"There has been much more growth of inequality among college graduates than among noncollege workers," Katz says. Only some people, he says, are coming out of college with the high-level abstract-reasoning skills that fully complement the new information technologies and command high salaries...Does that mean, then, that too many people are going to college, and that the rewards of a B.A. are overrated, as some commentators have recently suggested?
"That's absolutely wrong," Katz says. "...The market is very bad for people with only a high-school diploma — they're not doing much better than people who dropped out in the eighth grade. So the return [on investment] to college is still very high. Even if you wind up in the bottom half of the college group, you're still much better off than in the top half of the high-school group."
The Goldin-Katz thesis, at least as it is filtering into the media, is that there is a massive market failure taking place. Young people are passing up the high returns of going to college. Are they myopic? Are they liquidity constrained?
I wish someone would test the market failure hypothesis directly. Offer a college scholarship program to students who otherwise would not attend college, and select the winners by lottery. Then compare the winners with the losers in terms of subsequent education and earnings.