A recent study of income and education in the UK shows a disturbing, but understandable, trend (as reported in the Financial Times): “Degree no longer passport to well-paid job”
A university degree is no longer a passport to a well-paid job, and the effect on lifetime earnings has fallen, research into the graduate labour market has found.
Graduates can now expect to earn an average £140,000 more over their lifetimes compared with those who choose not to go to university; down from the previous estimate of £400,000.
Still a premium, but a declining one. Why the decline?
The huge rise in the number of students in the 1990s has eroded the wage premium, with the supply of graduates expanding faster than demand for their skills.
But the decline apparently is not across the board:
Signs are that the decline in relative graduate earnings is most pronounced in more popular subjects such as the arts and humanities. The [University of] Swansea researchers estimate that the rate of return on an arts degree for a man is now negative.
According to a companion FT report “Career no longer a matter of course”:
research also showed that the highest ability graduates seemed to be doing as well as the previous generation of high achievers. The declining wage premium was occurring because those lower down did not get as much financial benefit from higher education.
I suspect that the same dynamic is occurring the US. Much of our higher education policy is geared toward getting a degree — any degree — without differentiating the skill set acquired with that degree. In all fairness, looking at the demand side is very difficult. And the personal value of the college experience is high.
But if we are to make good economic policy for future prosperity, we need to move beyond the simplistic formulation that a college education will automatically lead to higher incomes. This leads to a situation where our policy for increasing incomes is to increase the number of those getting degrees. Even a rudimentary understanding of supply and demand should make it clear that if everyone has a college degree, then the labor market value of that degree is less than if only a few have a degree. We need to focus more on the skill set required for those graduates to flourish in the information-innovation-intangible economy — and focus less on the piece of paper.