The college degree paradox

If a four-year college degree is the key to a well-paying job, then why are far fewer Americans making less than their parents?  “The Fading American Dream: Trends in Absolute Income Mobility Since 1940” found that the share of children with higher inflation-adjusted incomes than their parents declined from about 90 percent for those born in 1940 to just 50 percent for those born in 1984 (“Fewer Americans are making more than their parents did – especially if they grew up in the middle class,” Brookings, Jul. 25).

Yet during this same period, the percentage of Americans of both sexes earning a bachelor’s degree skyrocketed.  According to Statista, 3.8 percent of females and 5.5 percent of males in 1940 earned a bachelor’s degree.  In 1984, 15.7 percent of females and 22.9 percent of males did. This data call into question the assumption about the overall monetary value of a college degree.  Moreover, the data challenge the assumption that the affluent are those most likely to benefit.  According to the study, the bulk of the decline was concentrated toward the top of the income distribution.  Equally startling was that those born into the very bottom of the income distribution were still highly likely to earn more than their parents.

You don’t have to be a statistician to realize that something vital is being overlooked in the debate about the indispensability of a college degree.  I’ve written often about this assumption.  So much of the marketability of a degree depends on when it was earned, from which institution and in which major.  Yet we ignore these essential questions, preferring instead to make sweeping generalizations about the indispensability of a college degree for the financial future.  I continue to believe that when student loan debt is factored in, a college degree today is worth far less than believed.

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2 Replies to “The college degree paradox”

  1. A partial explanation for the stats is probably the trigger dates — 1940 and 1984.

    I think the study compared inflation-adjusted incomes at age 30. For children born in 1940, the parents’ age 30 would probably have been roughly 1944 and the children’s age 30 would have been 1970. For children born in 1984, the parents’ age 30 would probably have been roughly 1986 and the children’s age 30 would have been 2014.

    Wages in 1944 were depressed by the Great Depression and by wage controls during WWII. Wages in 1970 had been dramatically increased by the rapid expansion of the US economy from the end of WWII through the mid-1970s + labor unions were very strong during this period so the economic improvement flowed through to the middle/working class + federal policies (tax, trade, immigration) favored the middle class.

    By contrast, wages in 1984 were still relatively high — reflecting the continued impact of the 1946-1970s boom years. But, wages in 2014 were pretty much the same as wages in 1984 (adjusted for inflation). The US economy did not expand nearly as fast during this period as it did during the post-WWII period + labor unions largely disappeared so the economic improvement flowed almost exclusively to the rich (and to a limited extent to the poor) rather than to the middle/working class + the federal policies favored the rich and the poor at the expense of the middle/working class. (Note — this analysis at least partly explains why the children born in 1984 to poor parents continue to earn substantially more than their parents at age 30.)

    Hard to say what the $ return on a college degree would be today if the 1946-1970s trends had continued through to the present day.

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  2. Labor Lawyer: Good point, but the comparisons were adjusted for inflation, which make them valid. I question the oft-quoted wage premium attached to a college degree when the cost of student loan repayment is factored in. More importantly, I’ve yet to see a study comparing lifetime wages broken down by majors when compared with vocationally educated students. For example, what about a plumber who has served an apprenticeship compared with an art history major?

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