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The College Bubble Is Leaking

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Last summer, Barack Obama promised a new education program that would produce 8 million more college graduates by 2020.

Few people at the time raised the obvious question: do we really need an additional 8 million college graduates? Where’s the evidence for a coming shortage of college educated workers?

The short answer is that the evidence doesn’t exist. If anything, the demand for college educated workers has stopped keeping up with the supply, even as the costs of college education keep rising. We’re paying more for college than ever, while the value of college keeps dropping.

CNBC Education and You 2011 - A CNBC Special Report
CNBC Education and You 2011 - A CNBC Special Report

Lawrence Mishal at the Economic Policy Institute relays the stark facts:

Despite frequent claims, it is simply untrue that we have seen a three decades-long radical increase in employers’ demand for four-year college graduates. The widespread (even before the recession) utilization of college students and graduates working as unpaid (many unlawfully so) “interns” is evidence enough—if employers desperately needed these workers, they would pay them.

In fact, the trends of the last 10 years contradict this story. The wages and benefits received by young college graduates fell over the 2000–2007 business cycle and in this recession. Moreover, the wages of all college graduates have been flat over the last 10 years, with those for men having markedly declined. This should not be surprising as the relative demand for college graduates, according to Harvard’s Claudia Goldin and Larry Katz, grew more slowly in the 2000s than in any postwar decade, following relatively slow growth in the 1990s. A major increase in the supply of college graduates would further erode the wages and benefits new college graduates obtain and drive down the wages of all college graduates, especially among men.

The college premium has barely budged in 10 years. Yet income inequality among households has soared since 2001, and the wage gap between high- and middle-wage workers has grown strongly as well. Something that’s not growing—the college premium—cannot explain growing inequality. Having more college graduates will leave untouched the income inequality driven by the outsized income growth (from salaries and capital gains) claimed by the upper 1 percent and the upper 0.1 percent. Wage gaps are primarily driven by increased inequalities among workers with similar education (among college graduates, for example) rather than by differences across education groups.

But if college education is failing, why do policy-makers keep touting it as a panacea? Paul Krugman this weekend provided one theory: they’re just fighting the last war. Increased access to education was important to boosting our economy in the post-WWII era, so policy-makers just assume the same trick will work in the 21st century. Evidence to the contrary is ignored.

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