The College Advantage Revisited

by Richard Vedder

I seldom respond to commenters on my blog posts or articles, but the rather serious attack on my first Chronicle post on the diminishing economic advantage of a college degree rquires a response. Sandy Baum and Mike McPherson (hereafter S and M) not only say I am wrong, but rather sanctimoniously imply that I deliberately ignored appropriate evidence to reach an erroneous conclusion, unlike "people like us who have devoted considerable time and energy to analyzing educational opportunities."

S and M are certainly right that time series data are often subject to different interpretations depending on the years used. So let us analyze earlier the data that S and M comment on. First, the unemployment rate. They are also technically correct that my comparison of the college-graduate unemployment rate with the overall unemployment rate suffers because the college graduates are included in the broader rate total. But correcting for that does not change the reality: The job security associated with a college degree is less today than earlier in our history. The unemployment rate for those with bachelor degrees or more degrees averaged 4.91 percent for the first five months of 2010, easily the highest in the 35 years that consistent educational attainment/unemployment rate data have been recorded on a monthly basis; that is far less true for other groups in the population that faced similarly high unemployment rates in 1982-3. Using annual data, my Center for College Affordability and Productivity staff regressed the college-graduate unemployment rate against the aggregate unemployment rate and a time drift variable for the period 1970 to 2009 and observed a statistically significant (at the one-percent level) sign on the time variable. Adjusting for the overall unemployment rate, the college rate has tended to rise over time.

Similarly, the income advantage of a college education is subject to various interpretations. Let us use three-year averages of data to mitigate an S and M criticism of my blog regarding dates. Using median income figures for all full-time, year-round workers over 25 from the consistent Census Bureau data on their Web site, we do find a rising differential for female bachelor-degree recipients from 1991-93 to 2006-08 (from 56.2 to 67.8 percent), although even with this measure the growth in the differential declines sharply after 1999-2001. Yet using the broader, more inclusive category of all workers 25 and over, the median income differential income advantage associated with college for females falls from 80.29 percent in 1991-93 to 77.46 percent in 2006-8.

Looking at the totality of the evidence, I stick to my guns. On the income-advantage side of the equation, the advantages of a college degree are no longer rising like they used to for females, the largest group both from the standpoint of numbers of college graduates and number of new jobs filled. By most reasonable standards, the pecuniary advantages of a college education are declining a bit for a majority of new workers. Job security is also somewhat less secure.

But that is missing half the story. The other half of the story is rising college costs. Sandy Baum usually tends to downplay this by emphasizing that net tuition fees are rising less than sticker prices, reflecting the increase in price discrimination by universities. But try telling that to parents or to students with rising loan debts. The tuition-fee component of the Consumer Price Index is rising faster than family incomes over the past generation, not a sustainable situation.

The reality remains:

1. College is getting more costly every passing day.

2. A large portion of those going to college either fail to graduate, or graduate only after taking far more time and spending far more money than originally expected.

3. The economic advantages of getting a college degree are not growing like they used to.

4. Labor-market projections of the Bureau of Labor Statistics for new jobs suggest a majority of them do not need college-level skills, suggesting that credential inflation will lead to more students taking jobs traditionally held by less educated persons.

5. The long-term obligations of feeding and providing health care for an aging population is rising sharply, while taxpayers resist paying vastly higher portions of their incomes to finance this obligation.

6. All of this is eventually going to force major changes in the way higher education is financed and probably delivered, whether the Doyens of Dupont Circle, their cheerleaders, and their constituencies like it or not.