I blame the inequality, not the education.

7 10 2010

There was a fascinating story on NPR this morning about wealth inequality. Apparently, people don’t really care about income inequality because they all expect to get rich in their lifetime. And while people understand the concept of income inequality they have no idea how maldistributed wealth is in America. The bottom 40% of Americans have no (or negative) net wealth. Thank goodness for social mobility, huh?

Not so fast. It turns out the real returns from a college education, the best vehicle for social mobility, are decreasing over time. From Changing Higher Education:

The College Board has recently published an interesting report entitled Education Pays 2010: The Benefits of Higher Education for the Individual and Society. As have similar reports in the past, this shows the enormous financial benefit to the individual of gaining a bachelor’s degree (or higher) – as compared to someone who does not get a college degree….

However there is an additional aspect of the report that I have not seen mentioned that caught my attention. Without in any way challenging the report’s conclusion that a college degree is highly desirable, comparing salary data from this report with similar data from the previous report in this series Education Pays 2007 leads to a somewhat less upbeat conclusion.

The salary data in the current report comes from 2008, that in the previous report, from 2005. Comparing the 2008 median earnings for bachelor’s degree holders ($55700 in 2008 dollars) with similar numbers for 2005 ($50900 in 2005 dollars), we see a percentage increase in median earnings of 9.4%. Unfortunately, the Bureau of Labor Statistics data tells us that the CPI increased 10.2% over that period. That is, adjusting for inflation, one sees that the median real earnings for bachelors degree holders decreased over this three year period by about 0.7%.

So while higher education remains the best investment that you will ever make, the value of the returns from that investment are now steadily decreasing. Personally, I blame the inequality, not the education.

Which do you think would be easier to fix?



One response

9 10 2010

My guess is that the reason for the decline in ROI on college is due to the increase in debt that students must take on because of the wholesale withdrawl of public support for higher ed. But, quite frankly I’d be more impressed if the data included a comparison to undergrad degrees earned in the 1970s, 80s, and 90s, and not the relatively pointless comparison of 2005 v. 2008. 2008 grads graduated into the Great Recession–of course their earnings are depressed!

I graduated into the recession of 1990-91. My graduate stipend of $7,200 in 1990-91 probably wasn’t a great advertisement for my fancy-pants private college. I don’t think looking at data from people 2 years out of school is particularly useful.

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