tool itself to make a shift into an industry with more vibrant employment prospects. As Alssid shares “Many job seekers can make themselves more competitive by getting industry-recognized credentials that are valued in today’s workplace. In many cases, that might mean a short-term certificate, not another college or graduate degree.”

Pain Brings Opportunity

I am sure you get the message - there is a discrepancy between our education and the skills workers will need going forward. While there are many views on how to overhaul our education system, the reality is that will take time and many of those out of work don’t have it.

As is often the case, a pain point such as that offers opportunity for both companies and investors alike. With that in mind, I’ve assembled a number of companies that fall into the investing theme I am calling Education: Tooling and Re-tooling. Some of companies participate in the post-secondary education market like Strayer Education (NASDAQ:STRA), Corinthian Colleges (NASDAQ:COCO), American Public Education (NASDAQ:APEI) and DeVry, Inc. (NYSE:DV) to name a few, and others that serve to improve a worker’s credentials and skills, like Rosetta Stone (NYSE:RST) and Learning Tree InternationaL (OTCQX:LTRE).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.