Higher Education: Different Questions Yield Different Answers

February 21st, 2014 at 7:32 pm

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!

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18 comments in reply to "Higher Education: Different Questions Yield Different Answers"

  1. smith says:

    The recommendation to individuals should nearly always be to seek the most education that can be completed if for no other reason than the arms race, it gives you a competitive advantage even applying for a job as a barista. Plus you can always leave the college degree off your resume to not appear over qualified. You can’t very well do the opposite, add one you don’t have.

    From a macro point of view, projections by the BLS (Bureau of Labor Statistics) had indicated that job openings (combined new jobs and replacement positions) would not require any substantial increase in the number of college graduates. Unfortunately, as noted before, the actual aggregated ten year projections giving the two numbers, millions of job openings requiring no more than a high school degree, millions of jobs requiring at least some college, have disappeared from the web site. Projections appear for various professions categorized by level of education requirements, but the all important total projections by levels are missing. Perhaps it’s too disheartening to see.

    If anyone can find new numbers (projected openings, not just new jobs), please post that information here. I fail to see how any informed discussion on the topic of education levels needed by the economy can proceed without them.

    It’s interesting also to see this blog linking to a report that favors rejecting the most recent immigration bill that was approved by the Senate, but blocked by the house.

    “It means not allowing immigration policy to be dictated by employers’ desire to bring in guestworkers lacking basic labor market protections in order to undercut wages in both high-wage and low-wage occupations. Instead, guestworkers should have full rights to the same labor market protections as resident workers, and such programs should be allowed only to relieve rigorously documented episodes of genuine labor shortages. It means establishing citizenship for undocumented workers who are currently vulnerable to exploitation.”

    The implication is that liberals should reject the bill because of it’s impact on wages and employment, and work towards one that doesn’t hurt labor in exchange for the support of Republicans, business interests, Silicon Valley, Wall Street, sell-out unions and Democrats. That position is not anti-labor, but promotes free labor.

    • smith says:

      Last line really meant rejecting the anti-labor provisions of the proposed bill is not anti-immigration if it ensures a free labor market and equal rights for immigrants. A healthy debate on this subject might bring more support from the actual citizenry even while losing support from Republicans and business interests.

    • smith says:

      page 74 and 75 (table 32 and 33)
      2010 4 year college degrees completed 1.65 million
      2010 2 year college degrees completed .85 million
      Total 2.5 million (does not include students leaving college without a degree)

      Here are figures from last year that I saved, the ones now absent from the current bls website:

      Quotes from report that no longer exists:
      “Replacement needs are projected to account for 63 percent of the approximately 54.8 million job openings between 2010 and 2020.” Meaning 54.8 million openings over 10 year period.
      The missing link: http://www.bls.gov/ooh/about/projections-overview.htm#totaljobopenings

      “In contrast, occupations in the high school category are expected to grow by just 12 percent, while occupations in the less than high school diploma or equivalent category are projected to grow by 14 percent. Nevertheless, because many of the occupations require a high school diploma or less, they will account for the majority—63 percent—of new jobs between 2010 and 2020.” (just a coincidence the 63% figure pops up again)

      So you got 54.8 million projected openings (new jobs and replacements) over ten years, and only 63% require a high school diploma. If 63% need only high school, then 37% need more than high school.
      .37 * 54.8 = 20.276 million over ten years. Divide by ten and you need 2.028 million a year with at least some college.

      We are getting 2.5 million graduates, and census figures indicate an 80% labor participation rate (table 593, see link below), which yields 2.5 * .8 = 2 million college graduates a year.

      2,028,000 a year needed with more than high school
      2,000,000 a year graduating 4 year and 2 year colleges combined.
      Are we 1.4% short? Do we need 28,000 more?
      No,the dropout rate is around 30%
      4 year programs averages 20% x 1.4 million = 280,000 drop out a year later
      2 year programs average 40% x .7 million = 280,000 drop out a year later
      So there are 560,000 technically with some college, 1.8 years on average* and labor participation around 75%. 560,000 x .75 = 420,000

      *Legend of second graph says current population survey indicates 1.8 years of college for population with some college, though I could not find that figure on census.gov just now.

      Bottom line, about 400,000 surplus (some college plus two and four year graduates) per year, exclusive of those categories not in the labor force.

      • smith says:

        Labor participation of less than bachelors is 74% not 80%, potentially a 50,000 smaller associate degree job seeker pool, but I left out nearly 700,000 with a master, and 100,000 with doctorates.
        So make that yearly surplus of some college or more, closer to 1 million a year.

  2. wkj says:

    On a personal level, I’m with you. We both went to college (& law school). We could afford to send our daughter to college, so we did. I have never tried to figure out what ROI she is getting for our money.

    More broadly, I wonder about the effect of the quantity of education on its quality. While driving, I sometimes hear radio ads that promise a quicker road to a bachelor’s degree based on credit for life experience. I guess that some students are persuaded that some employers will be impressed by the faux credential, but it can’t really be the same as four years at a top college.

    Also, if college is so valuable, why is there a student loan crisis?

  3. smith says:

    Report dated Dec 12, 2013
    Scroll down to Table 7 (previously missing data and links)

    2012 to 2020 Annual projected openings (divided totals by 10)

    140,000 PHDs, Doctors and Lawyers
    100,000 Masters degree
    860,000 Bachelors
    270,000 Associates
    300,000 Other non-degree awards (nursing assistants, EMT’s and paramedics, hairstylists, etc)
    64,0000 Some college

    1,700,000 total openings/year needing at least some college degree or award

    100,000 PHDs, Doctors, and Lawyers
    600,000 Masters degrees (38% of 1.65 million Bachelors)
    800,000 Bachelors in labor market not pursing grad school
    500,000 Associates in labor market not pursing Bachelors

    2,000,000 with college degree 300,000 surplus

    Info on Bachelors with Associates, and Bachelors pursuing Masters
    Colorful graphs
    Data with openings (replacements and new, but not rollup by education as in hard to find first link, top of this comment)

    1/3 openings require less than high school
    40% college grads get a masters (the arms race)
    Projected openings by occupation:

    PHDs, doctors, lawyers, show 40,000 shortage.
    Definitely not from glut of lawyers.
    PHDs suffer low pay, lack of tenure track, universities exempt from foreign hiring limits, substituted use of grad students.
    Doctors make up shortfall with foreign residents, and which accounts for maybe 10,000 a year.
    The projected 140,000 openings are nowhere broken down and does not account for substitution (job categories filled with lesser credentials)

    • smith says:

      Correction transcribing figures, projected Associates Degree needed openings looks like it should be 230,000 at most, not 270,000, leaving 340,000 in surplus, 17%. Any wonder wages stagnate? That’s also 10% of high school degree required openings, where they push out some qualified high school graduates, whose wages decline.

  4. Tom in MN says:

    You did not say anything about which college degree. There is a large difference between a history degree and an engineering one.

    What I don’t understand is the seemingly constant calls for more graduates in STEM areas and predictions of shortages, but like you say, I don’t see any higher wages being offered.

    • smith says:

      Abstract: In this comment I will demonstrate why differences in degree choice are currently and unlikely in the future to be a major concern (pun intended).
      No college major has experienced recent wage growth, including STEM (cited period 2003-2011) College major choices are influenced by demand. Occupation choice does not closely follow college major (only 2/3 for computer science). I.T. is however a bellweather for health of high skill labor market since it led recent wage growth (however small) and represents 7% of projected openings. Rising demand in IT would influence all high skill labor as wage pressure shifts choice of major and tightens labor market in all fields. It also follows then that another concern should be the effect of mobility restrictions on IT guestworkers (indentured technologists) on entire high skill labor market.

      “Real wages of college graduates fell for every key occupational group from 2003 to 2011, except for computer and mathematical science. …the occupation with the best real wage growth – computer and mathematical science – had growth of 3.2 percent over those nine years, an increase of about a third of 1 percent a year.”
      Page 303, The State of Working America 12th Edition http://stateofworkingamerica.org http://stateofworkingamerica.org/subjects/wages/?reader

      “Computer and information science” closely followed demand of tech boom and bust as seen in this table, 4 years of college creates 4 year lag peak following bust.

      According to http://www.frbsf.org/publications/economics/papers/2012/wp12-09bk.pdf
      Of new I.T. hires, 1/3 are from another occupation, 1/4 not in labor force
      (another finding, ads for tech openings overstate hiring by 2/3)

      7% high skill openings are tech
      1,3 million (2010 – 2020)
      17 million total high skill (at least some training beyond high school)

      The annual inflows of guestworkers amount to one-third to one-half the number of all new IT job holders.

  5. Chatham H. Forbes Sr. says:

    Practical needs must be served by higher education, and most “practical” required courses can be more than merely economically useful. But there’s much more value in a well balanced college curriculum than job training. Education for democratic citizenship is one. We pay lip service to this, but it’s so tremendously important that we need to assure ourselves that it is really being accomplished in colleges across the country. Education as a civilized human being is another responsibility of higher education. We must serve this end if we want to equip our graduates for a lifetime of membership in the civilization we have inherited and have the obligation to maintain and even enhance. Ours would be a very dreary landscape if all we produced were nerds and economic integers in human guise.

    • jeff says:

      Washington doesn’t care much for engaged citizens. They don’t even pay the concept lip service now. When has Arne Duncan ever mentioned it ? It’s an excellent sign of how corroded the democracy is.

      The little people are supposed to be submissive workers, just as they are supposed to be submissive students. Education is to learn a job skill to please a boss, nothing more. Outside of work, watch TV, movies and keep your opinions quiet.

  6. Kevin Rica says:

    And yet, when we make immigration (legal or illegal) policy only a small fraction of immigrants are allowed in under categories that require even a minimum of education or skills.

    The proposed “comprehensive immigration reform” (no illegal immigrant left behind) bill pushed by the body-snatchers that have taken over the Democratic Party includes provisions for “blue cards” for unskilled, low-wage workers. It sets the minimum qualification for legal immigration at evading the border patrol.

    If our educational system is turning out too many drop outs and functional illiterates, immigration is clearly making it worse.

    We now seem to have both major parties who accept that a large portion of the necessary, hard, unglamorous, and productive, but unskilled, jobs that keep the economy going every day; janitors, warehouse workers, gardeners, busboys, cooks, assembly line workers etc should work for poverty-level wages.

    At least in the Republican Party there is some revolt.

    • smith says:

      Our educational system is turning out too many college graduates*, 40% of whom then go on for a masters, further creating a very overqualified pool of job applicants. The 15% surplus (300,000/year) high skill job seekers take jobs that require only high school or less. Those with just high school and less than high school (the requirements of 2/3 of job openings) get clobbered from above and below (college graduates from above, low wage immigrants from below). Hence their wages don’t just stagnate, they decline.

      An important part of a market solution to inadequate job growth would take away incentives and opportunities to increase profits at the expense of jobs. For example: the Comcast Time Warner Cable merger would surely do just that (and wholly controlled by Obama).

      *from a macro economic and labor market view, which is not to say college isn’t for everyone, creating a well educated citizenry.

  7. Perplexed says:

    -“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.”

    Yes, and it also depends on the “specificity” of whose perspective you’re asking from. Certainly its “important” to those who acquire the benefits of an excellent education (which are much more broad than the narrowly defined “financial” benefits that are usually the focus of economists; its important to a functioning democracy, or to the prospect of one as we have in the U.S., and its important to future generations as many more will benefit from what is learned today and passed on just as we have benefited so richly from what has been been passed on to us (and this occurs regardless of the fact that the discounted present value of those benefits is $0 today according to all of our “scientific economic” measurements). But it appears so prominently in many economic “science” discussions today mostly due to its importance to the “science” of economics as its the last vestige of the tireless search by economists to find at least some proof of their religious beliefs that “marginal products” are the source of our massive inequality. While they have no robust model of how it might be even remotely possible that marginal products could possibly produce a wealth GINI of .87 in a country of this size, the “education” explanation goes a long way to obfuscate just how ridiculous and silly that “marginal products” explanation really is. Its indeed rather ironic that while economists argue in favor of education, that they rely on ignorance to support their “marginal products” religion, and in so doing avoid having to “scientifically” inquire into, or even seriously discuss, what the real sources of this extreme level of inequality might really be.

  8. Fred Donaldson says:

    I would argue that college educated workers tend to be conformists, seek references rather than original ideas, rely on the opinions of others, are passive before authority, and listen too little and talk too much. Many are very nice, very smart, very referenced.

    Smart high school grads have opposite qualities if smart, nice and dedicated. That opinion comes from a CEO, who has seen thousands of employees come and go, and learned to evaluate based on the job performed and meeting challenges of improvement in their own area of responsibility.

    Many years ago, working at the largest circulation evening newspaper in North America, I was surprised, but not amazed, to learn that the rewrite staff consisted primarily of Ivy League grads ( I was an exception), and the reporters were almost all high school grads, as the latter could identify with humans and the former had a problem in that arena.

  9. jeff says:

    Going to college entails a lot more than getting a job and being a dutiful employee. It is part of rounding yourself as a human being and as a citizen. I’m guessing these things really aren’t important to our leadership by the tenor of the conversation in Washington.

    The National University of Mexico is more or less free. Yet we cannot approach that here. That’s a political, not economic, choice.

  10. Tammy says:

    On the whole I agree with you but would argue that was indeed a slam dunk.