More on the Bubble

In this morning's WONKBLOG from the Washington Post (Ezra Klein is a pretty good source of lots of information - albeit much of it from the left side of the spectrum) there are a couple of charts which should give college leaders some pause.    Last September Fortune did a story on the the earnings of 25-34 year olds who are recent college graduates.   For the sixth year in a row the average income declined.   Indeed last September the data suggested that in inflation adjusted terms from 2005 the average declined by $10,000 - from $64,500 to $54,500.

The Progressive Policy Institute, which is a left of center think tank, has done a couple of posts on the current situation for college graduates.   At a time when student loan debt surpasses consumer debt, the numbers are not good.   Earnings peaked in 2005 but have followed a pretty solid rate of decline.   The volume of student loans is terrifying.  During the 1990s the volume went from $23 billion to $55 billion.   But during the last decade the volume increased again- this time to $113 billion.   As a reminder, unlike most other consumer debt, those loans are not dischargeable.

Here is a second chart which should also give any educational leader pause.   Labor market participation rates have been declining for the 18-34 market at all levels of education since 2007.   The decline has been most precipitous for high school graduates but even at the college level participation is down.

There is a deeper set of questions here.   Since the mid-1960s colleges and universities have touted the value of a college degree.  The College Board has been especially vigorous in arguing that a degree was worth more than a million dollars over a lifetime compared to the earnings of a high school diploma holder.   Some of us have argued that the argument was a false one on a number of counts.  First, the raw numbers did not account for the foregone earnings that the four years of college (or more in many cases) cost.   But second and more importantly, some of us argued that the earnings differential was highly variable.   The most recent survey of the National Council on Colleges and Employers presents some interesting discipline specific data.   Choice of major does make a big difference in earnings.   I suspect that were one to track labor market participation rates by discipline, there would also be a significant differential.

Note that on average Humanities and Social Science graduates earn more than $20,000 less on average than engineering or computer science graduates.   Note the NACE data and the PPI data are slightly different perhaps based on sampling differences.  But also note that I reject the idea that someone should direct student choices into disciplines.  

There is one other dilemma in this discussion.  Beginning in the 1960s the education based income differential between high school and college graduates began to grow.   Most observers argued that happened because of the increased demands of the workforce - skills requirements for many jobs began to increase.   I thought that was not demonstrated in the data.   More likely, employers (and this is true all around the world) began to value a high school graduate less.   Real earning for high school graduates have taken a dump in real terms (adjusted for inflation) for a couple of decades.    But here is the final (and in my mind most interesting) twist.    Beginning in 2011 the first wave of boomers began to retire.   Based on census data - that generation is actually a bit better educated than the current one.   Thus, one would expect that in the next few years, as this wave begins to build, relative earnings for recent college graduates should begin to rise as employers scramble to fill positions that were formerly held by (boomer) college graduates.