March 14, 2011
Are Too Many Young People Going to College?
Are Too Many Young People Going to College? Becker
During the past 30 years, higher education has boomed worldwide. Virtually every country has significantly increased the fraction of its young men and women who go on for a college or university degree. The higher education boom is just as large in developing countries as it is in developed countries, although naturally poorer countries still lag behind in the fractions of young persons with college degrees. China is an extreme example of what has been happening in developing countries, as enrollments in Chinese universities increased several fold during past 15 years. The United States also increased its enrollments, but at a slower rate than many other rich countries. When measured by the fraction of young people with a college education, the US ranking has dropped from among the top three countries several decades ago to somewhere between 10th and 15th.
A worldwide trend suggests that universal forces lie behind it. In the case of the higher education boom, one major force is the introduction of computer and other technologies that give an advantage in labor markets to individuals who command information and knowledge. The rapid transfer of technologies from richer to poorer countries, partly the result of foreign direct investments, is also raising the demand for educated persons in many less developed nations.
If the value of higher education in the modern information-oriented economy has been overrated, the sizable growth in the number of educated persons should have lowered the earnings premiums for college graduates, and raised the unemployment rates of these graduates. In fact, these earnings premiums have generally risen, not fallen, and often the growth has been large. Moreover, unemployment rates of the college-educated have remained much below those of high school graduates and high school dropouts.
In the United States, for example, the average earning of persons with four year of college increased from about 35% above the average earnings of high school graduates in 1980 to about 55% higher in 2009, despite a growth during this period in the fraction of the American labor force with a college education. The earnings premiums for persons with a post-graduate education have increased even faster over this 30 year-period. Moreover, the unemployment rates of lower educated persons have remained much higher than the unemployment rates of persons with higher education.
The rise in the earnings premiums in the United States since 1980 for college-educated persons, is consistent with growth over this period in the demand for college graduates that dominated the increases in their supply. A rise in the earnings premiums for persons with a higher education in found in most countries, except sometimes where the growth in the supply of college-educated persons has been unusually rapid, as shown by developments in China. Starting in the mid-1990s China had an extremely fast increase in the supply of persons with a college education. Since so many young college graduates entered the labor force, the earnings of young graduates dipped a little below those of young high school graduates. But the earnings of college graduates with considerable work experience continued to grow sharply, suggesting a sizable increase in the demand for college graduates with much job experience (this is based on research by James Liang of Stanford University).
This brings me to Paul Krugman's analysis that Posner commented on. I agree with Krugman that not everyone in the United States or elsewhere will benefit from a college education, but the United States and pretty much all other countries are very far from that extreme. However, if Krugman were correct that software was replacing college educated persons on a large scale, that high wage jobs have been more "offshorable" than jobs done by the low-paid, and that college education is becoming less helpful in finding good jobs, then surely during recent years the earnings gains of college graduates should already have begun to fall behind the gains of less educated persons.
Yet since the early 1990s and even during the last decade, the facts are the opposite: the average earnings premiums of college graduates in the US, and especially the premiums of persons with a post-graduate education, have continued to increase, despite the growth in the numbers of educated persons in the labor force (this evidence can be found in "Explaining the Worldwide Boom in the Higher Education of Women" by Gary Becker, William Hubbard, and Kevin Murphy, The Journal of Human Capital, Fall 2010). So the most recent trends in the earnings of college graduates do not support the view that the US is overeducating its labor force.
All this indicates that President Obama is correct, and that America has to make greater efforts to increase the number of persons qualified to enter and finish colleges and universities. This is mainly a male problem since the fraction of American women who complete college has grown rapidly: women now receive about 60% of all four-year college and masters degrees, while men receive only 40%, whereas in 1970 women received about 40% of these degrees.
Part of the American problem results from the high dropout rates from high school, including in the dropout rate students who only get a High School Equivalency Degree (GED). These dropout rates have remained stable at about 25% of all high school students, a depressing figure relative to those in other developed countries, where dropout rates are usually below 10%. The students who are dropping out do not get good jobs since the evidence is overwhelming that the pay of dropouts is very low, and their unemployment rates are very high. Not much support in these data for any "hollowing out" of job opportunities alluded to by Krugman. Especially disturbing is that African-Americans and other minorities are vastly over represented among those dropping out of high school.
So my conclusion is that America will benefit greatly from increasing the numbers of young men and women who go to and graduate from colleges and universities. To do that, however, will require improving the preparation received at K-12 levels, including the education at the very earliest school levels for young children poorly prepared for school. The challenges are enormous, but the potential gains are worth considerable effort from public and private bodies.
What Is a College Degree Really Worth?—Posner
The March 6 issue of the New York Times contains an interesting article by the economist Paul Krugman entitled "Degrees and Dollars," available online at http://www.nytimes.com/2011/03/07/opinion/07krugman.html. In it Krugman challenges the conventional view that we need to invest more in education because "everyone knows that the jobs of the future will require ever higher levels of skill." Krugman argues that since about 1990 "the U.S. job market has been characterized not by a general rise in the demand for skill, but by 'hollowing out': both high-wage and low-wage employment have grown rapidly, but medium-wage jobs—the kinds of jobs we count on to support a strong middle class—have lagged behind." He expects the trend to continue, noting a recent newspaper article about the growing use of software to do legal research, potentially replacing hordes of lawyers and paralegals engaged in document review in big cases. He argues that computers are good at doing both cognitive and manual work that can be performed effectively by following rules, whereas work involving a high degree of discretion or imagination, ranging from writing poetry to inventing a new social network to running a corporation (not his examples—he doesn't give any examples of the type of nonmanual work that he thinks will resist automation successfully), along with some manual labor (he instances truck drivers and janitors, but could add waiters and retail sales personnel), cannot be. He argues that demand will grow for jobs in the categories in which work cannot be automated, and will decline for jobs in the categories that can be.
Hence, Krugman concludes, it would be "wishful thinking" to believe that "putting more kids through college can restore the middle-class society we used to have." Instead, the focus should be on "restor[ing] the bargaining power that labor has lost over the last 30 years" and "guarantee[ing] the essentials, above all health care, to every citizen." These are pathetic prescriptions. Unionization spurs automation by making labor more costly relative to capital, and providing health care to every citizen will increase the tax burden on persons with middle-class incomes, and not just on wealthy persons, because the costs of universal health care are too staggering to be borne entirely by the wealthy.
But the more interesting question is whether Krugman is right to be pessimistic about the future returns to a college education. The market disagrees. If the market agreed with him, college enrollments would be plummeting because college is expensive, not only in tuition but also in opportunity costs—the income forgone by being in school. College enrollments continue to increase relative to population, and, more important from a market perspective, more and more high-school students express a desire to go to college, even though if Krugman is right their college education will not produce lifetime earnings increments sufficient to offset the cost of tuition and the cost of their forgone earnings during their college years. (Of course a high unemployment rate, by reducing the opportunity costs of college, reduces overall college costs and so helps to sustain high enrollments, but this is not a major factor driving demand for college education.)
The market could be wrong, or (though this is unlikely) the nonpecuniary benefits of college could be increasing faster than the pecuniary benefits are falling. A high school student, and his parents, are hardly in a good position to predict the structure of the labor market in ten or twenty years. Most people base most of their expectations for the future on simple extrapolation from the recent past. Often that's the best one can do in the presence of profound uncertainty. But the economic crash that began in 2008 has made us more alert for discontinuities in economic trends. The future doesn't always repeat the past. Krugman may be right that computers will replace many midlevel jobs—the current example is employment by bookstores, which is being killed by Amazon.com. Income inequaltiy has been growing in America (illustrating that there are negative as well as positive trends) and may continue to grow. One can even imagine the emergence of a large servant class, as in nineteenth-century England. Technological advance continues at a dizzying rate; no one can be sure where it is leading us.
One reason for skepticism, though, is that Krugman may have too limited a conception of the benefits of a college education. He may think that what a college education does is impart knowledge that the graduate needs either for his career or for the next stage in his education, such as law school or medical school. But it may be that the greater value of college lies elsewhere: in providing association with people of above-average intelligence, in imbuing young people with general work skills (discipline, working under supervision, following directions, being evaluated, basic writing and speaking skills, some foreign language proficiency), in fostering ambition, and in providing information to future employers about job applicants that enables better matching of workers with jobs. It is plausible that these noninformational benefits of a college education are valuable across a vast range of jobs and will enable the holders of those jobs to obtain good middle-class incomes. Police officers, prison guards, firemen, noncommissioned officers in the military, sales personnel, nannies, tour guides, secretaries, hotel receptionists, IT staff, medical technicians, store managers, auto mechanics, and many other workers who do not require a college education for their jobs may nevertheless be of significantly greater value to their employer if they have such an education and may be compensated accordingly. Finally, a college education may not only increase incomes in ways different from building up a stock of knowledge but also may reduce people's living costs by making them more adept at household management.
But even if this is right (and Krugman wrong), it doesn't follow that there should be massive increases in public expenditures on education with a view toward increasing the number of people who obtain a college education. The number of people who have the IQ and character traits that would enable them to benefit, in the ways described above, from a college education is inherently limited, and maybe all or most of them will obtain a college education under existing conditions for financing such an education.