by Daniel L. Bennett
Lately, I've been doing some thinking about the college wage premium and the growing number of college graduates. Advocates of higher ed have long espoused that college is the best investment that one can make, and that the returns to this investment are substantial. This line of reasoning has been continuously espoused by proponents for increasing the number of students going to and completing college, with folks implying that the labor market increasingly demands more college graduates. The evidence doesn't seem to support this claim.
The Bureau of Labor Statistics identified the 30 occupations that will experience the most numeric job growth between 2008 and 2018. Only 7 of the 30 occupations require a bachelor's degree or higher, with 5 of the top 6 occupations requiring on-the-job training only. According to BLS, these 30 occupations will create more than 7.3 million jobs by 2018. 2/3 of these jobs (nearly 4.9 million) will require no formal postsecondary credential.
So where exactly are all of these new college grads going to find jobs if they are not in fact in demand by the labor force? My hypothesis is that the US labor force has been and will continue to experience credential inflation. Jobs which in the past didn't require a postsecondary credential (and likely still don't), will increasingly be filled by those with college degrees because there is an excess supply of them. Why hire a high school grad when you can hire a college grad for roughly the same cost?
I think that this phenomenon helps explain why administrative, customer service, retail and other relatively low skill jobs are increasingly staffed by persons with a college education. It is not that these kinds of jobs require someone with a degree, but rather that college grads are willing to take these kinds of jobs. I think that credential inflation plays at least some role in explaining the wage college wage premium.
Credential inflation is not only bad for those without a college credential, as they are pushed out of jobs for which they previously were able to do, it is also bad for those with a college degree who spent a considerable amount of time and money to get that degree, only to wind up in a job for which the degree wasn't really necessary. In other words, the explicit and opportunity costs are high to seek a college degree.
The counter argument is that college is not only an economic investment, but that there is also the socialization and consumption value that needs to be considered. This is true, but the problem with this line of reasoning is that wage earners should not be taxed so that young people can have a good time and make new friends. Socialization and consumption are experience goods that individuals choose to purchase and as such, should be paid for by the benefiting party that voluntarily elects to purchase them.