Putting Salaries in context

by John Glaser

A lot of people out there seem to have the impression that there’s some kind of glut of college educated workers out there and that too many people are going to college. The steady increase in the wage premium paid to college graduates seems to say otherwise, as does the fact that in the depths of the current recession the unemployment rate for college graduates is dramatically lower than the unemployment rate for those with only a high school degree. And the trend is projected to continue.

That's Matt Yglesias over at Think Progress. His comments are in reference to this study, which estimates the relative benefits of advanced degrees and predicts their future worth. Estimates are positive:

Postsecondary education has become the threshold requirement for a middle-class family income.

...the share of people with some college or Associate’s degrees in the middle class declined from 53 percent to 45 percent. But the key to understanding this phenomenon is discerning where those people are going when they leave the middle. For example, the share of people with Associate’s degrees in the top three income deciles increased from around 28 percent to 35 percent.

Therefore, while it is true that the middle class is declining, a more accurate portrayal of the American class dynamic would be to say that the middle class is dispersing into two opposing streams of upwardly mobile college-haves and downwardly mobile college-have-nots.

...The range in lifetime earnings by educational attainment is greatest between high school dropouts and professional degrees—a range of $1,198,000 to $4,650,000, or a difference of $3,452,000.

While it's still true that having a bachelor's degree or better is associated with higher annual income, I don't think this fact can be considered in isolation. As Yglesias says, educational attainment for the past thirty years has "tended to level off." Notably, that same thirty years saw a 439% increase in tuition, while family incomes have risen only 147% (according to Matt's own colleague). College educated people may be earning higher salaries than non-college grads, but their burden of tuition debt is at an unprecedented level:

New numbers from the U.S. Education Department show that federal student-loan disbursements—the total amount borrowed by students and received by schools—in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion. The new numbers highlight how debt has become commonplace in paying for higher education. Today, two-thirds of college students borrow to pay for college, and their average debt load is $23,186 by the time they graduate...

These post-graduate circumstances also tend to lead to more debt in other areas of life as well. This, as Richard Vedder wrote on this blog just a few days ago, implies a falling rate of return on investing in a bachelor's degree. Daniel Bennett recently wrote on how the crippling debt burden of college graduates is leading to increasing defaults.