In a time of high unemployment, where even college graduates have a hard time finding a job, it may seem like wishful thinking to say increasing higher education attainment plays a key role in driving economic growth—and therefore job creation. But the evidence is clear that it does. Unemployment rates are dramatically lower for college graduates, they are usually the first ones hired in a recovery, and employers pay an increasing premium for their knowledge and skills.

To understand how this works, we can first consider employment growth in the economic recovery. Naturally enough, we tend to think of employment as a lagging indicator of recovery. In the current weak recovery, unemployment has remained stubbornly high. A lot of hypotheses have been advanced to explain this, but there is a growing consensus that a large part of the explanation is that the economic recovery is being hindered by a lack of workers with the advanced skills and knowledge demanded in this economy. Put another way, our ability to retool and “up-skill” workers to meet the changing requirements of employment markets is itself a significant factor in economic growth.

David Altig, the research director at the Federal Reserve Bank of Atlanta, has written about the unexplained causes of the slow recovery of the job market from the recession. According to Altig, based on standard econometric models the U.S. unemployment rate should be significantly lower than it is. He suggests that our inability to match jobs to people with the right skills may be the single most important factor in explaining why (the other factors being lack of mobility due to people being underwater on their mortgages and extended unemployment benefits). One of the more interesting things Altig says is that this mismatch is not at the level of specific occupations—i.e. unemployed auto workers needing to be retrained as nurses—but at a deeper level related to general skills across all occupations. Better educated workers are more adaptable, they learn new skills more quickly, and they contribute their thinking to innovation not just in new products, but just as importantly in streamlining and improving processes throughout the enterprise, whatever its mission.

Of course, we need to know more about the specific skills and knowledge needed in the workforce. Fortunately, the Georgetown University Center on Education and the Workforce has developed powerful new approaches to answering this question. Developing a system with the capacity to help people develop higher level skills in the much larger numbers needed in today’s economy is the great challenge facing higher education.