I’m very much looking forward to participating in this forum at the Urban Institute on Monday, where I’ll be on a panel talking about the role of higher education in both the economy and the lives of the people in the economy.
From the event website, here’s part of the motivation for the discussion:
Despite visible examples of college graduates facing difficulties in the labor market, the data are clear on the benefits of getting a college degree. Going to college increases earnings, reduces the chances of unemployment, and opens doors to many opportunities. But there is considerable variation in outcomes. It is important to understand the range of experiences, the multiple options for measuring the benefits of education, and the changes over time in the payoff of higher education.
This all got me to thinkin’…just how important is higher education in America today?
Perhaps surprisingly, there are different answers depending on the specificity of the question.
For example, if a random parent asked me, “should my kid go to college?” I’d be like, why are you talking to me, random parent! But then I’d say, unless you’ve got a good reason why not, absolutely. I guarantee you that’s what’s in store for my kids.
I’d especially give that answer based on some of the data to be released at the UI forum on the returns to college education relative to lower levels of attainment. I’d doubly especially say that if said random parent herself hadn’t completed college, because the data show unfortunate correlations between parents and kids on this metric (“unfortunate” because economic mobility is reduced when parents’ educational attainment is highly correlated with that of their kids).
To be clear, even at this broad level of generalization some nuances apply. Some young people will be better off with an associate’s degree; some with an apprenticeship program in a skilled trade. Also, it’s not enough to just go to college; you’ve gotta finish. There’s a growing and disturbing gap between attendance and completion.
So that question—should a kid get considerable schooling beyond high school?—is pretty much a slamdunk.
Suppose, however, you asked me, “do we need more college graduates to meet employers’ increasing skill demands?” Despite the conventional wisdom that answers “of course!,” that’s not a slamdunk. Not even a layup.
Let’s be economists here for a minute. If employers’ skill demands were really systematically unmet, you’d expect to see two things: rising real wages for college grads, and especially rising wages for college grads relative to those with less schooling. Yet, at least over the last decade or so, such evidence is mixed at best (see figures D and especially E here). The second figure from the link just noted shows a clear and striking positive trend in the college wage premium (their earning advantage over high school grads) in the 1980s, but it has decelerated since and, at least for women, has been flat for over a decade.
Yes, that plateau has occurred at an historically high level, which motivates the answer to question one above. But if employers can’t find the skilled workers they need, why aren’t they bidding up their wages, either in real terms or relative to the less highly educated?
Hold on a minute, you say. Don’t I constantly hear employers complaining about not being able to find the skilled workers they need? I’m sure you do, and I’m sure some are telling the truth (although I’ve gotta tell you—in many decades of studying this issue, I can’t recall a time when they didn’t say that).
But, as I noted in this post from a few days ago:
When you hear employers complaining about how they can’t find the skilled workers they need, remember to plug in the unstated second part of the sentence, “…at the wage I’m willing to pay.”
The post was motivated by a WSJ article about how pilots flying for regional carriers face initial wage offers that are ridiculously low, considering the necessary training.
Starting pilot salaries at 14 U.S. regional carriers average $22,400 a year, according to the largest U.S. pilots union. Some smaller carriers pay as little as $15,000 a year.
In the post, I describe how this problem grows out of the structure of the industry wherein major carriers outsource regional routes, but the larger point is that both data and anecdote reveal that the simplistic and reductionist view of get-a-college-education-and-you’ll-be-fine-because-employers-are-just-dying-for-you is wrong.
That’s pure supply-side thinking in an economy where not only does the demand side matter a great deal, but as I’ve endlessly stressed in these pages, it’s the demand side, especially labor demand, that’s been persistently weak for decades.
But surely the economy is better off with more college grads? There’s definitely a logic to that line of thinking. Human capital is a critical growth input, just like any other growth input, including physical capital (the depth and quality of our factories, machines, software, etc.), labor supply, and technology.
In fact, growth economists try to measure the quality of labor inputs (aka, working people), mostly by tracking their education and workforce experience. See, for example, figure 3 in this paper of mine. What you’ll see is a pretty constant growth rate of labor quality, something that might surprise you if you walk around thinking the quality of US labor inputs is deteriorating.
Now, you might well argue: how do we know that whatever level of labor quality we’ve got is high enough to optimize our growth rates? Good point…we don’t, although the above discussion about relative wage trends fails to support any claim that actual labor quality is obviously too low (if it were, we’d expect to see skilled wages bid up).
But going forward, some growth theorists worry about slowing US educational attainment becoming a drag on future growth. Part of this is due to the fact that we’ve already climbed up the steepest part of the curve in terms of large gains in high school and college graduation rates, so there’s just less ground to cover going forward. But part is due to a slowdown in higher educational attainment that we should worry about. Policies to promote college access and completion are necessary and important, both for macro/growth reasons, and for micro/fairness reasons (breaking that mobility-dampening correlation problem noted above).
So, end of the day, if you’re talking to a kid, “go to college” is usually very good advice. If you’re talking to a policy maker, it’s “we’d best be sure to help kids get to college, but don’t think it’s going to come close to solving a lot of what ails us.”
What then would solve what ails us? Tune in to the forum!