College and Reinvention

“I’m thrilled today that President Obama is moving forward with an ambitious new plan to make college more affordable for every American. We know that higher education is more important than ever, but we also know it’s never been more expensive. We have heard from students and families across the country who are worried about affording college, and we believe that higher education cannot be a luxury that only advantages the wealthy.”

-From the Official Department of Education Blog
 

 

Right now, 94% of Americans expect their children to attend college. That’s a pretty remarkable rate, and nothing to sneeze at. Indeed, we’re looking at the most educated cohort of young people in history. Truly, we’re looking at a high point in American education, with more PhDs(including the STEMs), more lawyers, more accountants, more everything.

And this is the most racially diverse cohort ever. It’s not just more white kids going to school. It’s more black kids, hispanic kids, immigrant kids, everyone.

 Most hail this as a national achievement, with calls to do even more. See the Obama initiative, along with the cries that even that is not enough.

 Let’s put a damper on that for a second.

 Policy-makers are lazy bums looking at decades of past trends. They improperly extrapolate this data into the future. Worse than that, they are not looking at all the data they have today, which indicate a really tough environment for college grads and young people in general. They are not getting called out on this, and worse, they probably actually do think that more college is a magic bullet for our economic problems.

My spin: College is an important institution for the economy. A degree is useful both for signaling purposes and improving human capital. The degree is also individually important, as college students earn dramatically more money than non-graduates. However, the US economy faces significant head-winds and structural change. While this is generally acknowledged, it is NOT acknowledged that recent college graduates are merely the top rung of a sinking ladder, and that college students lack the necessary skill to propel the US economy forward on their own.

Meaning more college is NOT an economic solution, and more college right now will just create millions more credentialed paupers.

Let’s take this bit by bit, looking at some data.
 

Most people, when suggesting that people go to college, take a look at the so-called college premium. What that means is the extra money college graduates get over high school students. There are some problems with this measure, but it’s a good general measure of how much college is “worth.”

And, certainly, college students have fared better than non-college grads in this environment.

 

 

Given our lack-luster economic performance lately, along with increasing inequality, college seems like a sure-fire economic winner. Complicated theories have formed to explain this college premium over the years, many involving the change in our economic structure over time.

 

The hypothesis is that our increasingly knowledge-based and globally competitive economy rewards workers with more skill.

Certainly there has been some change in the work-force over the years. For example, we can see that so-called “routine” tasks have been increasingly automated, therefore decreasing the demand for those jobs and lowering those wages. This has been described as the Polarized Job Market:

 

 

This has been a generational change. And I don’t deny any of this. That’s pretty important from a policy perspective, too: workers need to get retrained so they can continue to earn wages. Businesses need workers with different skills to compete globally.

 

So yeah, more college=good for the economy, over the last few decades.

But in recent years,the trend does not hold. Just take a look at the graph above, with "Abstract: tasks actually decreasing slightly, after decades of increasing. Or consider wages. While college students are doing better recently, that's partly because no one is doing well.

 

Note of course that I am not entirely convinced we count benefits correctly.  However it does mean that rather than some new economic super-revolution, we barely hold our ground.

This is not what you would expect out of a new transformative 21st Century renaissance.

 This is certainly different than the economy we saw in the 1990s, which saw increasing wages. This strong economy was all-encompassing, as we would expect from a New Renaissance. Even high school dropouts had some better wage growth in the late 90s.

 

So clearly something else is happening here, just like we can see something else was happening in the early 1990s when college wages weren’t increasing at all. 

Since 2000, we show some pretty substantial decreases in the labor rates of young people, even amonghigh school dropouts and high school grads, that NEED to be working.

These economic changes do dramatically affect the less educated...high school graduates in the labor force declined from rates in the 70s to scarcely above 50, but even college grads saw their employment rate fall from 89 to 83% (likely due to recession, of course).

That really, really seems odd. Since 2000, we’ve seen a paralysis in wages. Since 2000, we’ve also seen the less educated drop out of the labor force, dramatically. Which wasn’t necessarily the case prior to 2000. What the hell is going on?

That’s an important question, actually, What the Hell is going on? Because that dictates the policy solutions.  It’s certainly possible extra college but this huge trend break makes me think we have bigger problems.

The real question we need to ask our policy-makers is what actually causes the underlying collapse in labor markets. Otherwise we are investing a lot of money in the wrong area. This is especially true since so many college entrants drop out and college debt is still increasing while the rest of the economy deleverages, and student debt might make it a lot moredifficult to pay back other kinds of debt, too.

This looks more like a collapse in the demand for labor: wages are not increasing, and participation is going down. Increasing supply in response to a collapse in demand is like a type-writer manufacturer building a new factory in 1990.

In this particular post, I do not have any explanations for the persistent economic weakness, or suggestions to improve thing. Rather, I want a quick link to point at whenever policy-makers lazily suggest “more college” as a solution to all our economic problems.