Tags: college | economy | tuition | pay

College Can Pay Off, But Your Results May Vary

College Can Pay Off, But Your Results May Vary
(Dollar Photo Club)

By    |   Tuesday, 17 November 2015 09:55 AM

Why don’t more people get college degrees? In a new working paper, Sang Yoon Lee, Yongseok Shin and Donghoon Lee write: “In the early 1980s, American men with at least four years of college education earned about 40 percent more on average than those whose education ended with high school. By 2005, this college wage premium rose to above 90 percent. During the same time period, the fraction of men with a four-year college degree in the working-age population all but remained constant.”

This is a bit of a mystery. College tuition has gone up, to be sure, but financing that tuition is easier than it used to be, what with the panoply of repayment options for government- sponsored student loans. Moreover, more people start college than did in 1985; it’s just that they don’t finish. So you can’t explain this by saying that people are avoiding college because of the size of the potential tuition bills.

The authors attempt to answer this question by pointing out that the overall financial return from a college degree has not gone up nearly as fast as some of the individual returns.

While we’d like to think of enrolling in college as a guaranteed route to a stable, well-paying job, in reality it’s more like a lottery ticket. There are good jobs out there that are available only to folks with a college diploma. But not everyone with a college diploma gets one. You can also end up underemployed.

As the college wage premium has risen, the variance in graduate earnings has also risen, meaning that there is a much bigger difference between the top and the bottom than there was 25 years ago. College folks doing jobs that don’t require a college degree have earnings that look more like people with a few years of college and less like the average earnings of a college graduate.

Of course, it’s not exactly like a lottery ticket, because the distribution of the rewards isn’t random. Not every college graduate is entered in the “investment banker” or “Silicon Valley software engineer” draws.  The high salaries for those jobs pull up the average earnings of college graduates, which can make a college degree look like a more lucrative bet than it actually is if you’re unlikely to get one of those top-end jobs.

The working paper's model suggests that the increasing variance, or risk, in the earnings of college graduates means that people who enroll in college are embarking on a search process in which they discover what their likely earnings are. As they realize that they’re more likely to end up in the bottom tier of college graduates, people become more likely to drop out. Others don't don’t drop out, but graduate and then end up in jobs that don’t require a college diploma.

This model implies that the gains from pushing marginal students into college are likely to be small, for both the students and for society; those students are more likely to drop out or graduate but reap little or no wage premium for their degree.

Of course, this is just one study, and one model. But it raises the question that I asked a few weeks ago: What, exactly, are we getting for all the money we’re spending on college?

“Helping students pay for college” sounds like a fine public policy goal. “Helping people to spend years of their lives taking on debt just to find out that they’re unlikely to get a high-paying job” … considerably less so.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story: Megan McArdle at mmcardle3@bloomberg.net

© Copyright 2019 Bloomberg L.P. All Rights Reserved.

   
1Like our page
2Share
MeganMcArdle
Why don't more people get college degrees? In a new working paper, Sang Yoon Lee, Yongseok Shin and Donghoon Lee write: "In the early 1980s, American men with at least four years of college education earned about 40 percent more on average than those whose education ended...
college, economy, tuition, pay
616
2015-55-17
Tuesday, 17 November 2015 09:55 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved