Earnings of Young College Grads vs College Costs

Posted by: Michael Mandel on September 12

Here’s another appalling chart:

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The top line is the cost of private four-year institutions, adjusted for inflation. The bottom line is the real annual pay of young full-time workers with a bachelor’s only (where young means ‘25-34’). The college cost data comes from the College Board, and the income data comes from the latest Census report. Both lines are indexed to 1991=1.0.

You can see that in the 1990s, pay for young college grads rose at basically the same rate as college costs.

But since 2000, the two lines have moved in opposite directions. In real terms, college costs are up by 23% since 2000. But real pay for young college grads is down 11% over the same period.

This can’t go on. It’s just not possible.


Technical note: I used the nominal cost data from the College Board, and then applied the same price deflator for both earnings and college costs.

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Reader Comments

Brenda

September 12, 2009 12:51 PM

Yes, this is appalling on several counts. I have my Masters degree in Education and am having difficulty getting more than $10 per hour. People won't hire me because I am over-qualified and, I assume, are afraid I might leave employment if I get something that pays more. In the meantime, I owe $60k in educational loans. Why bother with an advanced degree when people in the service industry are able to take home more pay? I would get a waitressing job but my resume reflects higher ed. A friend suggested that I refrain from listing my education. What does that say about ethics and integrity? What are we saying about our collective consciousness toward higher education?

Dick LeBeau

September 12, 2009 01:19 PM

What is the 'x' axis suppose to represent?

CompEng

September 12, 2009 01:42 PM

"This can’t go on. It’s just not possible."

True. But it will go on longer if we keep subsidizing education heavily enough.

Ajay

September 12, 2009 02:49 PM

Two points, first, why leave out publicly funded education? It makes up a larger portion of colleges and likely raised prices even more. Second, you've again left benefits out of earnings, making your comparison questionable. As for the overall topic, education has grown out of control for years because of idiotic public funding. Now that the internet is here, online education will destroy existing colleges and they are far too fat and lazy to even raise a hand to compete. It's what always happens to these public sectors like education or health care or the post office, they may be able to grow fat leaching off the populace for awhile, but then somebody comes up with something new like internet or email and then they collapse. We've seen it with the USPS, music, and the newspapers, television, education, and medicine are next.

Markpowers80

September 12, 2009 02:56 PM

CompEng, you wrote:

'"This can't go on. It's just not possible."

True. But it will go on longer if we keep subsidizing education heavily enough.'

I do not understand your point. Wouldn't (doesn't) subsidy of education reduce the cost? You seem to imply subsidies increase the cost of a student's education.

Mike Mandel

September 12, 2009 03:03 PM

>What is the 'x' axis suppose to represent?

Years?

Daniel S.

September 12, 2009 03:07 PM

Dick, the x-axis represents years (hence the labels 1991 thru 2008).

Did you intend to ask what the y-axis means? That appears to be the present value of a dollar indexed to the value of a dollar in 1991.

Brenda, I hear you. My brother has a PhD and has to be careful where he lists that for the same reason that you mention.

Markpowers80

September 12, 2009 03:12 PM

Okay, so the cost of a college education has soared while compensation has stagnated. Point given. Appalling.

Now, does it still compensate to get the education?
Should the U.S. still be bringing in planeloads of H1-Bs?

Markpowers80

September 12, 2009 03:17 PM

If American boys and girls are going to pass on a college education, should we allow the current rate of over-a-million-a-year illegal immigrants arriving to compete for jobs? Note that the influx of illegals does not include the one-million-plus LEGAL immigrants who arrive every year (most of whom also receive the right to work).

CompEng

September 12, 2009 03:38 PM

MarkPowers80,

Sorry, I was not clear. Our primary subsidy for higher education is to provide low-cost loans to individuals who want an education. This makes college much more approachable, but actually pumps up the real dollar cost of the education.
This is an equalizer and a good thing in many ways, but nothing is free.

Sunny

September 12, 2009 04:31 PM

This is like insisting on shelling a fortune for American cars knowing that they are crap. Why don't you folks try going to India or China for a college education? It costs a fraction, pays as much (remember the planeloads of H1B?) and the quality might actually be better. Getting in would be tough through - the standard unit of competition is billion.
As long as you are not trying to win the Noble, it’s an awesome deal. The H1B planes come back empty – so fares are cheap; you are made to feel welcome since the dollar is still sweet. At about 15K USD you can get through 4 years of awesome fun – get some perspective, play any sport you care for, learn some whacky dance moves, travel like crazy and get a job that pays it all back in a 3 months of gainful employment!

Give it back to the immigrants.

TDM

September 12, 2009 06:28 PM

Is the entire blogosphere rich? For most people, nominal college costs don't matter, financial aid does. The actual "tuition burden" fell by a third between 1998 and 2004. (http://www.usatoday.com/news/education/2004-06-28-tuition-burden-cover-usat_x.htm) Higher education is still a large benefit to the student that connot be repossesed by creditors, so the beneficiars should be made to pay for it, eventually. Extreme price discrimination and subsidized loans has been a successful "progressive" education policy.

Alex

September 12, 2009 07:01 PM

Is the purpose of the article to encourage high school students to rethink going to college? Seems like that's the tone.

In light of that, a few critical points are missing.

What have undergrad-only wages done in comparison to non-college grad wages in the same group?

How has the 34-43 year old group faired against non-college grads?

What does all this look like for people who go to graduate school.


Articles like this always bug me because they could steer young people away from college with incomplete logic. Are a few clicks really worth that possibility?

If you're in high school, get your butt to college and stay there until you graduate.

Alex

September 12, 2009 07:03 PM

Is the purpose of the article to encourage high school students to rethink going to college? Seems like that's the tone.

In light of that, a few critical points are missing.

What have undergrad-only wages done in comparison to non-college grad wages in the same group?

How has the 34-43 year old group faired against non-college grads?

What does all this look like for people who go to graduate school.


Articles like this always bug me because they could steer young people away from college with incomplete logic. Are a few clicks really worth that possibility?

If you're in high school, get your butt to college and stay there until you graduate.

Recent Grad

September 12, 2009 09:11 PM

I just graduated with a PhD and am in a research position at an R&D. It's a low-level management position. The individuals immediately below me, none of whom have any doctoral level education and one who has only a high school degree, are making almost what I am. Once you factor in the school loans that I have to pay back, I'm actually earning less than they are!

@Alex - Clearly I believe in a college education. But to be frank, if I were a parent right now, I would encourage my children to take a night or weekend class each semester. Financially, until the earning power of degrees is commiserate with the cost of degrees - a full time approach isn't worth it. The sad part is that the quality of the education is demonstrably higher in a full-time residential academic environment than it is in a non-residential part-time academic environment.

Unfortunately, because we have allowed corporations so much power, our young people do not have the economic incentive to advance themselves academically. This means that as a nation we are becoming academically deficit (hence the need for so many H1Bs) and as a result we are going to be hurting for many, many more generations.

jenna

September 12, 2009 11:18 PM

I'm disappointed in our government. It's their responsibility to make education more affordable and protect the quality of education. My friend's daughter just graduated from a private college(she had trouble getting classes in a public university) with a BS in communications/journalism and she is making $9.50/hr! Her parents are HELPING her by sending her some $$. In 1994, I made $9.50 with a BS in Economics. My friend's starting salary was $32,000/yr and this was in the early 90's!!! Of course, rent was less than $650 per month in a large city. Now, it's more like $850 for a studio!

How can we move forward as a nation if we don't address the rising cost of education to an actual paycheck? If i were a newly minted college grad,I'd be scared. My paycheck after paying rent, car, and living expenses will not allow for student loan payments.

Our education needs a make over just like our health care!
Jenna

jenna

September 12, 2009 11:25 PM

How can we move forward as a nation when there is such a discrepancy between the cost of an education and an actual paycheck? This is very dismal and not encouraging.

My pay was $9.50/hr after I graduated from college in the 90's. For my friend's daughter, she just graduated and shes making $9.50/hr. she can't afford to pay her bills so my friend sends her $$ to cover her student loans. Not many parents are in a financial position to provide financial assistance to their child(ren).

We need an extensive make over in education just as we need a "make over" in health care. When is this gonna happen? We are STILL waiting....
Jenna

Joe Cushing

September 12, 2009 11:50 PM

I finished master's degree in Finance this spring. I drive a semi 6 months later. Now, I'm studying again, to take a society of actuaries exam so I can get a new job in another state.

Rycoka

September 13, 2009 06:06 AM

Hi Guys,
A likely major cause is asset inflation fuelled by debt creation (an education is an asset). The resurgence in the stock market indicates that debt fuelled asset inflation is continuing - now fuelled by the government using your taxes (read Doug Noland at Prudent Bear for a lucid description of what is happening).
Basically, people doing productive stuff (wage earners) have for a decade been losing out to people borrowing money to buy assets (speculators). Bankers - who make money by creating debt - have been making out like thieves. The "financial crisis" was caused by some early recognition that this is basically a Ponzi scheme. The government, failing to understand that the "crisis" was a rational adjustment, is now supporting debt creation when anybody with any sense can see the Ponzi party is over.
Your Ron Paul is the only political voice identifying this issue. Send him some money if you want to invest in your future (and don't like the idea of joining the speculators). I have no politaical interest in the US - I am an Australian. I do recognise, however, that our economic fate rests in US hands.

Conrad

September 13, 2009 11:36 AM

Rycoka, you're right that education is fueled by both public and private debt, and more government "help" will only exacerbate the problem. However, I will disagree that Australia's fate rests in US hands, as it appears the Asian trading partners will carry Australia along for their (economic) ride.

weaver

September 13, 2009 12:50 PM

Here’s another appalling chart:

Compare the chart in the article (above) to following charts (Population Growth to Employment Growth)

http://immigration-weaver.blogspot.com/2009/07/us-employment-perfomance-in-21st.html

The dates are a bit offset but the trend is very similar.
Coincedence?

Jon

September 13, 2009 01:23 PM

The government should stop subsidizing degrees that there isn't a market for. Do you think there are H1B visas given for Communications/Journalism majors? They are given for technology positions, ie engineers, programmers, IT, etc or health care professionals (nursing, doctors).

There are jobs out there that don't require college degrees that pay 70-100k/ year for 6 or 7 months of work per year.

Do your research before deciding what field to go into. Get a liberal arts degree for fun. Get a technology degree for income.

Johann

September 13, 2009 01:47 PM

Here's the best kept secret in America: The skilled trades and health care professions! Certified electricians, plumbers, auto body mechanics, nurses, dental hygienists, etc., are all highly in demand and usually earn much more than people with run-of-the-mill bachelors and graduate degrees--and without the crushing burden of student loan debt! These careers are also less likely to be downsized and outsourced, unlike the keyboard punchers and mid-level managers with master’s degrees (that is, assuming these grads can even land a job in today’s market with years of schooling and no work experience). "Get more and more schooling" is the same old tired mantra repeated ad nauseam by system-based thinkers who are unaware that there are more viable options available to students than simply spending more time (and money) in college.

Mike Reardon

September 13, 2009 02:41 PM

From last week news, Columbia University, last year endowment investment losses 21%, Harvard 27% and Yale’s fell at a similar rate to Harvard. This week University of California's Board of Regents will discuss increases to fees over two years that will total 30%. UC is trying to recoup State lost tax support.

The always upward trajectory now has no support from always expanding markets, it now has to be rethought by every system that enjoyed the asset inflation of the last twenty years.

Chuck Gaffney

September 13, 2009 03:56 PM

Very interesting chart. Another variable to put into this would be people who quit college, just get an Associates or who don't go in general. I saw a chart with those added to this but boy is it surprising since some people didn't even need the college degree to make even more than the people who slaved away money and time to either a private or public college. But, then again there are those who don't earn anything no matter whether they have a degree or not.

Borje

September 13, 2009 06:31 PM

Here in Sweden is university education for free...and the normal starting salary for a person with a MA in political science is about 50000 dollars/year. We also have more then 6 weeks of paied vacation and all people have access to free health care. Well, different countries - different ways of organazing the society.

JImmy

September 13, 2009 09:00 PM

Yes, Brenda, I have similar situation, master degree in Mechanical doesn't pay for the loan either, the job currenly availble are per contract basis, the most is two to three months, there is no permanent job offer with benefit for college graduate, what happen to all of us?

Johann

September 13, 2009 09:43 PM

Borje,

"Here in Sweden is university education for free...and the normal starting salary for a person with a MA in political science is about 50000 dollars/year." Yes, but how much does a highly skilled electrician or plumber earn in Sweden? I'll bet it's much more than someone with an MA in Political Science! Here in the U.S., I've met many people with university degrees who are unemployed or working in restaurants. Plumbers in the States, however, can earn around $100 an hour without ever attending university. As I mentioned before, the skilled trades are the best kept secret, but everyone still clings to the myth that their children must go to college.

Steve

September 14, 2009 12:59 AM

I just got an MA in political science in the US, and while the official numbers say I should be making around $50,000/year, I gave up on that pie in the sky very quickly. No one will pay that much for me, in fact I'll be lucky to even land a paid position, I'm gonna have to wait tables to pay the bills.

Assuming I can get a paid position (as they are very hard to get in this economy and this field) I've determined the most I can hope to get paid is probably around $40,000. Even that is rather optimistic though, I've been putting my desired salary as mid-to-high 30s. Basically it's like I have no education. All having a masters on my resume does is give me a second look by the hiring manager, which I figured would be the case when I decided to go for it. All it's worth is it's ability to get me possibly hired on at the lowest possible position, putting me slightly ahead of those in my same position that only have bachelors. I know getting my masters wasnt worth in terms of getting a higher salary, but if I wanted a job in the field period it was the only real option.

Joe

September 14, 2009 02:14 AM

This is a huge problem because college tuition keeps going up 4-8% a year. It's also bad for graduate degrees such as law and medical schools. You're already in the hole a couple of hundred thousand dollars by the time you graduate. It's just not sustainable!

Ontology

September 14, 2009 02:21 AM

I think everyone's missing the real point here. The growth in education costs is more or less constants over the last twenty years - there is no sudden spurt or years of accelerated growth. Wages, however, flatline after 2000 or so. Seems to me this is a wages problem, not a "cost of education" problem.

Vernon Thiede

September 14, 2009 03:17 AM

It's all Supply and Demand People. If you get even a Masters or PHD in an oversupplied field you will not earn much money. Conversely if you earn your degree in a high demand field that is under supplied then you will make the dough. What fields are in demand? Engineers, Nurses and Accountants. They always have been and always will be. The only unemployed ones in these fields whom I know are the ones who do not want to work.

Tristan

September 14, 2009 03:21 AM

An interesting discussion. Here in the Netherlands, university education is heavily subsidized. Tuition fee + books is 2,300 euros a year, of which the government pays about half. Those in need of additional money (e.g. for housing) can borrow it at 3% interest, but most students have an extra job in summers/weekends.

During my four years in college I completed two master degrees, in strategic management and marketing. After about a month I found a job at a consulting company, with a starting salary of 33,000 euros. After four years (of, I admit, hard work) this has almost doubled to 60,000 euros.

My wife holds a master degree in political sciences and did an internship until she found a job after five months. Her starting salary is 29,000 euros and we expect that after four years her income will be approximately 40,000 euros. However, she is doubting whether to do a PhD, as this is often a requirement for a job at the top organizations in The Hague/Brussels.

I agree that, also in the Netherlands, a plumber has a starting salary that is almost as high. However, this will hardly increase throughout the years, unless you manage to start up your own business. Then you will be able to make 40,000-50,000 euros.

The system our government uses is not necessarily cheaper. The government spends 6% of BNP on education, and it is paid for through a heavy tax burden on the higher incomes. But I do believe that it opens more equal opportunities for everyone. And currently with the recession, I think it's better to have young people in college (applications increased 25% compared to last year), than have them hanging around on the streets.

Alexander

September 14, 2009 04:31 AM

Well, we in Russia, have very diversified options - if you feel yourself skilled enough to work not learn and you consider an education an asset helping to earn you can simply buy a false-true diploma for a thousand bucks and earn more with it. If you opt for a study, you can pay and study.

Christopher

September 14, 2009 06:35 AM

"This can’t go on. It’s just not possible."

True. But it will go on longer if we keep subsidizing education heavily enough.

True. Colleges will continue to raise prices and require worthless classes while the money flows freely from the government.

Without the extra government money Existential Basket Weaving 101 will not be a prerequisite for C++. The colleges would have to adjust their sales expectations.

Mike Mandel

September 14, 2009 07:57 AM

Rycoka wrote:

>A likely major cause is asset inflation fuelled by debt creation (an education is an asset).

Now that's an interesting thought. Too easy access to credit for students?

SL

September 14, 2009 09:33 AM

The result may be misleading. There are other factors that affect the income of young college grads such as the decrease in the average income of the whole population. It is more insightful to compare the income of those who do not have college degree and those who have.

johnd

September 14, 2009 11:19 AM

Private university education is mainly for two types of individuals, the really smart and the wealthy. The wealthy have been doing very well in the last twenty years, so many shrug off cost increases to send their kids to a well-known school. They also may not really care all that much how much their kids make when they graduate. The universities on the other hand want the best and brightest to boost their reputation, hence they provide a lot of financial aid to bring in the most talented students - see Harvard's new financial aid policies. Rich institutions, rich parents and some help from the government have been driving these trends. Will this trend finally end with the great collaps in wealth we've experienced? Perhaps.

Squeezebox

September 14, 2009 01:26 PM

The real scandal is that you need education to get neraly every kind of job! My sister has no experience and she's job hunting for the first time. She volunteers as a receptionist at a church to get experience. She saw an opening for a janitor's job and applied for it, just to get work. Someone shows up with a resume full of certifcations in hazardous chemical handling and the like. Who knew you needed a professional certification to clean toilets???

Phil

September 14, 2009 02:13 PM

Brenda, I read your post and had to comment. If you want to get ahead, you need to get over your defeatist attitude. You have a masters in education for gods sakes. I know the job market is tough now but try to think long term. With a MS in education, you should be able to land a teaching job at some point in the near future. And your pay will be far above what the average american makes. I'm an engineer and when I graduated in 1984, I had to take whatever I could find. How about teaching special needs kids. Usually they have openings due to no one wanting to teach kids like that. Finally, try to think longer term than 3 months out.

phil

September 14, 2009 02:33 PM

There are two areas of the economy whose costs have consistently shown to rise faster than inflation over the last 30 years. Healthcare and education. Both of these fields lack the price controls of the free market. Healthcare's costs are distorted by the lack of connection between the payers (insurers) and the consumers. Education is shielded from a true free market by government subsidies. This needs to be addressed as there is no reason education should rise at a faster pace than the overall inflation rate.

To address the wage issue that many posters have complained about, the simple fact is, there are far too many people attending college these days. Its simple supply and demand. Wages of plumbers have held up because, lets face it, its not too much fun running a snake thru someones dirty plumbing so the supply of people willing to do it is low relative to demand. It doesn't take a rocket scientist to obtain a degree in journalism/communications, hense there is too much supply of these graduates.

Randy

September 14, 2009 03:15 PM

It's funny that you guys are complaining about education (speaking to U.S. people here). Attending a community college, there is no surprise you're earnings will not be that much higher (if any) than a high school diploma.

For those saying undergraduate degrees with a bachelors (4 years)... are you factoring in the school! JUST because you graduate from a 4 year school, doesn't mean your worth is suddenly advanced 30,000K a year. Like any job, the prestige of the school matters! There are excellent private and public universities out there with notable starting salaries. At my particular school, the average is close to 40K for the whole school, 50-55K for business majors, 60+ for engineers.

A degree in journalism... a degree in political science... Supply and demand as another person mentioned. Why should you be paid large amounts of money for holding the same knowledge a book does? Develop your skills through internships/first hand knowledge like business or engineering students and stop complaining. Some of the 'liberal' students on compass continue to say "money won't make you happy"... well it sure as hell will piss me off not having it!

In Summary... attend a better school, pick a more useful major, gain experience BEFORE you graduate, study hard, develop personal networking skills. Finally, don't blame the U.S... blame your personal choices.

Mike

September 15, 2009 10:44 AM

Phil,

I think Brenda's a bit on the pessimistic side, but more or less right in the short term - especially now. If you read the research, teachers have a tough time finding employment (a year of unemployment following graduation is not uncommon) but lifetime earnings are higher (versus Lib Arts and Social Sciences degrees which generally have negative lifetime earnings).

Also, you can't just "apply" for Special Ed jobs in most states. There are shortages, but you need to be certified in that field. NCLB completely messed up the system and created oversupplies in some areas and shortages that can't be filled quickly enough in others (it has to do with the "highly qualified teachers" requirement).

This especially applies in districts requiring Master's Degrees in subjects that aren't taught at local U's. For instance, my university in NYC does not have a HS special ed curriculum - neither do any others in a 20 mile radius.

I have a Master's in Ed (and I have years of work experience as a bookkeeper). There's a hiring freeze in my state in most Ed subject areas. I've applied for certification in another state. I'm also taking the necessary courses for Special Ed certification. Due to the shortage and lack of any schools in a 20 mile radius that offer it, it only requires 4 classes. Still that's 4 classes past a 45 credit Master's while I'm working.

I'm making $15/hr, which is less than my previous jobs, but it is in a field related to Education. I send out 25-50 resumes a week and I'm getting back nothing. I've blanketed private and Catholic schools throughout my state and an adjacent one and I'm applying for jobs in fields I've worked in previously - for which I keep getting told I'm overqualified. I can't leave off my Education either, otherwise I have employment gaps from when I was going to school full-time and working part-time.

-Mike

Mike

September 15, 2009 10:57 AM

Randy,

I think you need some perspective. I have a value-added degree. I'm still having problems.

In short, it's tough out there for a lot of people. I'm one of them. I wake up at 6AM every morning. I start work at 9AM. I get off work and go to classes, then I come home and exercise. I go to sleep well before 10pm. I don't drink or use drugs, I look for jobs and send out resumes on Saturdays, and I go to Church on Sundays. I have several years of work experience as one of the top performers in my department in a Fortune 500 company. Most people like me and I always ask my friends and acquaintances if they know of any openings.

I graduated in the top 10% of my college class and had a 3.97 in my Grad degree. I don't eat out, or spend money on frivolous items. I save about 35% of what I've been making. I've worked hard my whole life and like a lot of the rest of America right now, I'm still not doing that great.

I don't blame America. I blame the economy.

Also, you're a tad bit naive if you think the market controls everything, esp. in America. Credentialism, rent control, and socialized public institutions (e.g. Police, Fire, Education) have changed that. Does it make sense? Not really. But that's how things are right now.

Also, your elitism has clouded your judgment - 2 year college degrees are the most bang for your buck as far as Education goes. "Better" schools often are less economically viable than an associate's degree in IT or something similar.

http://articles.moneycentral.msn.com/CollegeAndFamily/SavingForCollege/IsYourDegreeWorth1million.aspx

-Mike

Carl Spearow

September 15, 2009 06:38 PM

Two comments:
1. Attend a public university. They are much cheaper than private schools.
2. Get a degree in engineering, law, business, medicine, nursing, or something else that enables you to get a job. There are a lot of frivolous majors that don't prepare you for employment.

John

September 16, 2009 12:05 PM

There is no question that the price of education must be addressed and that the cost of delivering that education must be addressed. In addition, the ROI of a college degree and the value of that investment is one of the most frequently asked questions today. This is an important conversation.

BUT framing the conversation by comparing the price of just private colleges with ALL college graduates (public and private) doesn't help the conversation. Why not compare the cost of all schools to all graduates or sector to sector.

No wonder more economists are looking for jobs—no matter where they went to school.

Dave

September 17, 2009 04:03 PM

"but everyone still clings to the myth that their children must go to college"

That is a very true statement. I remember my Dad (in 1993) said, "You aren't going to go to Devry and get any techie degree, you are going to a a 'real' unviersity" 15 years later, I have two Bachelors, One Masters and working on my PhD, but also have the student loan debt to prove it!

I always say, a Bachelors is worth what a high school diploma was 20 years ago, a Masters is worth a Bachelors, and a PhD is worth a Masters...well at least I hope. Ironically, my PhD is in eleanring, as I think that learning is important, B&M schools may or may not be important in the future.

Dave

September 17, 2009 04:04 PM

"but everyone still clings to the myth that their children must go to college"

That is a very true statement. I remember my Dad (in 1993) said, "You aren't going to go to Devry and get any techie degree, you are going to a a 'real' unviersity" 15 years later, I have two Bachelors, One Masters and working on my PhD, but also have the student loan debt to prove it!

I always say, a Bachelors is worth what a high school diploma was 20 years ago, a Masters is worth a Bachelors, and a PhD is worth a Masters...well at least I hope. Ironically, my PhD is in eleanring, as I think that learning is important, B&M schools may or may not be important in the future.

Jubal Harshaw

September 21, 2009 12:03 PM

I remember attending a lecture in 1980 in San Francisco given by Milton Friedman to alums & friends of the University of Chicago in the Bay Area.

He started by saying, "All of you already know how what I think, so I'll just open this up to questions & answers." There were about 500 in the audience.

One questioner asked "What do you think about the current state of higher education in Economics?"

Friedman replied "I don't know much about that. But here's what I do know: As a society we vastly over-invest in post-secondary education by virtue of various subsidies. So, too many people go to college who would not go absent those subsidies. This is not a good thing..."

"...On the other side," Friedman continued, "in the history of mankind, true advances in any given field are driven by a tiny fraction of highly gifted & lucky individuals. And one of the things college does is encourage a lot of indiscriminate breeding in a highly selective gene pool."

"For example," he continued, "I met my wife while I was in college."

Thunderous laughter.

One thing we know is that there is imperfect information available by prospective students. If a student intending to major in a "pre-unemployment" major such as Literature or Sociology were counseled ahead of time so they knew the implications, many would-be lit majors would instead change their direction and seek degrees in something a bit more career related.

I sure which colleges would be honest about this.

econguy

September 22, 2009 02:17 PM

Trends like this could be viewed as rising opportunity (wealth overhang) for entrepreneurs to find a way to competently merge high quality content, adaptive learning techniques, and a mix of technology to replace outdated learning approaches and institutions. Let's see, it only took companies about 80 years to figure out a need to apply resealable tops on oil quarts, we could be here awhile. And only in 2009 did medical researchers figure out the use of the appendix and spleen in the human body. Maybe some other countries will figure this out and we can visit our kids in those countries while taking our medical trips overseas too.

Gerry

September 22, 2009 02:19 PM

"If a student intending to major in a 'pre-unemployment' major such a Literature or Sociology were counseled ahead of time so they knew the implications, many would-be lit majors would instead change their direction and seek degrees in something a bit more career related."

I doubt it, and I know that relying on full-time college faculty and administration to do that counseling is futile. That puts the responsibility squarely on the shoulders of these kids' parents, who for some reason, don't want to do it.

I'm a former college teacher of oceanography who counseled many students who planned to be marine biologists and study dolphins. There are an insignificant number of jobs in that field, even with a Ph.D. I explained this reality to my students. I told them go look in trade publications to see how many jobs they could find that required their planned course of study. I asked them how many people they knew who worked as marine biologists. I explained how many tens of thousands of would-be marine biologists graduated from college programs every year. The reaction I got was utter, complete, resistance. Only one student ever took my advice, and he was a 50-something former contractor who had his business to go back to.

My students would not listen to me because their parents told them their entire lives that they could be "anything they wanted to." One student had her eyes on a very specific prize: She was going to be the large mammal veterinarian at a local marine park. I knew the man who did that work and I knew that this young woman wanted a job that didn't even exist. When I asked her what she was going to do if that job wasn't available when she graduated vet-med school (though her grades, choice of college and major had already pretty much precluded admission to such a school) she responded "But it's all I've ever wanted since I was five!" She sounds spoiled, but she wasn't. She was co-operative, hard working and very polite. But a career of one's choice is presented to children in this society as an assumed right, like the vote. They way they think, you have to do something really bad to get it taken away from you. They have no reason to stop and think "What if that job isn't available to me?" I wasn't telling them what their parents, their teachers, and their society was telling them. I must be wrong. There was absolutely no getting through to these students. They would not even do the research.

The colleges and universities should certainly be making an effort to counsel students about the economic viability of majors, but it is not realistic to expect that. It isn't in the interests of the university, and it isn''t in the interests of individual faculty members either. I heard a teacher at a JC tell a student who asked if there were jobs in oceanography, "There are always jobs for the best." She had a really deluxe job with absolute security, excellent benefits including a pension, and very few demands. Although she had gotten that job long in the past, when a few people applied for each position, she had been at the college long enough to see two hundred applications for each job. She knew that her prospects outside the college were non-existent, but that as long as there was an oceanography department, she was sitting pretty. Do you think she is going to say "There aren't any jobs in oceanography!" and undermine her own sinecure? Do you expect her to say "What would I know? I've never looked for a job in that field, and I don't know anyone who works in it?" Even at the universities, the full-time faculty look at the Ph.D.s laboring as part-timers and know that there's nothing out there if this job goes away. Better not say anything.

Majors with no job prospects are also very lucrative for the university.The English major is cheap to teach (most classes could be taught by highly qualified but otherwise unemployed part-time faculty!) and cheap to supply. An English major doesn't need a lab with $40,000 worth of equipment, half of which will be broken by the end of the semester. An engineering major does.

So if you're concerned about your children's economic opportunities, I'd start encouraging them in hobbies and activities that are related to jobs with decent prospects and quit telling them that they can be whatever they want to be - because clearly, they cannot.

Tester

October 3, 2009 11:38 AM

Quality of college education is too low here in US for what students pay.Get a bargain degree for 1/20th of the cost from India or China.

GTWMA

October 16, 2009 06:03 PM

This is the most asinine chart in the history of charts. First, it focuses on the smallest part of college education, private school tuition. Second, it ignores the almost 4 fold increase (in real terms) in student aid in grants, loans, scholarships, and other sources over the same time period. Third, it ignores the huge growth in non-earnings compensation (mostly pension and health care benefits) during this period. It's a completely and totally misleading representation of both the costs and benefits of a degree.

Mike Mandel

October 19, 2009 09:30 AM

GTWMA

Just one note on your comment. The cost of public higher education actually rose faster than the cost of private higher education.

GTWMA

October 20, 2009 04:10 PM

Mike, that avoids the central issues. First, tuition does not measure the cost of higher education. The relevant measure is net price, which factors in student aid. What has happened over the past several decades is that the list price has risen rapidly, enabling institutions to use financial aid to price discriminate. Second, your earnings measure ignores several relevant factors. It focuses only on earnings of full-time workers. So, if college reduces your probability of unemployment and part-time employment, and increases your probability of full-time employment, that's ignored in your chart. Further, if college increases your non-wage income--gives you better access to health insurance, pension, etc.--and thus you get more of your total compensation in benefits, your chart ignores that, too.

So, while the real list price of a public college education has risen about 70 percent, the real net price, after accounting for the growth in student aid, has risen just 26%.

To my knowledge, there's no simple way to make a comparison on total compensation for college graduates versus others, rather than earnings, but we might get a view based on the BLS Employer Cost of Total Compensation data. Although the change in industry classifications limits the comparison to 2004, consider that data for management occupations versus service occupations. During that period wage and salary growth was similar (16% versus 12%), but the management occupations had their benefits increase 28 percent versus 17 percent for the service occupations. As a result, total compensation increased about 20 percent for managers while just 13 percent for service occupations.

Gotta use the right numbers to get the right answers.

GTWMA

October 20, 2009 04:14 PM

Apologies for multiple posts if that happens....

Mike, that avoids the central issues. First, tuition does not measure the cost of higher education. The relevant measure is net price, which factors in student aid. What has happened over the past several decades is that the list price has risen rapidly, enabling institutions to use financial aid to price discriminate. Second, your earnings measure ignores several relevant factors. It focuses only on earnings of full-time workers. So, if college reduces your probability of unemployment and part-time employment, and increases your probability of full-time employment, that's ignored in your chart. Further, if college increases your non-wage income--gives you better access to health insurance, pension, etc.--and thus you get more of your total compensation in benefits, your chart ignores that, too.

So, while the real list price of a public college education has risen about 70 percent, the real net price, after accounting for the growth in student aid, has risen just 26%.

To my knowledge, there's no simple way to make a comparison on total compensation for college graduates versus others, rather than earnings, but we might get a view based on the BLS Employer Cost of Total Compensation data. Although the change in industry classifications limits the comparison to 2004, consider that data for management occupations versus service occupations. During that period wage and salary growth was similar (16% versus 12%), but the management occupations had their benefits increase 28 percent versus 17 percent for the service occupations. As a result, total compensation increased about 20 percent for managers while just 13 percent for service occupations.

Gotta use the right numbers to get the right answers.

GTWMA

October 20, 2009 04:35 PM

YEESH! Many apologies for the multi-post!

Ajay

October 20, 2009 07:23 PM

GTWMA, you do raise some good points about the validity of this chart, that I had also raised a month ago, but you make some mistakes yourself. Just because college education is often subsidized, I see no reason to subtract the subsidized cost out of the chart, the list price is the real price after all. Also, while college may increase your likelihood of getting salary and benefits, you ignore whether that is merely correlation not causation. I argue that it's the former, as what's actually taught is mostly useless, it's just a filter for smart, ambitious kids to show that they'll do whatever it takes to get ahead, even though the education itself is mostly useless, ie signaling. This is why online learning will kill off most current educational institutions in the coming years.

GTWMA

October 24, 2009 10:54 AM

No, Ajay, the list price is not the real price. If I set the price at $50,000, then say half of the students who have the means pay that and and half get to go for free, the relevant price varies by student. The returns to education differ by student, but to get a sense of the overall returns you have to look at something that more closely approximates the net price, which is my main point. This perspective might vary depending on whether we are looking at it from the point of view of the student or from the point of view of society.

Even if I accept your reasoning that education is all signal and no substance, the problem with online education is that it is a signal, too. And, at this point, it's certainly not a signal that a student has the gumption to get ahead. Often it's a better signal of the shortcuts someone is willing to take. That's not a signal employers value much, something I've heard from plenty of employers.

I would add a further point that comparing things over the short term based on percentages can be very misleading. On a percentage basis from the 1990s to 2008, even net price has risen faster than early salaries. But, in dollar terms, the net price rose $600 and starting salaries rose $4,000.

Finally, focusing on the early returns may simply ignore the extent to which part of the returns to the BA/BS is the potential to go on to further education.

Ajay

October 24, 2009 02:56 PM

GTWMA, most schools let in very few students for free, only the ivy leagues with major endowments can even contemplate doing more and I don't believe any of them comes close to 50%. Regardless of that minor adjustment to the actual tuition revenues paid in, your claim was that the money paid by the govt or scholarships shouldn't count towards the cost also, which is silly. Nice try asserting a gain to society but it's actually a public loss that all these kids are running around wasting tax dollars on mere signaling. You seem to assume that online education would be mostly signaling also, but we're entering a rabidly competitive time, when competition abounds both in the job market and will start mattering in education with online learning, this competition will diminish signaling and enhance real learning. Also, if the college signal is so important, why has male enrollment in bachelor's programs dropped from 57% to 42% over the last 40 years, even more so for master's degrees? (http://mjperry.blogspot.com/2008/11/girl-power-females-dominate-higher.html) You're right that employers deserve a significan portion of the blame for the current environment, for enabling dimwit educators to get away with such useless "education," but many employers also see the lack of value of current college education. They hunger for something better and online learning has a chance to provide that. Yes, there are employers that employ the silly signaling logic that you lay out, but if they follow that logic they will not survive in the coming competitive climate. Your net price monetary estimate is meaningless if you're taking subsidized loans and scholarships out of the equation. As for your final throwaway claim that the value of a BS is in being able to attend grad school, wow, the illogic is endless: go to college for useless signaling so that you can then go to grad school for even more useless signaling. It's going to be fairly easy for online learning to kill off such stupidity.

GTWMA

October 25, 2009 09:01 AM

Ajay--
The simplistic example I gave drew your attention away from the key points. I'll try to be clearer.

A first question to ask in looking at the costs and benefits of a college education, is which perspective are we using? If we are looking at it from the perspective of the potential student, then clearly the list price that Michael uses is way off base. The net price isn't perfect--because you'd want to look the PV of the financial aid that was provided in loans. And, a really valuable analysis would refelct the fact that students pay very different prices and show how that varies over different types of students. Still, the net price is closer to reality than the list price.

If the societal perspective is adopted, the list price is still not the right price. Certainly, now loans and public grants need to be included in the real price. But, privately donated scholarships that support education need to be netted out. They represent a private voluntary market decision to place value on another's education.

Why has the percentage of male enrollment dropped? Because the number of women going to college has increased drammatically! The number and percentage of men going to college is up (from 30 to 35 percent of men age 18 to 24 over the past 2 decades). The percentage and number of women in that age group going to college has also increased (from about 30 percent to more than 42 percent.) HAVE TO KNOW WHAT NUMBERS TO LOOK AT. The "decline" in men going to college is not a decline at all. It's simply not risen as fast as the increase in female college students. That's true for both undergrad and graduate education.

The grad school line is not silly. The value of the undergrad degree is not simply what it allows you to earn when you are 25-34. In fact, Mike's chart is misleading because it REMOVES the earnings from everyone in that age group who went on to get a graduate degree, which is one part of the opportunity opened by the undergrad degree.

Signaling is a textbook in itself. I'm sure we'll never agree. I hold that education is both signal and substance, and in both cases, traditional colleges still crush the online education. That's what I hear from employers all over. I can't speak for all fields, but in my department every year 95-98 percent of employers who take our students for a summer internship say they would hire that student, and the measures that we use on entrance, during internship, and at graduation show substantial increases in student knowledge, skills, and professionalism.

In short, Ajay, you're looking at the wrong numbers and listening to the wrong people. I have my fair share of criticism for traditional education, and there is definitely potential for online programs to improve and offer a better challenge. I'd welcome that--having taught courses both in person and online, I love them both. But, the fundamental point that Mike's chart is exceedingly misleading because of the numerous errors it makes in assessing both the costs and the returns to undergraduate education holds.

Ajay

October 25, 2009 01:56 PM

GTWMA, I don't think it was that a simplistic example drew my attention away, it was that you gave a specific example and I pointed out why it was irrelevant, so now you return to the well-worn and mindless public goods argument. I don't see much of an argument that net price is more important than list price, considering financial aid should be counted anyway and discounts are likely a minor factor, and anyway Mike's charting the growth in list price over time: that growth trend is what's at issue and is likely to be the same for whatever underlying price you posit. I see no reason why private scholarships would need to be netted out of a public goods calculation, it's fascinating how you keep coming up with these silly ways to subtract from the price of education.

You avoid the real issue behind the gender enrollment numbers: if men and women are relatively equal, why do women now dominate in college at a 3:2 ratio? There are only two possible explanations: you believe that women are somehow smarter or more disciplined or are just let in more, which it'd be funny to hear you argue. Or my alternate hypothesis is true, that I've commented about on this blog before, that men represent the leading edge of societal trends, with women generally following behind in more conservative, well-worn paths, and the fact that men are proportionately avoiding college points to a coming collapse of college education altogether. I hold that what will replace it is online learning, structured in a much more free-form and useful way than the currently rigid and wasteful college curricula. As for knowing what numbers to look at, I AM looking at the right numbers, your pointing out that the number of men has grown slightly, understandable given so much public subsidy and emphasis on college education, is a mere distraction, considering the number of women has grown much more.

I suppose you can argue that an undergrad degree is part of the value of a grad degree but I don't think Mike claims to capture all the value of an undergrad degree. Rather, he's attempting to figure out whether those with only a bachelor's degree are getting much value and finds that thay don't. Of course education is both signal and substance, the problem is that it's become mostly signal. Traditional colleges may still do better than online education today but you're fooling yourself if you think they can continue to hold that edge for long, as online learning has significant learning and cost advantages that will soon crush the traditional colleges. Your department might be better than most- I doubt it but I don't know your department- the claim that matters is that online learning will be much better and cheaper than that. I'm looking at the right numbers, as your numbers are mere distractionary tactics, and I'm not merely listening to someone: my conclusions are largely based on my own experience going through the shitty college system. If anything, Mike's chart could be bettered by including benefits in his calculation of earnings, as I've said previously, which would nominally support your point by raising the earnings numbers, but not really cuz a college education is mostly signaling. :)

GTWMA

October 27, 2009 01:43 PM

Once again, Ajay, you look at an irrelevant ratio, rather than the critical raw numbers. Undergraduate enrollment has increased for both men and women. The changing proportion of male to female enrollments happened because female enrollments grew very rapidly. This is supposed to be a sign of bad things for colleges? And the same is true for graduate enrollments. Growing enrollments are good things.

http://nces.ed.gov/fastFacts/display.asp?id=98

Short run growth trends are bad guides for policy, particularly when they don't reflect important elements of the data and when the data elements you are comparing start from very different bases. It's not too surprising that if you look at the growth rate of the wrong data over a short time period, you might draw the wrong conclusions.

The problem with respect to graduate degrees is two-fold. First, it is just a measurement issue. Some of the best graduates of undergraduate degree programs go on to graduate education soon after completion--almost all doctors, most lawyers, and many PhD students, for example. Mike's chart completely ignores their earnings, because it focuses on only those who stopped at an undergraduate degree. It's a fundamentally flawed comparison because of biased sample selection. In fact, the bias has been growing during the time period Mike looks at, because graduate enrollments are increasing faster than undergraduate enrollments.

Second, the value of that education is not well assessed solely by looking at a short-run trend, since that education opens up opportunities through a lifetime.

Online education has cost advantages, but the learning advantages are mixed. I've taught--and learned--in both, and find there are some things best done online and some things best done F2F. More problematic for online learning is the need to confront the quality and integrity problems. That will take a long time. It's not surprising that good studies that use blinded resumes still find that 80% plus (95% plus in high growth, technical fields) of employers prefer traditional education over online.

I'm not likely to be convinced when you cite as your main basis for your conclusions, a study that has an N of 1. Your experience is one datum among millions. It's dangerous to generalize from it.

I have no doubt that online education will continue to grow because it is a low cost and convenient option for many. Traditional universities are even going to be part of that. In fact at my Research I university, and many others, the fastest growing component of our enrollments is online. I'm an economist like Mike, so my response to competition, is "bring it on."

Ajay

October 28, 2009 01:57 AM

GWTMA, funny how you keep blithely insisting that the ratio of men to women is irrelevant without ever giving a single reason why. What is irrelevant are the raw numbers, who cares if the amount of men grew a little bit? What matters is why they've proportionately dropped so much on college campuses, one can argue that past discrimination kept women out but why has it now swung the other way? Hilarious how you studiously avoid this main issue that I brought up. Then, you raise even more irrelevant objections, did you even look at the data? This isn't some short-term trend, those charts go back decades. Obviously they started at different bases at one point, but the question is why they didn't equalize. Funny how you say important elements aren't reflected or are the wrong data yet can never give an actual example of that. As for graduate degrees, you completely ignore what I said: Mike wasn't looking to capture the full value of a bachelor's degree, he was looking to figure out if those with only bachelor's degrees were getting much value and clearly they aren't. You reframe the question along your own lines because you can't come up with a justification for those who only get bachelors' degrees.

As for online learning, whatever limited face-to-face interaction that's necessary can be done through video conferencing. As for quality and integrity, those are fairly easy to setup and are not the real problem. The real problem is the one you state, that most employers stupidly and blindly require college degrees, even though they then ignore what that education actually consisted of. That honeymoon period for dimwit college educators is over, competition both from online learning and new companies that are much more willing to hire online learners is about to begin. Yes, my experience is limited to where I went but so is yours. However, careful personal observation is often a far better guide than any study, particularly when these studies are often conducted by academics looking to justify their jobs more than anything else. As for traditional universities embracing online learning, don't make me laugh, that's like saying Microsoft's going to build the next great search engine. I'm glad you embrace competition but trust me, your university will not survive it.

Beverly

November 6, 2009 05:04 PM

Brenda I agree with your friend. I have a Masters degree in Public Administration and I am making $14.82. I needed a job so I took it. My suggestion to you is to have two or three resumes. Depending on the position you are applying for, you use the resume that best fit the position. At my job, they require a Bachelors degree and that's what they got.
However, they knew now that I have a Masters degree because any documents signed,I have to put my credentials. Sadly, of the fifteen employees including the coordinator and the two assistant training coordinators who work my shift I am the only one with a Masters degree.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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