Thursday, December 16, 2010

Partially Correct Diagnosis, Wrong Prescription

by Daniel L. Bennett

The NY Times published an editorial yesterday discussing how college graduates find it increasingly difficult to find good paying jobs. According to the Times:
A college education is better than no college education and correlates with higher pay. But as a cure for unemployment or as a way to narrow the chasm between the rich and everyone else, “more college” is a too-easy answer. Over the past year, for example, the unemployment rate for college grads under age 25 has averaged 9.2 percent, up from 8.8 percent a year earlier and 5.8 percent in the first year of the recession that began in December 2007. That means recent grads have about the same level of unemployment as the general population. It also suggests that many employed recent grads may be doing work that doesn’t require a college degree.
The Times is right: there is a positive correlation between pay and college education. But that in no way implies a causal relationship. It is highly possible that, on average, individuals with the most ability and highest IQ levels are those who chose to go to college. This suggests that it is innate ability, rather than college attendance, that results in greater earnings in the labor market, although studying certain disciplines such as accounting, computer science, or engineering, for example, likely has a greater positive impact on earning potential.

There are also some issues with The Times data. As Education Sector points out, the
...unemployment rate for Americans under the age of 25 with only a high school diploma is 23 percent, compared to only 7 percent for those with a college degree. So college is even better for recent grads than it is for the overall population. Bad evidence leads to bad conclusions
The Times is correct in suggesting that many recent grads are working at jobs that don't require a college education. However, the tale of the underemployed college grad is not merely a product of the current recession, but part of a longer term trend that has been growing over time. My colleagues at CCAP have been working tirelessly to amass a data-set that indicates, as Richard Vedder recently wrote in a piece for the Chronicle of Higher Education:
approximately 60 percent of the increase in the number of college graduates from 1992 to 2008 worked in jobs that the BLS considers relatively low skilled—occupations where many participants have only high school diplomas and often even less. Only a minority of the increment in our nation’s stock of college graduates is filling jobs historically considered as requiring a bachelor’s degree or more.

this shows that the current problem of college student employability is not a new, and merely temporary, problem.
Vedder suggests that the mindless effort to expand college enrollments and the number of graduates is the primary factor in this developing trend. The economics of this are simple - As a nation, we've grown the pool (in both relative and absolute terms) of college-educated workers in the labor force quicker than we've created jobs that require college education. This has resulted in employers being able to be more selective about who they hire, including requiring degrees for jobs that historically haven't required them. This has resulted in a form of credential inflation - people seek increasingly higher levels of education and certifications in order to make them more attractive in the labor market, when inflated credentials likely have little impact on how well a worker performs his or her job. The teaching profession is a great example. Many school systems base promotions on whether or not a teacher has earned a graduate degree in education, although there is little to no evidence that earning such a degree leads to better job performance. There is some evidence that there may in fact be in a negative correlation.

As a nation, it is time that we begin to question the "conventional wisdom" that extending the number of years that young people spend in the education system will solve all of our problems, especially our economic ones. As such, we also need to abandon age-old vodoo prescriptions to our ailments, such as the NY Times suggestion to:
preserve and improve the policies, programs and institutions that have fostered shared prosperity and broad opportunity — Social Security, Medicare, public schools, progressive taxation, unions, affirmative action, regulation of financial markets and enforcement of labor laws.
Such institutions and policies, although they surely make some feel good about themselves, are of exactly the type that have resulted in our country becoming increasingly dependent on big brother, teetering on the brink of bankruptcy, and have made it increasingly difficult for private businesses to earn a profit in this country and hence, driven many jobs to countries that are more hospitable to business and thankful for the jobs that they create.

Education is a great tool to advance society, but like all goods and services, there are diminishing returns on investment. CCAP believes that the U.S. has surpassed the optimal point of higher educational investment. Continuing to funnel more students and resources to college campuses is proving to be a bad investment for our nation and those who take on huge debt loads for a promise that for many, cannot be fulfilled.

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