Yet More on Young College Grads

Posted by: Michael Mandel on September 14

After all the good comments, I figured I’d pour a few more facts onto the fire.

First, here’s a comparison of real earnings changes by age and sex, for college grads. Clearly, the young male college grads have done the worst by far over this business cycle. Older female college grads have actually gained ground (all data comes from the Census Bureau, and includes last week’s income release).

eu_table01.jpg

Next, here is a comparison of real earnings changes for young people with different education levels.

eu_table02.jpg

The earnings drop was bigger for the young college grads.

Please note: These numbers are not an argument against going to college. I believe that it is more important than ever to get a college education. My kids are going to college right now (freshman and sophomore) and I would be peeved as hell at them if they didn’t get their degrees.

However, these figures are a sign that something has gone very wrong here. Very wrong.


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Reader Comments

jenee

September 14, 2009 09:35 AM

why is it hard to go to college if u poor

Marc

September 14, 2009 09:56 AM

Here's four shocking facts that I discuss in my 2008 book, No Sucker Left Behind:

1. Half of college borrowers leave with an unmanageable level of debt that takes up more than 10% of their salaries.

2. Due to college costs, college degrees do not start paying off until age 33, on average. Even at age 40, the degree has only paid off by $100,000. Much less than the advertised value.

3. A college degree is worth $470,000, not $1 million. Researchers forget to subtract income taxes as well as the cost of the degree.

4. Most people need college degrees to get the best jobs -- but higher college costs do not usually lead to higher financial benefits. Therefore, students can benefit by keeping their costs as low as possible.

Easy

September 14, 2009 10:01 AM

Thanks for the data, but as to the WHY part of it, I don't see the big mystery here. It's caused by the widespread and growing offshoring of jobs - and inshoring too from both legal (H1 visas) and illegal foreign nationals - that's primarily causing the falling salaries. Note that executives do not have to compete against foreign nationals: hence their salaries hold or even increase (even if the company does terribly!). This freefall that you bring to light will continue until the U.S. puts in place some worker protections against globalization.

ejinmi

September 14, 2009 10:09 AM

Duh... this is not news to any adult with modest powers of observation for the past 15-20 years. We have witnessed families teased into believing two careers buy lots of stuff which is equivalent to happiness. Absent abject slavery, the beginner's wage could not be held down forever. So here we are: It is not possible for a single wage-earner to support a family. Every adult must:
1)Contribute to the enterprise with unfettered committment
2)Subsist on fast-food (more time to work!)
3)Outsource child-rearing (if they can be bothered to have any)
4)Outsource your domestic needs

All facets of human existence are to be assigned a price and delivered by experts. (A drink of clean water, anyone$-?) Welcome to the 18th century!

jdrosos

September 14, 2009 11:34 AM

Despites current trends, the expected payoff for a college education in the US is still higher than just about anywhere else in the world. Perhaps this education premium is "reverting to the mean" signalling that there is a modest over-supply of college grads in the marketplace.

Easy

September 14, 2009 11:58 AM

Case in point. From today's article "Fine On Media: Handy Primer On The BusinessWeek Sale Process" we read the following:
"The financial data shows steep fall-off in BusinessWeek’s performance. Although the black book — the packet of financial data that was provided to a broader array of potentially interested folk in June — claims BusinessWeek lost around $20 million in 2008 and is projected to lose slightly less in 2009...". The big question is: once BusinessWeek is sold, WILL THE EXECUTIVES GET LAID OFF OR RECEIVE REDUCED SALARIES, or will all the suffering be on the part of "the little people" from your charts?

ns

September 14, 2009 02:38 PM

Michael, the data may not be signalling that anything is wrong depending on your horizon. If you are only focused on the US market in isolation from the real market (i.e. the universe that provides an investment beta of 1) then there is a problem in the short term for the US based graduates while the market adjusts wages blind of borders. In the long term, while we are all dead anyway our great grand children may see a total market (beta = 1) rise provided that productivity and the engines of growth are allowed to proceed.
If you are seeing higher than market wages, then in this environment you will have to work in the emerging areas (beta > 1).
More can be said on this but I think as an economist you can extrapolate appropriately.
{On a side note, I myself find those expat posts with higher than market returns quite rewarding, but that's another issue....}

Brandon W

September 14, 2009 03:30 PM

Screw college. Let's just make all Americans professional investors. Instead of $100,000 in student loans, let's just loan every U.S. adult $100,000 at 3% interest to invest in Asia and Latin America. May as well do this while our currency is still the world's reserve currency. Asia and LatAm exploit new markets, grow their own markets, sell more products, make profits and we - as investors - get to keep all the profits to live on and buy luxury goods with. Sounds like a win-win to me.

Streete

September 14, 2009 05:28 PM

While I understand the hardships that many graduates face entering the workforce (re: owing thousands in student loans), at some point they must understand the economics of a globalized marketplace. For example, rather than attend college straight out of high school, I elected to join the military, who subsequently paid for my undergradudate and graduate degrees. Was the $15,000 a year salary during my four year enlistment fair? Of course not. But what I recouped on the backend has more than made up for it.

kim

September 14, 2009 06:24 PM

"These numbers are not an argument against going to college."

Uh . . . it sure looks like it to me. Most higher education is an absolute rip-off.

DF

September 14, 2009 08:02 PM

Streete --

I understand the "globalized marketplace" argument for lower salaries, but then why is the cost of college increasing astronomically? It's not the teachers -- adjunct faculty, TAs, and liberal arts Ph.D.s literally work for ramen.

Ed

September 14, 2009 08:02 PM

Globalization. Economists theories that globalization would lift all boats have failed. Spectacularly. Fewer private sector jobs than ten years go (and in a few months, fewer total jobs including government). Lower pay.

As long as we compete against a comparative advantage of low wages (aka poverty) we will keep sinking until we meet them rising up. In 20 years.

Please go back and revise your theories and realize that Riccardo's ideas were primarily about geographic comparative advantages - and that most countries did not embrace globalization until they themselves had established hegemony in one or more industries.

In the real world, the benefits have not trickled down to the real America. And economists remain stuck on stupid insisting that their models are correct and the real world is wrong.

Whitney

September 14, 2009 09:09 PM

I am a college business student, who will be obtaining my B.S. in Marketing next Spring. The ONLY reason I am getting my B.S. and possible my Masters is because it "looks good" to society (I'm materialistic like that)
College fits those who are going to be work horses in society. My generation has been brain washed to go to school so that you can make money. 'They' see no other path but that one.
I am a entrepreneur though. School is not always fit for my breed. Society needs to stop brain washing kids into thinking that college is the ONLY way you can become successful. There is no ONE SIZE FITS ALL.
It makes me sick to see my sister in $160,000 in debt plus interest. She went to an Ivy League, and yes she works for Google and all, but my boyfriend never went to a day in college and by the time he was 21, he had made his first million. My sister isn't even out of the whole. All she has to show for working at Google is an endless amount of debt piling up.
Here is my theory on college: As a consumer & materialistic society we see a diploma as another item to buy or own. Like cars, some people will take out a loan or lease to get a flashy car so that people ASSUME they are successful. Meanwhile, the person in the $7,000 Honda possibly is more successful an rich then that person who is a fraud. I compare schools like I do designers. An Ivy League school is like a Gucci handbag and a state school is like an off-brand bag. But it is not what kind of bag you are carrying, it is about what your bag consists of.
So if you are a parent out there, please stop telling your kids that college is the ONLY way they can succeed. You just may be hurting them more than you are helping them!

Dean Wendell

September 14, 2009 09:14 PM

Interesting studies. Now what would be more interesting is to cross correlate your data with data on the pay of executives in the top 4% of the US job market. I would place money on the following:

As the generation born in the 50s moved into upper management as a sociological group, they began to grab a much greater percentage of the total wages than previous generations. This in turn left less real income to distribute to a larger population of the subsequent generations. Consolidation of wealth with the "Boomer" generation creates a negative income effect with later groups. This "boomer bubble" shows up again and again in all sorts of areas. The echo of their passing through America will have lasting effects upon this country for generations.

Kartik

September 14, 2009 11:45 PM

The fundamental flaw in Michael's conclusion is that he thinks there is a problem in the economy regarding college grad job prospects.

There isn't. There is a problem with the colleges.

Affirmative action (whether race or gender based) has caused a lot of unqualified people to be granted degrees, and the job market correctly has reduced the value of the degree as a result. If colleges decide that women should have preference over men, and blacks over whites, then the private sector has no reason to pay people more than what they actually produce.

So the pool of grads being turned out is worsening, and employers are merely reacting to that. I see nothing wrong with that.

It is not the fault of 'globalization' either. If US colleges are so deluded by left-wing social engineering experiments to boost unqualified people under 'affirmative action', only to find that they cannot compete with Chinese and Indian grads who had no such artificial lowering of standards, then the marketplace is correcting the laughable experiment of 'affirmative action'.

And deservedly so.

engineering grad

September 15, 2009 01:13 AM

Please continue shedding light on the plight of graduates.

I would like to see more exposed about engineering grads especially. There are virtually no entry level engineering jobs out there. Yet people keep claiming we need more kids to go into science.

The government counts only ~1.5mil engineering jobs total in the US, yet we graduate 80k new engineering bachelors each year (plus 40k masters and 10k PhDs).

For comparison, we graduate only ~17k new doctors per year for ~1mil total doctor jobs.

But it's even worse than it looks. Demand for doctors will increase, but not for engineers. Technological advances have been amazing, but they have not added jobs, they've only increased efficiency. With tools like Autodesk/SolidWorks programs, one engineer can produce what used to take a team. And since the Boomers haven't saved enough for retirement, they're not about to step down and open spots yet.

An engineering degree is very useful and I know many of us would do it over again because we enjoyed the challenging education. However, students should just be aware that it isn't a ticket to a job.

And please think twice about majoring in biomedical engineering unless you're going to graduate at the top of your class at a top program. The world only needs so many stent designs...

Sources:
http://engtrends.com/IEE/0506C.php
http://www.bls.gov/oco/ocos027.htm
http://www.aamc.org/newsroom/pressrel/2006/060619.htm

Kartik The Idiot

September 15, 2009 06:23 AM

Kartik,

you must not be from USA, or not educated, or both. affirmative action does not lower standards, it increases college education for all - cultural education is important too. unless you live in a bubble you must globalize yourself you xenophobe. protectionism never works. it just keeps you behind the pack. affirmative action isnt necessary anymore cuz colleges already realize they need to be more diverse to succeed. just look at the top universities in the world and how they heavily recruit diverse students. stanford especially.

if we follow your logic then stanford would have never had Russian immigrant Sergey in the USA. yes, Sergey, the co-founder of Google.

CompEng

September 15, 2009 08:27 AM


Surely the effect of affirmative action is dominant in determining education quality??!?!

One could have fingered grade inflation, the excess amount of money in this system combined with the "necessity of college" reducing quality differentiation, the high information cost of rating different colleges, or the monetary and cultural incentives to make a certain number of students pass.

But affirmative action? Do the other alternatives lack the same cutting edge?
Of course, additional constraints like affirmative action, if they affect decisions, necessarily weaken admittance criteria. But is that really tanking schools on a national level? That's difficult to believe.

Kartik the Globalization Apologist

September 15, 2009 08:32 AM

Cannot know for sure of course but I would bet that Kartik is not a U.S. citizen. His line of reasoning sounds familiar as part of the mythology of the H-1B community to justify their being in the U.S. in such large numbers. All one has to do is look at the second of Michael's charts "change in real annual earnings, 2000-2008 full-time workers aged 25-34". Wages for "high school only" have fallen almost as far as they have for "bachelors' only". So much for the "it's all caused by colleges graduating those dumb women and blacks" idea.

CompEng

September 15, 2009 09:43 AM


Surely the effect of affirmative action is dominant in determining education quality??!?!

One could have fingered grade inflation, the excess amount of money in this system combined with the "necessity of college" reducing quality differentiation, the high information cost of rating different colleges, or the monetary and cultural incentives to make a certain number of students pass.

But affirmative action? Do the other alternatives lack the same cutting edge?
Of course, additional constraints like affirmative action, if they affect decisions, necessarily weaken admittance criteria. But is that really tanking schools on a national level? That's difficult to believe.

Brandon W

September 15, 2009 11:41 AM

I have to agree with Ed:
"...economists remain stuck on stupid insisting that their models are correct and the real world is wrong."

In a desperate attempt at validation, over the course of the past 100 years Economics has tried to turn itself into a physical science based on math. It's not. It's a social science; a branch of sociology, in my opinion.

Not that I don't enjoy economics (as a branch of sociological thought), and no intent to disrespect Mr. Mandel and his blog, but there's a reason the math models ultimately don't work in face of human behaviour. Numbers can be descriptive, but they can not be prescriptive.

Lord

September 15, 2009 12:44 PM

Mark Sanchez is doing well with a high school education. You just need talent.

VOFEE

September 15, 2009 11:02 PM

THANKS

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

 

About

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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