The Plan to Reduce Income Inequality by Driving down the Wages of College Graduates

Georgetown University's Center on Education and the Workforce is proposing to increase the number of college graduates America turns out each year in order to create an oversupply and drive down the wage premium from 74% to 46% vs. high school graduates. If we don't do this, the report says, the college wage premium will rise to 96% by 2025, and that would be bad. The report, The Undereducated American by Anthony P. Carnavale and Stephan J. Rose and funded by the Lumina Foundation and the Bill and Melinda Gates Foundation, was released June 27, 2011.

The sheer blundering goofiness of this report is illustrated by its wildly-wrong assertion, at 33, that "if we continue following current trends, there will be 8 million more postsecondary-educated workers by 2025." In fact, according to this report from the US Department of Education, National Center for Education Statistics, there are now more than 1.5 million bachelor's degrees awarded every year (projected to be 1.8 million by 2019), and by 2025 America should have turned out at least 25 million new college graduates and 12 million with AA degrees. That's a total of 37 million, not very close to the 8 million stated in the Georgetown report.

[3 July 2011: An email suggests I misunderstood the assertion the authors were making and thus being incorrect and unfair in calling it a blunder. The suggestion is correct, and I apologize for my error.  I had (mis)read the report as saying the US is projected to generate only 8 million new college grads by 2025.  In fact, I now believe they actually said the US is projected to have only 8 million more college grads in the work force net of retiring college grads. So my comparison of their statement with current and projected graduation rates was apples to oranges, but I'm leaving those projections in because they are relevant to the next paragraph. Where this leaves us is essentially talking past each other: They don't address the question of how many jobs of what types will exist, but only calculate how much higher the ratio of college-goers to HS-only workers there would need to be to reduce the college wage premium to their target level. I point out that there is already a glut of college-goers compared to the actual and projected jobs that require college, and I have no opinion about the accuracy of their estimate (but am repelled by their policy objective and still see the internal inconsistency noted below).]

While the US higher education mill grinds on at this rate, how many new jobs will there be that require a bachelor's degree or more? The latest Bureau of Labor Statistics projections in 2008 only go to 2018. (Follow the link to ftp site and download Occupation.xls.) During that 10-year period it projects there will be 11,674,700 million new and replacement jobs that normally require a bachelor's degree or more. During that same 10-year period, the lowest of three Department of Education projections puts the number of new bachelor's degree holders at 16.6 million, for a 42% oversupply. No wonder so many recent graduates are shut out of college-appropriate jobs—or any jobs.

Another internal inconsistency in the report is its expressed concern that more qualified high school graduates don't pursue college because they perceive the expected return on their investment of time and money is not great enough, i.e., the college wage premium is too small and/or the likelihood of getting a better job after graduation is too small. At 32. The authors have no sensible proposal for how to get more people to pursue college degrees if the wage premium is too small and going to get smaller.

There are many good reasons to be for better quality education and for mass higher education, not least that it promotes equal opportunity, but we should not be misleading our youth and our policy makers by making claims for education that are not true. It's not true, if 21st Century trends continue, that there is any reasonable scenario of job creation in America that will enable all college graduates to find good jobs appropriate for their credentials—even if there is no increase in the number graduating each year. It's not true that an increased labor supply induces an increase in the number of jobs when so many powerful forces are pushing/pulling those jobs offshore. It's not true that because the average college grad earns more than the average high school grad that every college grad will do better or that the current average college wage premium will necessarily continue or increase. It's not true that the mix of jobs that will exist in America in the next 10 years or so will be vastly different from today's mix. It's not true that America will be able to create and keep most of the high-skill, well-paying jobs in the world and let only the menial jobs go offshore. It's not true that having an adequately skilled workforce, or even a superbly-skilled workforce, can be America's strategic or comparative advantage instead of just being a necessary condition for success like good transportation systems, good communications systems, good government, etc.—we are still competing on price with skilled people in the rest of the world. It's not true that we lost millions of jobs to Chindia because the Chindians are better educated or more skilled—in fact, the jobs were offshored despite the fact that so far they are less well educated and less skilled. It's not true that education policy is an important part of the policy changes we need to respond to our growing joblessness crisis—and believing that it is distracts us from actions that could create jobs in America.

Update on Thursday, August 11, 2011 at 11:05AM by Skeptic

There is a cheaper and more feasible way to reduce the college wage premium than boosting college enrollment, and its already happening without changing any education policy: Offshore more high-skill jobs.  German economist Dalia Marin has compared the experience of Germany and the USA in the 1990s (after implementation of NAFTA and the collapse of the Soviet Union) and found that the skilled wage premium went up in the USA and down in Germany.  The reason, she says, is that the USA outsourced primarily low- and medium-skill manufacturing jobs to Mexico and China, while Germany outsourced high-skill engineering jobs to Eastern Europe where there was a surplus of highly-trained, cheap labor.  Further, she notes that the USA skilled wage premium leveled off and started to decline in the 21st Century because the USA has been accelerating the offshoring of high-skill jobs like engineering, lawyering, financial analysis, and radiology. H/t Yves Smith.

Update on Saturday, August 13, 2011 at 02:38PM by Skeptic

John Schmitt points out in this excellent post (includes a chart of BLS data) that the earnings ranges of high school and college graduates have a large overlap and that the investment in a college education may not pay off for a large number of individuals who spend the time and money to get one. 

[S]omething approaching half of college graduates (the figure doesn’t allow for too much precision) make less than the top 25 percent of high school graduates. And somewhere approaching half of high school graduates make more than the bottom 25 percent of college graduates.

If we are comparing only medians and averages, we are missing an important part of the story. 

But getting back to the original post, if the wage premium for median or average college-goers shrinks even more, the large overlap between the two wage ranges means we should expect to see even more rational individuals and their families opting not to invest in college.

Update on Monday, August 15, 2011 at 09:56AM by Skeptic

Mejia et al. discuss their own projections of educated labor supply and demand and compare it with those of Carnavale et al. and Harrington and Sum here.  A big factor influencing whether one projects a shortage or surplus of skilled labor later in this decade is whether one assumes the BLS determinations of the minimum skill requirements for a particular job are accurate or assumes that the trend of college graduates actually working lower level jobs means the education requirements are rising.

Update on Thursday, August 2, 2012 at 04:26PM by Skeptic

Nancy Folbre reports at Economix that fewer than half of recent college graduates are employed in jobs that require college degrees and that their real entry level wages are lower than they were in 2000.  US college graduates are facing stiff competition from foreign workers here under H-1b visas, keeping wages for these jobs depressed.

Further, he [Professor Matloff] observes that high-tech companies insisting that there is a shortage of STEM workers with advanced degrees in the United States don’t seem willing to invest much in increased financial support for graduate education.

Maybe college students should seek jobs that seem less vulnerable to global competition, in fields like health sciences. But I just read an article about health care companies sending jobs overseas that gave me palpitations.

The economist Alan Blinder asserts that high educational requirements can make a job more rather than less “offshorable.” Most large American companies have already figured this out – but it’s not clear how many college students have.