Monday, April 21, 2008

Returns to elite education

In an earlier post I discussed a survey of honors college students here at U Oregon, which revealed that very few had a good understanding of elite career choices outside of the traditional ones (law, medicine, engineering, etc.). It's interesting that, in the past, elite education did not result in greater average earnings once SAT scores are controlled for (see below). But I doubt that will continue to be the case today: almost half the graduating class at Harvard now head into finance, while the top Oregon students don't know what a hedge fund is.

NYTimes: ...Recent research also suggests that lower-income students benefit more from an elite education than other students do. Two economists, Alan B. Krueger and Stacy Berg Dale, studied the earnings of college graduates and found that for most, the selectivity of their alma maters had little effect on their incomes once other factors, like SAT scores, were taken into account. To use a hypothetical example, a graduate of North Carolina State who scored a 1200 on the SAT makes as much, on average, as a Duke graduate with a 1200. But there was an exception: poor students. Even controlling for test scores, they made more money if they went to elite colleges. They evidently gained something like closer contact with professors, exposure to new kinds of jobs or connections that they couldn’t get elsewhere.

“Low-income children,” says Mr. Krueger, a Princeton professor, “gain the most from going to an elite school.”

I predict that, in the future, the returns to elite education for the middle and even upper middle class will resemble those in the past for poor students. Elite education will provide the exposure to new kinds of jobs or connections that they couldn't get elsewhere. Hint: this means the USA is less and less a true meritocracy.

It's also interesting how powerful the SAT (which correlates quite strongly with IQ, which can be roughly measured in a 12 minute test) is in predicting life outcomes: knowing that a public university grad scored 99th percentile on the SAT (or brief IQ test) tells you his or her expected income is equal to that of a Harvard grad (at least that was true in the past). I wonder why employers (other than the US military) aren't allowed to use IQ to screen employees? ;-) I'm not an attorney, but I believe that when DE Shaw or Google ask a prospective employee to supply their SAT score, they may be in violation of the law.

7 comments:

Anonymous said...

"I wonder why employers (other than the US military) aren't allowed to use IQ to screen employees?"

The answer is Griggs v. Duke Power Company. The US Supreme Court held that using aptitude tests for hiring and promotion had a disparate impact on blacks, and therefore in violation of the 1964 Civil Rights Act. Employers now have the burden of proof to show that a high score is a necessary requirement for the job. Employers now the the University admissions system as their IQ test.

steve said...

I was being a bit coy -- the final link in the post points to the Wikipedia page for Griggs vs Duke Power :-)

Sam Jackson said...

Wow, I knew of the latter data, but was ignorant of first survey and I suppose its conclusions--hadn't realized that these professions and opportunities were unknown to those in those some brackets, since I had assumed that since economic success was equal above lowest income levels, career choices controlled for SAT etc would be similar.

Anonymous said...

That's very interesting that you would say that an elite education would serve as the gateway to a lucrative career, because, based on my recent experience, I would say the exact opposite.

To be honest, I'm not too sure about finance - it may be that you can't get these jobs unless you go to an elite university for undergrad. So if you are assuming that finance is sui generis, then I'm really just babbling. I know, though, for law and medicine, the admission decision is made almost entirely on test scores and GPA. For certain niche vocations, going to an elite school can even be a liability, since there are so few candidates that it makes more sense for employers to scout the larger public schools. Regardless, once one gets a job, where one went to college rarely comes up, except during the NCAA tournament.

With this in mind, I have come to see an elite undergraduate education as a bit of a "luxury good" these days, equivalent to wearing Prada or eating at Per Se. Sure, the quality is a little higher, but, for most people, nowhere near enough to justify the price.

I should point out that I do not think the same is true for graduate education - there is a significant premium for attending Harvard Law, Med, Business, whatever. If I had to make a recommendation, I would say go for value in the first four years, and then splurge.

steve said...

If current trends are any guide the average earnings of the elite group are likely to be totally dominated by the financiers. So the issue of public vs elite paths to careers in medicine or law won't matter when comparing future average earnings of the two groups.

See this post:
http://infoproc.blogspot.com/2006/11/reallocation-of-human-capital.html

and links from this post:
http://infoproc.blogspot.com/2008/01/honors-college-survey.html

...(Of related interest: David Wessel of the WSJ comments on the finance bubble and the NYTimes on how the legal and medical professions have lost allure.)

David said...

I know, though, for law and medicine, the admission decision is made almost entirely on test scores and GPA.

The daughter of a good friend of mine graduated from Caltech 3 years ago with a B+ in biochemistry, got a 32 on her MCATs, did all the requisite volunteering, and couldn't get a sniff from the med schools. Her first round of applications to biology grad programs got her into Harvard [she's going to UW, though, to work with ISB]. The med school admission scheme sucks.

average earnings of the elite group are likely to be totally dominated by the financiers

Which is a sad state of affairs because they aren't nearly the capitalists that they will fancy themselves being. I'm sure that there's a game theory result in there about organizational structure and control. He who has the gold makes the rules made manifest in a debilitating way.

marvelwilliams said...

I know all kinds of Ivy league people who are socially fine and no super dick heads.I think you make a good point.It’s great for students to weigh future earnings along with other
factors like faculty-student ration, campus size, and proximity to
home.It is very good.And,I fear, ever more credible in these days of frantic testing and competitiveness.

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