Nichols College News

Econ Professor Despain Reflects on Educational Outcomes




 Economics Professor Hans G. Despain reflects on the educational outcomes of a college education  in the July 26th Telegram & Gazette’s THE PEOPLE’S FORUM:

Americans place a high value on education, primarily because of the strong link between education and income level as reported by both the U.S. Census and the Bureau of Labor Statistics. The BLS shows expected earnings for 2010 college graduates ($1,038 weekly earnings) are dramatically higher than high school dropouts ($444) and high school graduates ($626).

Unfortunately, these figures are highly misleading.

The 2002 U.S. Census released a report (“The Big Payoff”) which suggested a difference of $1.8 million in lifetime earnings between college graduates and those with no college. Unfortunately, these figures are again highly misleading.

Let’s create a more “typical” college versus high-school graduate comparison.

First, we must point out the $1.8 million difference included college graduates plus master’s degrees, professional degrees (e.g. MDs, law degrees), and PhDs. The “no college” demographic included both high school graduates and dropouts — hence, let’s exclude graduate degrees and high school dropouts.

Second, there are opportunity costs to college —tuition and presumably very little work earnings for those attending college. (In fact, most college students work, but often as unpaid interns or part time).

Third, the typical college graduate takes out college loans and pays an interest rate on these loans for several years. Finally, to capture the “typical” graduate let us exclude the richest 5 percent of Americans.

Analyzing the 95th percentile and below offers a much better picture of the “typical” graduate by excluding the outlier income earners. This demographic skews the average U.S. income drastically. For example, if the richest 5 percent are included, American society is very income-unequal when compared to countries in the Organisation for Economic Co-operation and Development. If the richest 5 percent are excluded, income inequality between the 95th percentile and lower American households is incredibly modest, even compared to other developed countries.

The “typical” college graduate can certainly expect they will not enter the top 5th percentile of income attainment. When the opportunity costs of attending college are taken into account, and the analysis considers the 95th percentile and below of Americans, the expected financial benefits are greatly reduced. Moreover, when we consider public versus private colleges, business or technical versus liberal arts colleges, and various majors, it is best to estimate the college financial payoff of the “typical” graduate as a range.

That range is between $1,000 and $8,000 in annual income, or between $40,000 and $320,000 in lifetime earnings.

For students majoring in education and liberal arts at non-elite public universities, the pay differential of high school graduates will be closer to $1,000 in annual income; for those in engineering and business majors or elite private universities the average increase in annual pay may be closer to $8,000. It is important to remember these numbers are averages; individual college graduates will be above and below these averages.

Education pays for some, but not for all.

This conclusion is further confirmed by the fact that educational attainment has soared. Adults 25 years and older completing high school increased from 33 percent in 1947 to 85 percent today. Adults completing college jumped from 5 percent in 1947 to nearly 30 percent today. Likewise, the U.S. Census reports impressive and consistent increases in workplace skill levels of American workers since 1950. At the same time, wages when adjusted for inflation have stagnated since 1970.

Today’s workers are more educated, more skilled, and work more hours — with no increase in real income. American schools are producing more educated workers than the American workplace can absorb.

The good news is that college education generates much more than promises of increased individual pay. There are social outcomes. College graduates tend to be more empathic, ethically aware, and tolerant, and are more likely to vote, volunteer, and participate civically.

High pay certainly does exist; however, high pay is not necessarily technology and skill specific. Instead, high pay depends much more on the degree of monopolization of a firm or industry. If the industry is highly concentrated and firms can resist competition, worker pay tends to be higher. The less monopoly power a firm has, the lower tends to be workers’ pay.

I draw three main conclusions.

First, if the social outcomes outweigh the individual financial enrichment, state and federal grants should be expanded for (public) university students.

Second, if the goal is financially “lucrative” majors, students would be well advised to pay attention to a firm’s degree of monopolization, rather than specific skills obtained from formal education.

Third, stagnant American incomes and economic inequality are manifest from economic and labor market failures, not educational failures.