Home > Uncategorized > Will a College Education be Worth the Investment in the Future?

Will a College Education be Worth the Investment in the Future?

Yves Smith at Naked Capitalism has a good post on the declining economic value of college, and the looming danger of massive student loan defaults.  Shockingly, a full 50% of college graduates are winding up underemployed:

Take note: half the recently-minted college grads are in jobs that do not require a college degree.

Now if these graduates were going to college for the mere love of learning, and didn’t mind working at Home Depot because they could work on a novel in their garret, this picture might not be quite as terrible as it looks. But I sincerely doubt that anyone in the US goes to college to become a working class intellectual.

But the economic (as opposed to social and personal) value of higher education is exaggerated. The widely-touted College Board claim that lifetime earnings for college grad outpace those of mere high school grads by $800,000 does not stand up to scrutiny. The author of the 2007 study which the College Board relied upon disclaims that estimate and says $450,000 is a better figure. Mark Schneider, a vice president of the American Institutes for Research, who used actual earnings data of graduates ten years after college, and allowed for other factors such as taxes, pegged the difference at $280,000.

And these estimates are averages. Students who are drawn to fields such as architecture, which require advanced education but are not terribly well paid, will fare less well.

Read the whole post here.

Also, check out this September 2009 post on BusinessWeek‘s blog, which includes the “appalling” graph below:

p32_26302_image001.gif

Unfortunately, I think there is every reason to believe that the problem will get worse.  Technology will increasingly be leveraged to automate the knowledge worker jobs that are often taken by new college graduates, and this is likely to hit especially hard at the entry-level.

I also think the future impact of offshoring is underestimated. We cannot escape the reality that  intellectual capability within the population is subject to a normal distribution. This implies that, collectively, India and China have more smart people…than the United States has people.  In the future, technology will make it even easier for the millions of people on the right flank of Asia’s bell curve to compete directly with Americans for knowledge-based jobs.

Here is a section from The Lights in the Tunnel in which I discuss the future of college education:

Nearly everyone agrees that a college degree is generally a ticket to a brighter future. In the United States in 2006, the average worker with a bachelor’s degree earned $56,788, while the average high school graduate earned a little more than half this amount, or $31,071. Workers with graduate or professional degrees earned a still higher average salary of $82,320. While the primary motive for the majority of individuals to pursue advanced education is almost certainly economic, we would all agree that education also conveys many other benefits both to the individual and to society as a whole. A person with more education seems likely to enjoy a generally richer existence, to have an interest in a greater variety of issues and is perhaps also more likely to be focused on continuing personal and professional growth. A more educated society is generally a more civil society with a lower crime rate. An educated person is likely to hang out in the library—rather than on street corners.

The unfortunate reality, however, is that the college dream is likely at some point to collide with the trends in offshoring and automation that we have been discussing in this chapter. The fact is that college graduates very often become knowledge workers. As we have seen, these jobs—and in particular more routine or entry level jobs—are at very high risk. The danger is that as these trends accelerate, a college degree will be seen increasingly not as a ticket to a prosperous future, but as a ticket to a job that will very likely vaporize. At some point in the future, the high cost of a college education, together with diminishing prospects for college graduates, is likely to begin having a negative impact on college enrollment. This will be especially true of students coming from more modest backgrounds, but it will have impact at all levels of society.

This is, obviously, a very unconventional view. Most economists and others who study such trends would probably strongly argue exactly the opposite case: that in the future, a college degree will be increasingly valuable and there will be strong demand for well-educated workers.

This is essentially the “skill premium” argument—the idea that technology is creating jobs for highly skilled workers even as it destroys opportunities for the unskilled. I think the evidence clearly shows that this has indeed been the case over the past couple of decades, but I do not think it can continue indefinitely. The reason is simple: machines and computers are advancing in capability and will increasingly invade the realm of the highly educated. We’ll likely see evidence of this at some point in the form of diminished opportunity and unemployment among recent graduates and also among older college-educated workers who lose jobs and are unable to find comparable positions.

We may not see an actual closing of the gap in average pay for college v. non-college graduates because opportunities for workers of all skill levels are likely to be in decline. I am not suggesting that high school graduates who would have otherwise gone to college will chose to remain completely unskilled, but I do think there is likely to be a migration toward relatively skilled blue collar jobs if there is a perception that these occupations offer more security.

As new high school graduates begin to shy away from a course leading to knowledge worker jobs, they will increasingly turn to the trades. As we have seen, jobs for people like auto mechanics, truck drivers, plumbers and so forth are among the most difficult to automate. The result may well be intense competition for these relatively “safe” jobs. As high school graduates who might previously have been college-bound compete instead for trade jobs, they will, of course, end up displacing less academically inclined people who may have been a better fit for those jobs. That will leave even fewer options for a large number of workers.

We see evidence of this trend already in the daily news. Newspapers routinely report that people are specifically seeking jobs that can’t be offshored. Much is made of new “green collar jobs that cannot be outsourced.” While this is certainly a desirable development, we have to acknowledge that the bulk of these jobs are going to involve installing solar panels, wind turbines and so forth. They are trade jobs; not jobs for college graduates.

The cost to society of such a turn away from education would be enormous. It would damage the hopes, dreams and expectations of our children and potentially rob them of things that we ourselves have come to take for granted. Those workers whose prospects were diminished by a new influx of more “book smart” competitors would become even more dispirited and more likely to turn to crime or other undesirable alternatives. This hash new reality would fall most heavily on people in disadvantaged sectors of the population. Finally, and perhaps most chillingly, a trend away from college would rob us of talent we may well need in the future.

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  1. November 23, 2010 at 1:01 pm

    These reports that say they show college grads earn more may confuse correlation with causality. People who are more ambitious, who are healthier, who are wealthier, who have a better home life, whose interests are aligned with academics, will tend to do better in our society in general regardless of whether they go to college or not. One can search on “College is a waste of time and money” and “The Case Against College” for more on this.

    Endless schooling (like endless war, endless bureaucracy, endless sickness, and endless prisons), is one way of burning up the prosperity that robotics and other automation, better design, and voluntary social networks are bringing us. Rather than go down those paths, a better approach is to use some mix of a “basic income”, democratic resource-based planning, a gift economy, and stronger local communities with increased subsistence production using advanced technology like 3D printing and organic gardening.

    It is true that with a glut of unemployed people with a college degree on the labor market that a college degree is becoming more and more of a filter to deny people access to jobs. But that has little to do with anything you get out of college so much as using college to prove social class, compliance to corporate norms, and even race. All that has little to do with “education” (which can be about personal growth and being a good citizen, as well as being a good worker) but using college has a filter has a lot to do with getting around employment laws in the USA that prevent overt discrimination on social class and race.

    In general, schooling in the USA has become a huge makework situation to deal with the structural unemployment issues caused by automation, better design, voluntary social networks, and limited demand. It is sad that more of it is claimed to be what we need to fix current social problems, when, as you point out, the problem of jobs will only get worse as robotics and so on continue to improve.

    By keeping people in school, they are kept out of the labor market in a socially acceptable way (often incurring debts or receiving assistance from the government or parents). Whereas people used to get a few years of schooling (often from ages 7 to 12, so about 5 years of schooling) to learn to read and write and do basic math, but using what would not be considered college level texts, and then bootstrap themselves from there if needed and learn everything else at home or on the job, schooling now goes from preK-postDoc (so, ages 3 to 30, or about 27 years) and kids are less able to think for themselves after all that time. Because schooling is seen as an “investment” it is acceptable, even if, as pointed out in the article, it’s a foolish investment financially for most people at this point, and personally it may also be very harmful of individual initiative. (See people like John Holt, John Taylor Gatto, and Jeff Schmidt / Disciplined Minds for more details, as well as the movie “The War on Kids”.) Ironically, for many kids at expensive private schools, if they were to receive the money their college education costs as a lump sum (and it costs a lot more than just tuition), they probably could live off the interest and principal for life at a very frugal level.

    Also, huge schools create employment with teachers, administrators, social workers, kitchen workers, bus drivers, construction workers, and so on, and thus are a huge make-work jobs program. Often in many rural areas, the schools are a major employer. Again, in the USA, this is socially acceptable to pay these people to guard young children. Also, the parents are generally compelled to work and so can’t homeschool their children. But, it is all ironic because you could could just give the money directly to the parents, then the parents would not have to work and could homeschool, generally producing better results for the children and the community. But, this is not yet socially acceptable.

    In general, and until even bigger changes, we need to move towards something like a “basic income” where every citizen from birth receives money from the state as a right of citizenship reflecting the citizen’s birthright to access some of the fruits of the industrial and informational commons. That would be a better approach than funneling about the same amount of money through schools and “social security”.

    Essentially, between schooling and social security and welfare, about a third or so of the US population is already having the equivalent of a “basic income” worth of money spent on their behalf. From usgovernmentspending.com it is for the 2010 fiscal year 1026 billion for education, 762 billion for welfare, and (from Wikipedia) $678 billion on Social Security. Together, that is 2466 billion. That is enough for a basic income (with not needs test or age requirement) of about US$8,000 per year per person for about 310 million US citizens. Health care for all could be covered by the additional trillion or so already spend in the USA for Medicare/Medicaid by switching it to a less costly single-payer model or some other universal coverage system. For a family of four, that would be US$32,000 a year to live off of (in addition to full sick care benefits). That would be tight, but such people could also do other things in their spare time (take jobs, run a business, save money by making things themselves including with 3D printers or organic gardens, and so on).

    Also, without a need for a job, people could live in a cheaper rural area with more access to land for a garden and so on. Many families of four in the USA do already live off of about this level of income — but usually they are working multiple minimum wage jobs to do so, so having this income but not having to work 80 hours a week for it would free up a lot of time to make other improvements in their life. People could also plan with more confidence, knowing they would always have that basic income, so they could do things like work towards becoming artists, or mimes, or novelists, or free software developers from a young age, without their parents saying, how are you going to make a living at that?

    We might see a tremendous blossoming of the arts and the volunteer sector in our society. Contrast that with the current situation in the USA of many people wasting two decades of their lives jumping through hoops in school in hopes they can get a job they will dislike and keep that until they can retire and die of a heart attack from all the junk food they ate while dealing with the stress of it all and having no time to cook healthy meals.

    A more livable basic income in the USA as a mainstream person would probably be about three times that per person, though, or more like US$2000 per month, although US$8000 a year (about US$700 a month) is just at the edge of what someone could probably live on in the USA if they made a lot of their own stuff and were very frugal (think, five people sharing a suburban house with a garden, or four young adults sharing a one bedroom city apartment). Naturally, a higher basic income would be better, but would require higher taxes than now or the US government charging more for renting its land, the broadcast spectrum, fishing rights, or other natural resources it holds in trust for all people.

    And advantage of such a basic income is that it provides reliable demand for the economy, which will smooth out economic boom-and-bust cycles. Also, as automation destroys more jobs, taxes of various sorts could be increased to maintain the basic income and still allow everyone to buy the fruits of automation.

    The big problem is that “welfare” in the USA is seen as something that disabled people get — where young people are presumably ignorant and old people are presumably infirm and both are essentially considered disabled to some degree. So, in the USA you need to prove you are “defective” somehow to get it (young, old, crippled, mentally ill, unemployable, etc.). In Europe, there is a somewhat different model of welfare as a right of a citizen and something that everyone gets (even as they have not come to a basic income yet, but seem to be heading more that way than the USA at the moment).

    I would suggest that the vast majority of children in the USA would be better off being homeschooled by parents who had such a basic income for their family than by spending most of their young lives in what has become, essentially, a prison for youth as a makework program. Many parents might prefer to be with their family than working a job they did not like. For parents with jobs, they could take that money and pay for a tutor or private school to take care of their kids while they worked. Public schools could become more like public libraries and community colleges, open to all to learn things in a hand-on way on demand and as community meeting places. I wrote an essay about this idea here:

    http://www.pdfernhout.net/towards-a-post-scarcity-new-york-state-of-mind.html

  2. Robert SF
    December 7, 2010 at 8:23 am

    the idea that technology is creating jobs for highly skilled workers even as it destroys opportunities for the unskilled . . . I think the evidence clearly shows that this has indeed been the case over the past couple of decades, but . . . machines and computers are advancing in capability and will increasingly invade the realm of the highly educated.
    ===

    Anyone who is skeptical of this should keep in mind that it’s not necessary for automation to completely replace highly educated workers in order to affect highly educated workers. This is because not every single task highly educated workers do requires highly educated workers. Therefore, automation can simply replace tasks here and there, and indeed, highly educated workers can at first welcome the automation as they say goodby to tasks they didn’t like anyway. But the dynamics work the same whether it’s highly educated workers or manual laborers. If automation does 10% of the work of highly educated workers, that puts 10% of highly educated workers out of work, even though no single machine or computer has replaced any one of them entirely.

  3. January 8, 2011 at 4:33 pm

    I like the spirit of this post, but the graph from business week is a little misleading. What’s being done is a normalization from 1991 as a base year. So this does not really tell you too much about whether the cost of college is “worth it or not”, its just talking about the annual growth rate not magnitudes.

    Obviously the U.S. has seen college costs continue to rise year after year, while wages of college graduates have not risen as steadily. But in terms of earnings college MAY still be a good bargain… but yeah, its quickly becoming a bad one.

  4. Kiran
  5. parasnath jaiswal
    August 19, 2011 at 8:02 am

    I like the spirit of this post, but the graph from business week is a little misleading.

    MTECH COMPUTER

  6. September 21, 2011 at 10:04 pm

    Thanks for writing this useful info!

  1. March 7, 2011 at 9:20 am
  2. March 7, 2011 at 8:02 pm
  3. May 3, 2011 at 1:32 am
  4. October 30, 2011 at 4:30 am

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