Arnold Kling  

Education and Income

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Michael Mandel writes,


Four years of falling earnings for the college-educated. That hasn't happened since the 1970s...

The only people doing well have advanced degrees. The world has changed. Just college is no longer enough.

I'm basically an optimist, but this can't be a good thing. I'd be interested to hear what others think.


The charts on his post are what tell the story. Click on the link to get the picture.

The Census data necessarily include lots of people who finished their education many years ago. I think that 2000 was a peak year for many people, because at the top of the dotcom bubble a large proportion of the population was employed. So maybe the surprise should be that any group shows gains in income since 2000.

What would be interesting to know would be what has happened to the salaries of a 26-year-old with an advanced degree, with a college degree, and with a high school degree. If the pattern turned out to be the same as that shown in the chart, with advanced degrees going up, high school staying the same, and college-only falling, then it might raise questions about the value of college for those who do not get advanced degrees.

I bring that up because the singular of data is anecdote, and anecdotally my daughter will tell you that her college education did not get her a job that required more skills or provide higher pay than what she could have gotten out of high school. So she is thinking about law school.

If her experience becomes widespread and well known, then the role of a college education changes. It becomes the gatekeeper to getting an advanced degree, but otherwise its intrinsic value is small. My instinct is that we're kind of headed that way. If so, then colleges will have to do more to improve the income prospects of those who are not bound for advanced degrees. Or some other institution will emerge that aims for those students.

In a related story, Robert Frank writes,


most students seem to emerge from introductory economics courses without having learned even the most important basic principles. According to one recent study, their ability to answer simple economic questions several months after leaving the course is not measurably different from that of people who never took a principles course...

the introductory course is increasingly tailored not for the majority of students for whom it will be their only economics course, but for the negligible fraction who will go on to become professional economists. Such courses focus on the mathematical models that have become the cornerstone of modern economic theory. These models prove daunting for many students and leave them little time and energy to focus on how basic economic principles help explain everyday behavior.

I published Learning Economics to try to offer a non-mathematical approach.


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COMMENTS (22 to date)
KipEsquire writes:

What would be interesting to know would be what has happened to the salaries of a 26-year-old with an advanced degree, with a college degree, and with a high school degree.

Not to mention all the "entrepreneurs" who dropped out of college, business school or law school to chase dot.com fantasies.

Paul N writes:

We can expect this plot to taper off like it has the past few years every time there's a hiring recession in the economy. Fewer new jobs + similar numbers of college grads = lower starting salaries.

In my field (advanced degree required), salaries have been essentially constant over the past few years, too, so I would question not only the (potential) conclusion about college becoming less valuable, but also the conclusion that advanced degrees are somehow better relative to a college education than they used to be.

spencer writes:

How many reports and factual evidence of what is actually happening in the economy is it going to take you to see the truth.

We are developing a bimodal economy. All the gains are going to the top few while the middle class is being squeezed down to the bottom.

Show me one report of income gains over the past few years that contradicts this analysis.

James writes:

What inference do these numbers really warrant? I wonder what part changes in choice of focus play here. Is the lower return on the average 4 year degree a function of more students taking majors in e.g. psychology and less going into e.g. engineering? Also, how much of this is due to the fact that employers are increasingly forced to provide a lot of employee compensation in kind rather than in monetary terms?

Bob writes:

This may be a statistical phenomenon. You are not comparing apples to apples over time. As more people go to college, college students become a less elite group and the quality of the pool of incoming students gets diluted. This creates a downdraft in the statistics over time - constant quality wages within the group could be rising but measured wages falling. The same could, and likely will, eventually show up in advanced degree salary statistics. The we'll hear about how there are "too many" MBAs and all the economy's gains are going to Ph.D.s. Fact is that a simple statistic like average wage over a dynamic population doesn't tell you a lot about what's really going on.

Robert Schwartz writes:

When 10% of the population went to college, it was possible that they would wind up with a income distribution skewed away from the total work force. Now that 50% go to college, it is more difficult for them to be pushed away from the the rest of the world as they are the rest of the world.

Going to graduate school will only make an economic difference to the student if he acquires skills wanted by the market. A B.A. in English will get you a job working in an office as an executive assistant at $25K/yr. So will a Ph.D. But a B.Chem.E. will start at more than three times as much and an advanced degree will fetch more than that.

I am running my own experiment on this theory. Child one, who called home when she finished 'rocks for jocks' and said "yeah, I never have to take another science course," graduated with a degree in an arts field and is now working in an office as an executive assistant. In the long run I think she will go far because of her native smarts and energy, but more school would not help her now.

Child two, who is still an undergraduate, is majoring in applied math and plans to take quantum mechanics this year because she thinks it is interesting. Want to bet who will have the higher initial salary when she graduates?

As for going to law school. I have been there and done that. My advice to your child would be to figure out why she wanted to to law school before she went. Going to law school costs $100K in tuition and probably nearly that amount in fore gone wages. It is trade school and it is not that much fun unless you really love playing 'I've Got a Secret'. Then there is the misery of being a young associate. There are more amusing prisons in the mountains of Peru.

One thing she can do to give herself a taste of law firm life, without the tuition payments, is to become a paralegal. In D.C. there a number of large firms that will hire liberal arts grads for that purpose. The pay is in line with other office work, but she will get to see the creatures in their native habitat.

Mike writes:

Spencer,

I can see your frustration, but couldn't someone just as easily challenge you with the following,

"Show me one report on income over the past few years that SHOWS the middle class being squeezed."


Perhaps someone can demonstrate this using the PSID, but I doubt it.

I work in academia, and my take is that part of blame for the stagnation in the returns to a 4 year degree (assuming the statistics accurately reflect reality) should be placed on the serious erosion of quality at many institutions of higher education. At my institution (top 40 LA college - I can't list it b/c my colleagues would excommunicate me), many professors spend their time and energies protecting the status quo, making political statements and generally working very little on preparing our students for post-college life. We are in the midst in the search for a new dean and the most important criteria in hiring a new one is that she is "graceful" and that she understands that she "represents the faculty", not that she has any particular vision for how we need to move forward to best serve our students. This is an area I study and I do believe there is more than just anecdotal evidence to support this claim.

I think that 2000 was a peak year for many people, because at the top of the dotcom bubble a large proportion of the population was employed. So maybe the surprise should be that any group shows gains in income since 2000.

Exactly, the year 2000 is no baseline worthy of the name.

Aaron Chalfin writes:

More than ever the key to the kingdom is a graduate degree from a reputable university. As a result, more than ever, performance in standardized settings (standardized exams, classroom exams etc.) is key.


Here’s a thought: As the US becomes more meritocratic, if success starts to be more predictable and less random, will that undermine support for capitalism as the majority of citizens will view redistribution as more likely to benefit them? That is, as the correlation between “IQ” and income increases, will those in the middle of the distribution increasingly abandon capitalism?

Robert Schwartz writes:

"More than ever the key to the kingdom is a graduate degree from a reputable university. "

In Cultural Studies? How about Applied Mathematics?

Aaron Chalfin writes:

In general, I think this has been true. I'm not naive enough to believe that the statement applies to every single field.

Robert Schwartz writes:

Its like buying houses, some of them appreciate, some of them depreciate, and some of them are under water. Location is everything.

Paul N writes:

As someone with a newly-minted Ph.D. in engineering from a top-5 university, who has struggled for over a year to find a job (I'm not picky about what I do, although yes I do want a job in engineering), let me just tell you that you are all grossly off-base when you say that advanced degrees are now what you need to be successful, or that advanced degrees from top schools, or advanced degrees in the right field.

You're making up how you want the situation to be
without actually looking at how things are. Check with other recent graduates with advanced degrees - they'll tell you the same thing. The reason starting salaries have tailed off for a few years (for almost everyone) is simple supply-and-demand.

Aaron Chalfin writes:

My question about meritocracy and capitalism is based on the accuracy of the post by Michael Mandel that Arnold Kling cited. I haven't seen the data myself. If Mandel is wrong, my question may be moot - though I think it is still interesting theoretically.

David writes:

Re: Introductory Economics education

I recently read Thomas Sowell's two-part non-mathematical introduction to economics. A little on the polemical side, but I think people with no exposure to the subject would gain an insight into principles that would help them understand a lot that they read about in the newspaper. For example, "price gouging" in the wake of the hurricane. Any chance it would be selected by one of the colleges that assigns "NIckel and Dimed" to all its incoming freshman? No way!

David writes:

I left a similar response to the young, educated and underemployed question a month or two ago, butI still believe that marrying at a younger age might force some people to take more serious stock of themselves and their ambitions sooner, and be less likely to waste their time in low-paying jobs. ARnold has referrred to college as a holding pen- is that an improvement over young women going off to school in pursuit of the MRS degree? Or young men becoming serious at a younger age because of real responsibility for the first time?

John P. writes:

Spencer said, "We are developing a bimodal economy. All the gains are going to the top few while the middle class is being squeezed down to the bottom."

This sounds like a new version of "the rich are getting richer while the poor are getting poorer." I would submit that, in a free economy (which the US has, more or less), it's impossible for the rich consistently to get richer while the poor (or middle classes) consistently get poorer. Unless the rich are confiscating the property of the poor, or are making and investing their money entirely outside this country, they can get richer only if much of the rest of the population is getting richer, too. The rest of the population may not be getting rich at the same rate, but they never have, and there's no reason to expect that they should.

Aaron Chalfin writes:

Right on. It is ridiculous how many commentators purposefully conflate poverty and inequality .... citing inequality measures to show that poverty is increasing or worse: implying that inequality is the cause of poverty.

Steve Sailer writes:

As Thomas Sowell noted recently, importing so many poorly educated immigrants hammers down the wages of our poorly educated fellow citizens. It's called the law of supply and demand, and even though economists don't like to mention it, it applies to immigration as well.

dearieme writes:

Aaron Chalfin: your question about meritocracy and capitalism - you might enjoy the novel "The Rise of the Meritocracy" by, I think ?? Young, written in ca 1960s.

dearieme writes:

Googled: that's Michael Young, 1958.

Mr. Econotarian writes:

Please go to Gapminder, and you can see an informative and interactive display of income distributions for several countries over time, including the U.S.

You will see that the middle class is alive and well, although there is a small persistant underclass.

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