Arnold Kling  

Education: Is There a Massive Market Failure?

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Goldin and Katz get more press.

"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.

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COMMENTS (12 to date)
KipEsquire writes:
"Offer a college scholarship program to students who otherwise would not attend college..."
There is of course no such person in America. We are overflowing with taxpayer-funded public colleges (including taxpayer-funded community colleges), taxpayer-funded tuition vouchers, taxpayer-guaranteed student loans, taxpayer-underwritten dormitories. Etc., etc., etc. Any qualified citizen can get an accredited four-year college degree for little or no money upfront (excluding opportunity costs).

Maybe, for a change, we should focus not on the education but on all the taxpaying that is propping it up. That certainly distorts the "returns to education" too.

Trevor writes:

Maybe they just don't want to fill out FAFSA forms and mortgage their very souls to the Fed.


A grad student

david writes:

The returns of going to college are not about getting a job or making money. It's about learning how to learn about the world and yourself.

GU writes:

Or maybe we could stop treating people without college degrees like sub-humans?

College should be reserved for people who can actually benefit from the education; according to Charles Murray, the cutoff for this is an IQ of about 115 (the top 25% of people). We should not be shooting for a world in which benefitting from college means "I can't get a good job without a college degree, ergo I'll get a college degree."

Many people view the "only smart people should go to college" idea as vulgar and against our egalitarian ideals. However, many of these same people think of Europe as a beacon of equality compared to the U.S., and most European countries filter their students, in a very harsh way, to college only if they prove they can handle it intellectually. I don't think we should have as wooden a system as most European countries, but it should be perfectly respectable to be a productive member of society who does not have a college degree.

This would be beneficial because it would make a BA or BS meaningful again, along with saving marginal college students the time and cost of going to college, since the jobs most of them will hold do not require a college education.

Dan writes:

It would seem the greatest failure is at the high school level. Turning the Katz quote around: Wages for US adults who dropped out in the 8th grade are almost as high as high school graduates.

Goldin and Katz only study wage performance ( Taking lost work-years associated with high school and societal costs of tax-subsidized US high schools may tip the balance in favor of dropping out in 8th grade rather than obtaining only a high school diploma given current high school curricula.

This wage performance gap could be due to US high schools curricula being mostly preparation for college, which does not add (wage) value to those not proceeding to college.

Goldin and Katz assume all high school curricula are equivalent. Some countries and some US jurisdictions have separate high schools for students not planning to continue on to college, often called "trade schools". The Goldin and Katz study did not take these into account. For all we know, the trade schools may account for the entire difference between 8th grade dropouts and high school graduates.

Research Opportunity: study adult income effects of trade school versus college-prep curricula high schools.

This does not fit the socialist agenda of Goldin and Katz: more education for more people. Instead I propose a libertarian agenda: appropriate education for each person.

DaveH writes:

I am an adjunct professor at a University in New York City.
The students I teach (all upper classmen) are dissapointing to say the least. I think there are too many people going to college who do not have the basic skills (writing, research, analytical) needed to earn a degree. However, in the US there is a college for everyone. Moreover, the opportunity for anyone to obtain a degree, regardless of ability, is seen as a "right". Just look at the New York State University system (SUNY) or the community colleges which are nothing more than remedial High Schools.
BTW, in my experience, I have seen that the idea of a school for everyone also applies to law schools.
Sadly, most interns I have hired (I am a law clerk for a judge) do not have the writing skills or for want of a better term "attitude" or "drive" or maturity needed to compete in the workforce.
I would have to guess that employers are starting to learn that a degree itself does not indicate a job applicant has learned anything, especially if he or she has a degree in the humanities or anything that ends with "studies".
I have my own theories, including the fact that most American students spend too much time in front of televisions or computers, leading to a generation of illiterates, but that is another comment.

Giovanni writes:

Youth culture values independence and rebelliousness, while schools require more conformity and humility.

Dan Weber writes:

Or maybe we could stop treating people without college degrees like sub-humans?

Amen. I've called before for making education a verboten question for employers, the same way that they're not allowed to ask about race or family status.

If my college education made me better (and I think it has), I should still be able to get value out of it even if it's hidden.

floccina writes:

If you pass the test that graduating college is, you do well, no surprise. If college marks you as one of the top 25% of Americans it will naturally benefit the person in 25th percentile most to go and graduate college. This does not mean that sending more people to college will make the average person better off.

To run a good test of the benefits of college, you would need to get a large set of people with similar abilities and divide them into 3 groups. Give one group the education without the diploma, give one group the education and the diploma and another group the diploma without the education. Then see how they do in life.

If you just want more college grad just make college easier and more enjoyable. Make it easier for people to go part time etc.

But we should ask ourselves what knowledge and skills are people lacking that will enable them to have a better life and how can we most efficiently get that knowledge and skill to them.

[Start half kidding

How about through TV
PBS? Myth busters? Financial myth busters? Economic myth busters? Success myth busters?

Anyone think this is a good idea. It amazes me how much people learn from the history channel that they had in school but did not learn.

End half kidding]

Also I think that we a separation between testing/credentialing and education. Home schooling moves things in this direction a bit but only up until college. For profit colleges could help also as if you are making money off a student you do not want to flunk them.

Lord writes:

Secondary school educators think everyone should be going to college, while college educators think it should be reserved for the top half or less and are disappointed even with those since only the top half does go. God knows what they would think if they actually had to deal with everyone, but it would be tempting to find out.

Ike Coffman writes:

Lets summarize: there is large income inequality between college graduates and non-college graduates, and there is an increasing income inequality between college graduates. What this tells me is that business and industry are doing a far better job of separating the talented from the non-talented than our schools are.

This is the free enterprise system at work folks. Even though many people feel that education is an entitlement (not necessarily earned through hard work and effort), companies are separating those that earned their degrees by working at and learning the material from those that did not. Ulimately, there is no free ride.

This is a lesson that our students need to learn, and quickly for the sake of our national economic competitiveness. Too many students are lazy, as DaveH describes. This does not let our schools off the hook, though: our educational system fails by not being able to motivate many talented students. We increasingly have a one-size-fits-all college prep program that does not appeal to the more hands-on learner (primarily male), and rewards those who can sit passively (making school boring as hell for some). Our schools have to change, and we as a society (parents) need to reinforce that achievement is earned, not given.

Dr. T writes:
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?
Absolutely. How can anyone believe otherwise after we tripled the percentage of teens going to college compared to 1968? Most of the teens headed to college today would have been rejected applicants a generation ago. Since most students getting into college complete a degree, the only conclusions one can reach are that college courses have been watered down and grades are inflated. (The students haven't gotten smarter.) Back in the 1970s Rochester (NY) businesses complained about the poor writing skills of the engineering graduates from RIT. Today's average grad is much worse.

I recently taught 4th year college students, grad students, and medical students. Most of the 4th year college students (medical technology majors) could barely handle algebra. Most of the graduate students could not write coherent short essays on an exam. Neither could most of the 2nd year medical students.

If we don't reverse the trend, a college degree will indicate only that the graduate had four more years of high school-level courses. Students will need masters degrees, Ph.D.s, and post-doctoral fellowships to quality for what used to be bachelor's degree-level positions.

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