Sunday, June 26, 2011

Higher education bubble?

What are the economic returns from a college degree, net of individual ability? Does college add value, or is it mainly a signaling device (e.g., for intelligence and work ethic)?

Results from two new studies are discussed here and here in the Times.

The obvious adjustment that one would like to see is discussed in the comments by one of the researchers (Stephen Rose of Georgetown; second link above):

... smarter people do go to college therefore the results are biased to show that BA graduates make more than those with a HS diploma. There are education data sets that do have a "skill" measure along with earnings and degrees. Using the best statistical approaches reveals that the educational premium is still large after adjusting for differences in ability (the premium declines by about a third).

It would be nice to see this analysis. Does "ability" mean IQ? College attainment also filters for conscientiousness (does it build conscientiousness, or just select for it?), which may account for another chunk of the income premium. But I would guess there is still some added value left even after these adjustments. If half of the effect in the figures above remains after controlling for ability and conscientiousness, then college is a worthwhile investment in purely economic terms (e.g., a lifetime income boost of $300k vs tuition and lost income of about $100k).


Brent Krupp said...

Heck with salaries and signaling. I'd say college is about making lifelong friends and contacts and learning to be part of the social class to which one's education is going to allow you entrance to.

David Stern said...

It's only some sciences and it would be perfect if they are doing their PhD dissertation at that point. Personally, I know I have higher mental abilities at age 46 than at 26 mainly I presume from experience and practice.

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