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If the BA is the work of the devil, it’s not his best work. So why is Charles Murray making such a big fuss?

Murray gives us a simple argument. For most people, completing a BA is a bad investment. Each of us has his or her own comparative advantage, so not all of us should become college graduates. In spite of this, a large share of the American youth aspires to get a BA, either because of strong social pressure to get a BA, or the illusion that the BA pays off for everyone in the labor market.

There’s nothing wrong with the logic of this argument. In fact, you will see that I agree with important parts of it. But is it empirically relevant? Perhaps, but for the most part it seems exaggerated.

Economists have been estimating the rate of return to investments in education for over 50 years.  By that I don’t just mean a statistical association between high levels of education and high earnings, one which we can attribute to the fact that highly educated people are also more intelligent and well connected, and therefore they would have higher earnings even if they had not acquired schooling. Economists have moved beyond statistical associations, and are now able to show that the average earnings of individuals increase in response to increases in their levels of education (which come by forcing them to enroll in school, by giving them monetary incentives, or by any other means). It is well accepted that in the U.S. this increase in earnings is, on average, not much lower than 10% per year of schooling. Estimates can be even higher if you take the return to a BA (as opposed to the return to a year of education multiplied by four). If this is true, education is a very productive investment, and by this standard it beats most other investments in the economy.

Even if we believe the economists’ estimates of the return to education, averages are not very useful for any given person pondering whether to take up a BA. The reason is that every individual is different, so even if a BA pays off for a few individuals, and even if it pays off when we average across people, it may not pay off for most people. Each of us has different skills giving us a comparative advantage in a given occupation, and acquiring a college education is not everyone’s comparative advantage. This is a central component of Murray’s argument, and one with which I agree completely.

Of course, as with any other investment, there is risk in the investment in human capital, and at age 17 most of us do not know how good a college graduate we will be. Once the BA is completed, some BA graduates may regret their decision to complete a BA, but at age 17 they could not forecast that they would be at the low end of the distribution of college wages. Some others, who are not able to complete their BA, may regret they even started. Even though this has been shown to be important empirically, risk is not what is upsetting Murray. Risk is a natural part of decisionmaking. What he is claiming is that many individuals are being induced to enroll in a BA program because of social pressure, even when it is clear that a BA is a bad idea for them.

So how successful is this argument in explaining the data? Recent research shows that, empirically, the expected rate of return to college varies widely across individuals: As we expand college attendance we attract individuals who are increasingly less suitable to attend college, and who have lower expected returns to college than the ones who are already there. Nevertheless, these studies also show that most people can expect a relatively high return to college. Even if we take the most pessimistic estimates for the return to education for those outside the elite (whom economists would call the marginal students), they are probably above 7% per year of college, and they are not lower for a year of a BA as opposed to a year of any other type of post-secondary schooling. Individuals for whom a BA degree is truly a bad idea are just not enrolling in college anyway. In fact, the best predictor of college enrollment, or of completion of a BA, is cognitive ability, and most individuals with low levels of cognitive ability end up never enrolling in college.

So, what’s the punch line? Murray is correct in stating that a BA is not for everyone, and may be right in saying that some people are wasting their time getting a BA, but for most of the population I doubt that the case he is making is of great importance. As he says, firms are not stupid, and will not pay for a BA degree if a BA is not teaching anything to their potential recruits. Similarly, I believe that individuals make mistakes, but at this level they are probably not as serious as Murray is implying. For most of those enrolling in college, a BA has a good expected return, but there is some risk. In a nutshell, this is what the data shows, at least according to recent research by James Heckman from the University of Chicago and several co-authors, me included.

Do we really think that social pressure to get a BA, and misinformation about the value of a BA, will induce generations of youth (and their parents!) to systematically engage in bad education decisions? Why would they be doing that over and over again, if it was such a bad investment? Charles Murray is not the first to state that individuals overestimate the returns to college. Almost 30 years ago, in The Overeducated American, Richard Freeman had a similar argument, but the decade that followed the publication of his book witnessed a dramatic increase in the returns to college and in college attendance. Why is this argument correct today?

Perhaps Murray is right, and we need a more specialized and shorter post-high school education system, like in an apprenticeship system. Or perhaps we need to keep people in school for a bit longer learning general skills that allow them to be flexible in the modern world. I don’t know the answer to this question, and in spite of what I have said so far, I don’t disagree with Murray’s proposition that the school system could be more efficient, and more adequate to the economy’s needs. If that’s the case, we need to converge to a better system, and we are already seeing several changes in the way people acquire education, with a multitude of new programs and online courses emerging every day. I may be young and inexperienced, and I am no Charles Murray (I say this with admiration and respect), but I do not think this problem is such a big deal.

However, there is something else that I believe is a big deal. In 2003, Jim Heckman and I published a paper entitled Human Capital Policy (a chapter in Inequality in America: What Role For Human Capital Policies, edited by the MIT Press). Figure 1 in that paper, which is reproduced below (and which has been reproduced by many others, before and after us), graphs the proportion of individuals in successive cohorts attaining a college degree, a high school degree, and dropping out of high school (these are whites only, but similar patterns hold for other race groups; the data comes from the 2000 Current Population Survey). This figure shows that both the college enrollment rate and the high school dropout rate were rapidly improving for the cohorts born in the first half of last century, but for the cohorts born after 1950 there is a dramatic stagnation in education attainment. If education is an important engine of economic growth, a stagnant quality of the workforce may cause problems for growth in the years to come.

This stagnation occurred in spite of enormous increases in the returns to college in the 1980s and 1990s. So it may be that Murray’s contention that individuals are not responding to economic incentives is true, but if anything it is because they, or their parents, underestimate the value of education. Heckman and I argue that at very early ages we detect important gaps in the cognitive achievement of individuals coming from different backgrounds, which in turn are the main predictor of the gaps in their college enrollment. So, if we want to foster skill accumulation, we need to start with strong investments in early childhood, giving us a foundation on which follow up investments can successfully build on. That’s the real education problem, and that’s where the devil is really causing damage. But that discussion is not for today.

Pedro Carneiro is Lecturer in Economics at University College London

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