Why College Doesn’t Pay

A month ago Mike Mandel published these thought provoking charts detailing the plight of new college graduates:

Mandel notes that he has not seen a credible explanation for the trend of declining earnings and asks what sort of  economic policies might be devised to help new graduates.

Alex Tabarrok provides some interesting data that might at least partially explain the trend:

While there are likely to be a number of factors which have contributed to the decline in graduates’ earnings, Tabarrok’s data would strongly suggest that we might simply turning out too many people with knowledge that is not highly compensated and turning them out in such numbers that the supply drives down wages in certain fields. In fact, Tabarrok points out that many of these graduates end up with jobs that don’t even require a college degree.

On the value of a degree, Tabarrok has some fairly strong views:

Most importantly, graduates in the arts, psychology and journalism are less likely to create the kinds of innovations that drive economic growth. Economic growth is not a magic totem to which all else must bow, but it is one of the main reasons we subsidize higher education.

The potential wage gains for college graduates go to the graduates — that’s reason enough for students to pursue a college education. We add subsidies to the mix, however, because we believe that education has positive spillover benefits that flow to society. One of the biggest of these benefits is the increase in innovation that highly educated workers theoretically bring to the economy.


College has been oversold. It has been oversold to students who end up dropping out or graduating with degrees that don’t help them very much in the job market. It also has been oversold to the taxpayers, who foot the bill for these subsidies.

I might use the word misrepresented as opposed to oversold, but I do agree with the gist of Mr. Tabarrok’s comments. His data suggests at least a partial answer to Mike Mandel’s question about appropriate policy responses to the decline in graduates’ earnings. Specifically, we probably don’t need to devise any economic policy to ameliorate the decline, least of all one that would involve the expenditure of other peoples’ money. What we do need to do is effectively counsel college students as to the economic ramifications of their curriculum choices. Not dissuade them from following their hearts, just educate them as to the trade-offs and implications of debt service and future earnings.


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