Wednesday, April 1, 2009

Returns to education

"Go to college, earn more money." This is conventional wisdom and backed up by research. On average, college graduates make more money than non-graduates. Presumptively, this rising tide leads to a higher standard of living and more robust economy. This second point is less certain. Nations with a larger percentage of graduates have stronger economies, but how precise is the link? If 5% more citizens are college grads, is the economy exactly 5% wealthier? That's doubtful.

Why more education leads to higher salaries is arguable. The traditional argument is that college teaches skills that enable graduates to do more complex or difficult jobs. Some sociologists argue it's more about certification - "This person is smart and has people skills" - than about learning. The literature on professionalization suggests that by insisting on hiring college grads for prestigious jobs, other grads can monopolize a profession, keeping salaries up.

No matter the theory, I'm wondering about the mechanism at work and where its bounds are. Any of those theories are compatible with the following. Right now, for example, the U.S. has a shortage of nurses due to structural issues in universities (a whole 'nother post, that). If we doubled the number of RN slots in colleges without taking away students from any other programs, presumably these new nurses would have higher incomes than they would otherwise.

But let's imagine for a moment I'm a big baseball fan and think that there just aren't enough pro baseball players. After all, Nashville doesn't have a major league team. Therefore, we need more college ball players. There's a pretty obvious flaw in this argument, which is that there is already a large supply of potential major leaguers and that the demand for them is restricted because of how baseball is run (that is, MLB is a monopoly).

So we can say some occupations are like nursing and some are like baseball, but let's take the nursing example to a logical extreme. If we train every single person in the country without a college diploma to be a nurse, we would have an oversupply and nursing wages would fall. And a lot of those trainees would not be working as nurses, either. Clearly, the market demand for degrees matters.

Now, one might argue that a college education teaches skills such as critical thinking that would enable this oversupply of nurses to still come out ahead by starting their own businesses or some such thing. That's reasonable. But in my extreme example, every single person now has a degree, and we still have positions to fill that are very low-paid - day laborers, for example. As our economy is currently structured, the demand for college degrees is not perfectly elastic.

So, then, what is the point of diminishing returns to society (not to the individual) for higher education? I'm talking strictly monetary here - there may be excellent arguments for higher education producing better citizens or what have you, but I'm trying to focus on the strictly economic. Is that point still so unachievable that this is only a mental exercise? Let's say that only once 99.99% of adults have college degrees do wages no longer rise. I think more than one in a thousand people has serious issues of some sort that prevent degree completion, so worrying about it would be futile. If that point is a lot lower, at some point does college become compulsory (as some have argued is happening), or is the smart thing to do to skip college? If you're going to work as a barista anyway, the opportunity cost for college is too high.

There are a lot of different ways to take this, and it's stretching my brain, so I wanted to ask what your take on it was.

1 comment:

Corey Bunje Bower said...

My general feeling is that we hit the point of seriously diminishing marginal returns somewhere well over the approximately 25-30% where we currently are. Diminishing marginal returns would be the least of my concerns until we double that figure.