Monday, February 8, 2016

Is a College Education Worth Less Than Nothing?

Writing in the Wall St. Journal, Richard Vedder and Christopher Denhard discuss the value of a university degree.
A key measure of the benefits of a degree is the college graduate’s earning potential—and on this score, their advantage over high-school graduates is deteriorating. Since 2006, the gap between what the median college graduate earned compared with the median high-school graduate has narrowed by $1,387 for men over 25 working full time, a 5% fall. Women in the same category have fared worse, losing 7% of their income advantage ($1,496).

A college degree’s declining value is even more pronounced for younger Americans. According to data collected by the College Board, for those in the 25-34 age range the differential between college graduate and high school graduate earnings fell 11% for men, to $18,303 from $20,623. The decline for women was an extraordinary 19.7%, to $14,868 from $18,525.
But a moment’s reflection will confirm that the method these authors use to value a college degree is absurd. For a start, a college degree requires a certain, if rather low, scholastic aptitude. By definition, all college graduates meet this requirement, but many of those without a college degree do not. Which means that, intellectually, the college graduates are not directly comparable with non-graduates.

Specifically, notwithstanding a leavening by people such as Bill Gates and Steve Jobs, the class of non-graduates will likely be less smart in ways both academic and otherwise than the class of graduates.

To put some crude if fairly meaningless numbers on that difference, graduates will mostly have an average or above average IQ, whereas the class of non-graduates will be intellectually more heterogeneous, but will include the majority of those of a less than average IQ.

And the effect of a college degree on earnings is confounded by factors other than the intellectual. University education is marker of social class, which is sought more keenly by those of middle and elite class than those of lower socio-economic rank. Moreover, socio-economic background is likely itself a powerful determinant of income, affecting aspiration, socialization, connections, and the quality of K to 12 education.

It seems, therefore, that we really have no useful information on the economic value of a college degree, although it seems that in the case of those well paid professions, medicine, the law, rocket science, etc., which require specific higher educational qualifications, college education pay dividends. But even this is not certain for at least a few of those individuals of high ability who are channeled through higher education into the professions might otherwise have ended up as billionaire real estate  developers or Silicon Valley entrepreneurs.

But in any case those with degrees leading to professional careers account for only a small proportion of all college graduates. Thus, exclusion of those with professional qualifications would greatly diminish the apparent effect of a college degree on earnings.

And, if anything, for the majority of students, the impact on life-time earnings of a college degree may be negative. Not only does it cost four to six or more years potential earnings, but it imposes a substantial cost for tuition. Net of these factors, many of America’s 18-year-olds of average ability will earn more in their lifetime by launching their career at Starbucks or MacDonalds immediately, rather than incurring the cost of a degree in linguistics or womens’ studies.

But economics are not everything. To the true lovers of knowledge, the rewards of learning are great.

First posted at January 10, 2014.

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