Non-Pecuniary Benefits to Schooling

Posted by: Michael Mandel on October 05

I’ve written a series of blog posts arguing that real earnings of young college grads have been falling since 2000, not just in inflation-adjusted dollars, but also relative to less educated peers. (for example, see “Earnings of Young College Grads vs College Costs” and “Yet More on Young College Grads”).

Now let me give the positive case in favor of more schooling. There’s a new paper which argues that the “nonpecuniary” benefits of schooling are at least as large as the monetary benefits, and perhaps larger. Phillip Oreopoulos of the University of Toronto and Kjell Salvanes of the Norwegian School of Economics and Business argue that

Experiences and skills acquired in school reverberate throughout life, not just through higher earnings. Schooling also affects the degree one enjoys work and the likelihood of being unemployed. It leads individuals to make better decisions about health, marriage, and parenting. It also improves patience, making individuals more goal-oriented and less likely to engage in risky behavior. Schooling improves trust and social interaction, and may offer substantial consumption value to some students. We discuss various mechanisms to explain how these relationships may occur independent of wealth effects, and present evidence that non-pecuniary returns to schooling are at least as large as pecuniary ones

Oreopoulos and Salvanes go on to make a back-of-the-envelope calculation of the size of the nonpecuniary effects. They suggest that

about three quarters of the schooling effect on selfreported life satisfaction is due to non‐pecuniary factors. A 12 percent increase in annual earnings would then imply that the total non‐pecuniary gains are equivalently worth another 16 percent increase in earnings (for a total of 28 percent).

The implication: College may still be a worthwhile investment, despite the erosion in the monetary returns from college since 2000.

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/

Reader Comments

Lord

October 6, 2009 12:54 AM

The question is whether this the result of schooling or schooling is the result of these characteristics.

We Rip Crowds

October 6, 2009 01:22 AM

Well take into account the non-pecuniary costs of living on a college campus:

1. mild to huge weight gain
2. excessive drinking (which has been linked to heart disease in the future)
3. taking drugs (excessive marijuana intake, shrooms, acid, ecstasy...)
4. high levels of stress due to the work-load, and additional employment to have pocket-money.

a pecuniary cost:
- taking out many loans only to get a low-paying job and being in a lot of debt.

Ajay

October 6, 2009 02:28 AM

Lord hit it on the head, these dimwit "researchers" clearly decided on the result and then set about creating stats to show it. It's much more likely that the more goal-oriented and knowledgeable kids attend college because they know that idiot employers use it as a gating agent for the higher-paying jobs, ie correlation not causation. We'll get a chance to find out soon enough, when online learning really starts to take off and those ambitious kids stop attending college. You already see this happening with the huge disparity of males vs females on campus (http://mjperry.blogspot.com/2009/02/degree-gap-will-continue-to-widen.html). Males are avoiding college while females are attending much more, which makes sense as males lead career trends while females follow behind in the more conservative, well-worn paths, generally speaking. The giant disparity in those graphs implies that we're on the verge of most people avoiding college altogether, following the leading edge of males in avoiding that college trap.

sam

October 6, 2009 03:29 PM

We used to say: Get a good education to get a good job. Where's the ROI if there's no job? Many people who got good educations in IT and manufacturing have seen their good jobs sent to India and China. Thanks a lot. The authors of this paper are clearly terrified that their jobs will disappear as fewer people can afford "higher education." Somebody please wake up the idiots. We are stuck in a negative feedback loop.

norman ravitch

October 6, 2009 03:33 PM

Of course the non-monetary advantages of a higher education exist -- but only for those, a relatively smaller number than often believed. But once the pitch for college was made monetary it will be very difficult to sell any other reason for a higher education. Whether they have benefited in dollar terms or not I would venture to say that a large percentage of college graduates got nothing else out of their educations. Philosophy, history, literature, the arts, the sciences -- these are wasted on the children of the lumpenbourgeoisie, which is what our middle classes are.

norman ravitch

October 6, 2009 03:41 PM

The sons and daughters of those families who send them to college, what I call the lumpenbourgeoisie, are not prepared to benefit from the time and money spent. They seek only job advancement, football, social life, and finally a spouse. What a waste of time and money. Put them to work right out of high school or send them to vocational training. Philosophy, mathematics, science, history, literature, and the arts would do them little good, it is the casting of pearls before you know what.

Squeezebox

October 6, 2009 06:05 PM

College is being used as a weed-out device. A high school educated person can be just as good of a bookkeeper as a college educated one, but the Department of Defense doesn't hire accounting clerks with less than a bachelor's degree anymore. The credential looks good to Congress. Then Congress wonders why it has to pay so much wages for Federal Employees.

CompEng

October 6, 2009 06:12 PM

Exposure to knowledge that one isn't seeking and perspectives one didn't know even existed can certainly be an impetus for people to make big changes in their capability and perspectives. It's difficult to predict who will be so affected and who will not, Norman's social elitist comments notwithstanding. People who are affected find tend to find that beautiful and think everyone should have that experience. People who aren't find it a waste of time and wish they hadn't had it forced on them.

But it is true that people who won't be leaders and politicians can probably afford not to have the Renaissance education experience if they're not willing to pay for it. I would say that even extends back into High School and possibly before (students take a lot of "non-core" classes). I'm sure that would be a controversial topic with educators.

Keith G

October 6, 2009 07:36 PM

Here's the better plan. Go to grad school and get both the pecuniary and non-pecuniary benefits. Thirty years ago Bachlor degrees were all you needed. Now, master degrees are the new bachlor degrees - you need one to get in the door. Keep up people, the world is moving fast.

Scott

October 7, 2009 08:58 AM

I have a Master's degree I earned in 2006 and it hasn't been worth crap. In my last job, before being laid off in June, only a high school diploma was required, but about 80% of the department's employees had Master's degrees. Consider that.

DJ

October 7, 2009 11:59 AM

Why not just lie about college on one's resume like most people do. Wow, now suddenly I can have a master's degree and get a better job. If business inflates the qualifications needed for a job then don't be too shocked when everyone inflates their resumes.

CompEng

October 7, 2009 01:46 PM

DJ,

That explains a lot about the people I've interviewed that can't answer simple questions.

Keith G.

October 7, 2009 11:01 PM

If you look at the data from the BLS (http://www.bls.gov/cps/earnings.htm#demographics) it shows graduate degreed workers have seen real wage increases for the past ten years. I'm sure there are many who are unemployed or who have not seen real wage increases but the vast majority of folks with grad degrees are seeing higher real wages and low unemployment. Go to school, work smart, work hard, differentiate yourself positively - chances are things will turn out much better for you in the long run.

Scott

October 8, 2009 08:41 AM

Yeah, a Master's degree might just let you have a bullsh*t glorified secretary's job that anyone with a HS diploma could do, and ought to be replaced with a computer..... Which provides a much higher income than no job at all.

lark

October 8, 2009 12:33 PM

The problem is that you get these goodies by going into big time debt. It's not just the lousy job opportunities after college, it's the debt.

Mo

October 14, 2009 12:18 PM

To Lord & Ajay - you obviously are not economists. The issue you bring up is something labor economists have been dealing with for 3+ decades. These authors are well aware of the issue you raise. If you had read the paper you would see how they deal with this. Once you consider what they do you can critique whether it handles the main issues. The "correlation not causation" cry, in this case, is ignorance.

Ajay

October 14, 2009 03:11 PM

Mo, Yes, I'm not an economist, I'm an engineer, someone who understands that regressions and other mathematical techniques that the mathematically illiterate economists use are highly flawed and cannot replace careful evidence-gathering. Dealing with the correlation issue for decades doesn't mean they've figured it out. I would be willing to read what technique they used to show causation, but I can tell from their stupid conclusion that it will be wrong and I'm not about to pay $5 to look at such an idiotic paper. If you think their technique holds up, feel free to describe it, instead of making unbacked accusations yourself.

Blake Riley

October 14, 2009 10:04 PM

I'm a big fan of signaling explanations for education, but the authors take care to test whether these benefits are only correlates of school:

"It is very difficult to disentangle the extent to which returns to schooling are driven more by signaling or skill development mechanisms because both theories generate very similar empirical predictions. Our view of the literature is that there is evidence of both." (p. 22)

The authors use sibling/twin comparisons, cost differences without benefit differences, and changes in compulsory schooling laws as instruments to determine if there is a causal influence. I'm not entirely convinced, but don't jump to conclusions about their conclusions.

Bart Johnson

October 14, 2009 11:04 PM

But Blake, you have to realize that Ajay knows everything, and everybody who isn't him is a clueless mathematically-illiterate moron.

The idea that engineers, people who study concrete, oil-well maintenance or tractor design, are better informed about human action, markets, statistical analysis and the scientific method than economists is beyond farcical. It makes about much sense as his sexist claptrap that men avoiding college because they want trend-breaking, leading-edge careers, and that on-line education will replace college. If he actually thinks that college is nothing more than content-delivery, he's engaging in self-delusion of the highest order. But, then again, bombastic know-it-alls who don't realize how little they know about the issues they pontificate about always did provide the best laughs.

When you see an engineer starting to bloviate on social issues, do yourself a favor: stop listening and walk away. As an engineer, this is the best advice I can give you about so many of the crackpots that inhabit my profession.

Ajay

October 15, 2009 12:14 AM

Blake, your quote certainly doesn't imply that they've been able to disentangle the two and those methods don't strike me as being able to distinguish much. I didn't jump to a conclusion about their conclusion- their conclusion is clearly wrong- I jumped to a conclusion about their methods, which I'm fairly certain will be proven right. ;)

Bart, good to see you realize I know everything, clearly you've been paying attention. ;) I don't know about your fellow civil or structural engineers who study concrete or tractors but us electrical engineers are at the frontier of applying mathematical techniques to the real world. As such, we know far more about the strengths and weaknesses of these techniques than economists, who are mere babes in the woods compared to our long history with such math and stats analysis. If you think economists know much about statistical analysis or the scientific method, clearly YOU're NOT an economist nor know much about them. I see, so it's sexist to note the empirical fact that men are avoiding college? I see that you're certainly familiar with the well-worn tactics of know-nothings such as yourself, throwing around such epithets because you're incapable of raising a credible argument. If you think online education won't replace college, you clearly know nothing about the trends of our time. College is not even content delivery, they could only aspire to such a lofty goal, it's paid babysitting for 4 years. Snide know-nothings such as yourself who always throw around the race/sex card and make broad claims that are never backed up with anything substantive are always fun to bat about. There are certainly many crackpot engineers, most of which I bet are of your political persuasion, but at least they inform themselves enough to make credible statements, you can't even seem to pass that bar.

Chibinium

October 15, 2009 09:22 AM

If college's benefits lie in its non-pecuniary factors instead of monetary, then its value proposition is not better than using that money to travel abroad. While traveling abroad may not increase your salary (unless you wish to be a translator or negotiator), it will surely make you independent, more aware of geopolitics, and sharpen your ability to adapt to changing circumstances; if you have the gumption to learn a new language and deal with people a world apart from you, you'll have the ability to sit down and read a book.

CompEng

October 15, 2009 10:21 AM

Bart,

Re: "When you see an engineer starting to bloviate on social issues, do yourself a favor: stop listening and walk away."

What a *good* engineer learns is how to use an evidence-based approach, how to approach a problem logically, how to abstractly model a system effectively, and how to partition and categorize dominant effects, measurable effects, and noise.
Engineers by no means have a monopoly on those traits, and quite a few are emotionally or socially stunted. But many also have a keen grasp of what they actually attend to, or at the very least insights you'd do better to listen to before you discard.

If you want to take a swipe at Ajay for his arrogance, fine. But if you think engineers have nothing to offer on social issues, I beg to differ.

Bart Johnson

October 15, 2009 10:50 AM

Ajay;

You claim that engineers (specifically, EEs) are more mathematically and statistically literate than economists. While this is perhaps true at the undergrad level, it is not for most actual professional economists.

Read Mas-Colell (if you can), and then try to claim mathematical illiteracy. Read Hamilton or Greene or Baltagi, and then try to claim statistical illiteracy. You won't be able to do so with a straight face.

It's only one person's experience, but I found engineering math to be far easier than the mathematics encountered in my study of economics. I never had any trouble with differentiation, integration, PDEs, Fourier transforms, and the like. The abstract algebra, real analysis, theoretical topology and auction theory I studioed in econ schiool was a lot tougher, for me at least. The numerical modeling of FEM and CFD problems was a snap compared to writing MLE routines to optimize non-linear systems with multiple constrainsts (i.e., most social science questions). The statistics training I recieved as part of my engineering education was at least an order of magnitude less rigorous than that I received in econ training. Engineers only learn applied statistics, they don't bother delving into the fundamental theories of statistics and probability, so they have less understanding of when they're using their standard toolkit in an inappropriate, and possibly dangerous manner.

Short answer: physical science is a lot easier than social science, because in the physical sciences you don't have to account for human behavior.

As to the scientific method, well, when I was teaching in an engineering school I had to explain it to seniors as part of an econ course, because they had never had it explicitly explained to them in any engineering course.

It's painfully obvious that you know nothing about economics, economists, or the methods and tools they employ. But I sense that you don't have a problem speaking about things you know nothing about - you're obviously well-practiced.

Ajay

October 15, 2009 05:43 PM

Bart, actually my claim is more specific, as you'd see if you actually read my previous comments carefully. Not only are us EEs much more math/stats literate but the real issue is that we're much more aware of the limitations of such math when applied to the real world, which is what I kept repeating. The fact that you then cite a mathematical idiot savant like Mas-Colell, who appropriates higher mathematics for economics with no notion of how his conception is basically useless for any real-world application, perfectly demonstrates this. Besides, the claim isn't that there are no math/stats adepts in economics, it's that on the whole the profession is much less adept than us EEs, a claim that it'd be funny to see you counter. I think you know that most people find the engineering math that you mention much harder than the econ math. To the extent you didn't feel the same, it's likely because you're basically comparing undergrad engineering math with graduate-level econ math. If you think that such econ math isn't much easier for an EE grad student, you clearly don't know much about engineering. As for the rigor of an undergrad engineering education, there's no real need to delve into such fundamentals in undergrad and for a profession like engineering that is already on a much firmer theoretical and practical footing than econ.

Physical science is not easier than social science, it is both inherently less complex and more controllable and the physical sciences do a better job of avoiding complexity where possible. Regarding your experience having to explain the scientific method, it's probably assumed by most engineering schools that the scientific method was covered in high school. Your indictment is really of the horrible public education system in this country, though it's not particularly important in that case as engineers intrinsically learn the process of the scientific method in college, with the various theories and labs they encounter, so whether they can intellectualize and verbalize it as a philosophy is somewhat irrelevant. It's clear to me that you're an ignorant blowhard who takes pains to make broad claims without specifics whenever possible, because when you're forced to do so as just now, you're invariably wrong. I admit that I'm not widely read in current economic fashions, but I know enough about mathematics/stats and have seen enough misuse of such by economists to make a pointed critique of their research, something that clearly flies over the head of an econ guy such as yourself.

Tom Evans

October 15, 2009 10:41 PM

I just read a new book called "The Lights in the Tunnel" which makes the point that advancing technology is likely to largely destroy the incentive to pursue a college education in the near future. This will be especially true once artificial intelligence becomes more advanced. Most people think automation mostly impacts low wage jobs, but "The Lights in the Tunnel" suggests that knowledge workers (especially entry level workers with more routine jobs) may actually be more heavily impacted than low wage/unskilled workers. As others have pointed out here, IT workers are an example of this, but it will become more broad-based. This is a serious problem and could result in return to the age when only the children of the rich pursue higher education.

Adrian Bliven

November 1, 2009 04:18 PM

Happy Halloween, Day of the Dead and All Saints Day !

*****QUIZ*****

---For engineers,economist and those who are well traveled and socially cultured--What groups celebrae the above holidays? (take a guess no lookin it up on the internet.)

Next quiz and answers next sunday.

BONUZ QUESTION ---Which American religions are encouraged not to do social activities/cyberstuff etc. on Sundays ? (For those of you who may be reading but can't answer respond on Monday. )

********END OF QUIZ******

Wow ! What an interesting blog. Are you sure this should not be titled debate of the engineers ee vs. civil n others?

MAIN POINT.....
College grads are graduatin and gettin less money cuz...passin the SAT n graduatin does not prepare one for real life.

FACT- Majority of young college grads don't really know what they wanna be when they grow up.

Moreover they do not have the street smart skills/working politics skills to make it in the cut throat job market. College grads are unemployed because ..

Who is flippin our burgers@bergerking ?
Who is baggin our groceries @ walmart?
Who is pumpin our gas @ am/pm ?
Who is changin our tires @ les swab?
Who is stackin our veggies @ safeway?
Who is clearin our tablez @ Dennyz?

Even college grads who get in the door can not survive against their international or seasoned co-workers.

(Neil, I predict many will make judgements about my comments. )

jamesd

March 30, 2010 12:13 PM

Online Courses

Next, knowing why you want to earn your degree online, check out the many online colleges and universities that offer online degree programs (also called life experience degrees). On this site, we have an can help you get started. Compare the online course listings, online degree programs, consumer comments, and other key information. Find the online university that offers online courses or an online degree in the area and at the level you have chosen as best for your needs. And don’t be afraid to use the power of the Internet to learn more about the online schools that are the best fit for you. ……………………..

www.sangambayard-c-m.com

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.

BW Mall - Sponsored Links

Buy a link now!