Thursday, January 13, 2005

Value of a college education?

The earnings differential between college graduates and those with only a high school degree has leveled off recently. There are several possible interpretations, as discussed by in this NYTimes article:

Another dynamic also undermines the value of a college degree, says David H. Autor, an economist at the Massachusetts Institute of Technology. While the college premium appears to be leveling off, the spread between the incomes of the highest-earning Americans and those in the middle expanded almost as fast in the 1990's as it did in the 1980's.

"If I may speak somewhat loosely, there continues to be rising demand for people who have very strong cognitive, managerial and communications skills," Mr. Autor said. "The vast middle, whether they are college educated or not, are not in that upper category of cognitive elite. The elite is college educated, but not all the college educated are those people."

In other words, nonlinear returns to the highly talented in our winner-take-all society, while ordinary people (college degree or not) struggle. And note that, despite recent attention, white-collar outsourcing is still too small a phenomena to affect these numbers, although that will change in the future.

A related statistic I heard in an economics of higher ed talk: after controlling for family wealth and academic performance (high school grades and SAT scores), there is very little difference in earnings between graduates of public and elite private universities. According to this data, the additional economic value of an Ivy League degree is less than the extra tuition paid!


Russ Abbott said...

Although 4-6 years is too short a time period about which to draw any long-term conclusions, I'm not unhappy about it. First of all, more and more people are going to college so a degree means less and less. Secondly, the period included the internet bust and more general recession, which affected white collar workers as well as blue.

Finally, although this seems inconsistent with the more general trend these days (as you noted with your winner-take-all reference), a strong middle class should not have a too broad range of earnings, no matter what one's background. The level of the work one does is part of the reward for being educated enough to do more interesting work.

Steve Hsu said...

I don't think the supply of degree holders has changed very much. From the article: "The portion of the population with bachelor's degrees today is about 30 percent, not much above where it was in the 1980's. That limited supply of baccalaureates would suggest strong demand for them and a continual increase in the spread between what college graduates earn and what the much more numerous high school graduates earn."

I would, however, agree that the economic value of many liberal arts degrees is very small. Just as in the study comparing elite private vs public educations, we might control for family backgound and academic ability and investigate the economic return on a degree in art history. This is of course not a result that the liberal arts institutions (like U Oregon) would like to make public.

Meanwhile, the fraction of college students majoring in science and engineering is much, much higher in China.

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