September 23rd, 2013
(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: firstname.lastname@example.org
This graph makes it appear that “Judged from a financial perspective, a bachelor’s degree has a positive return on investment that beats the returns of the stock market, corporate bonds, and the housing market.” However, to believe this graph is valid, you have to believe that the income premium (over high school) that college graduates made in the past will continue to be true in the future. To the extent this is true, it might be because of falling wages for high school graduates.
I have a problem with this method:
“Payscale draws on its information about alumni salaries. It calculates the expected earnings of a newly minted graduate over a 30 year career by summing the median incomes of alumni from his or her school who graduated between one and 30 years ago.”
Yes, I know that college was worth it 30 years ago, and even 15 years ago, and even 10 years ago. That is not the real question. The question is will this continue to be true in the future? Those who are challenging the value of a college degree are in essence arguing “We may be at an inflection point where the value of a college degree will, from this point forward, decrease.”
You can not prove or disprove the point by pointing out that trend lines from the past, if projected into the future, show that college remains a great investment.
That line of reasoning is irrelevant if we are in fact at an inflection point. What is relevant is any argument for or against the idea that we are at an inflection point. Arguments based on trend lines from 30 years ago miss the heart of this subject.
The strongest argument to be drawn from this chart is one based on the 5 year trend line: if a college degree was worth a great deal during the Great Recession, then surely that proves the enduring value of a college degree? However, there is a counter argument: what is being measured here is the income premium beyond what someone with a high school degree makes, and the Great Recession wiped out millions of jobs in industries that hired large numbers of people who only had high school degrees (for instance, the construction industry).
Again, the question to be answered is are we at an inflection point? When the economy recovers, and jobs in the construction industry have returned, will a college degree still offer the large income premium that it offered in the past?