Investing In Education, An Economic View

Some are beginning to question the politically correct notion  that our educational system should prepare most students for college. These feelings are prompted by economic information. The Department of Labor Fall 2000 Occupational Outlook Quarterly page 9 reports the two decades ending in 2008 accumulated an over supply of almost three million college graduates. These people did not have jobs requiring a college degree. 

When making an investment, whether in education, capital equipment, or the stock market, one should consider the potential income from the investment and the risk associated with success.  Lester C. Thurow, former Dean of the MIT Sloan School of Management feels "Education is a very lumpy investment where often there is little or no payoff from having a little bit more." ..."There are big returns to the first years of education (the education where one gains literacy) and big payoffs to the last years of education (a college or graduate degree where one distinguishes oneself from the pack) but only small payoffs to those years of education that move the individual from somewhat below average to somewhat above average"The Class of 1993: One Year After Graduation, a U.S. Department of Labor study revealed 56% of those working had jobs requiring a bachelor's degree, 75% had jobs related to their major and 72% felt their job had career potential. A follow-up study, Four years after graduation: The class of 1993 showed those having jobs requiring a bachelor's degree increased to 62%, those having jobs related to their major decreased to 55%, and  those feeling their job had career potential decreased to 55%. For a complete summary of these studies visit Not All College Majors Are Created Equal.

Paul Krugman, the MIT Ford International Professor of Economics, expresses the following on what he called the devaluation of higher education. "Or consider the panic over "downsizing" that gripped America in 1996. As economists quickly pointed out, the rate at which Americans were losing jobs in the nineties was not especially high by historical standards. Why, then, did downsizing suddenly become news? 

Because for the first time white-collar, college-educated workers were being fired in large numbers, even while skilled machinists and other blue-collar workers were in high demand. This should have been a clear signal that the days of the ever-rising wage premium for people with higher education were over, but somehow nobody noticed."2 

 

This situation is going to get worse as the outsourcing of college graduate jobs to countries such as India and Ireland, continues to grow and baby boomers do not retire as expected because of not enough savings to retirement. United States start up companies, a large source of jobs requiring a college education, are hiring foreign labor from the beginning rather than American workers. Technically it is not out sourcing because the jobs were never here to start with. 

Economists Frederic L. Pryor of Swarthmore College and David L. Schaffer of the University of Wisconsin at Eau Clair wrote Who's Not Working and Why, an analysis of tests conducted as part of  the 1992 National Adult Literacy Survey. They feel  "... it is those college-educated workers with functional literacy little better than the average high school graduate who end up in these lower-level jobs."3

1992 National Adult Literacy Survey by
Highest Level of Education Completed

5 Literacy Levels
(low to high)

Percent Distribution*
High School

Percent Distribution*
College

1)        0-225 18 4
2)     226-275**  36 13
3)     276-325 36 36
4)     326-375 10 38
5)     376-500 1 10
Median Score*** 270 322
Analysis:
(1)
a substantial number of college graduates, approximately 16%, scored lower than the high school graduate median score of 270.
(2) a substantial number of high school graduates, approximately 14%, scored higher than the college graduate median score of 322.
* Each class percentage is the class average percentage for the three kinds of literacy being measured.
**Although individuals possessing Level 2 skills had more varied skills ... "than those individuals performing at Level 1, their repertoire was still quite limited." (From page xiv of Adult Literacy in America.)
*** Author's median and analysis calculations assume data within a class is equally distributed.

1Page 283 of The Future of Capitalism, 1996 by William Morrow and Company, Inc.

2On page 201 of  The Accidental Theorist, 1998 by W.W. Norton & Company

3Page 48 of Who's Not Working and Why, 1999 by Cambridge University Press

For more information on the 1992 National Adult Literacy Survey visit Education Helps Some More Than Others.

For more information on Who's Not Working and Why visit Who Gets the Good Jobs and How Much They Pay.

Peter F. Drucker, Clark Professor of Social Science at Claremont Graduate School, California and considered by some
 “the founding father of the science of management (LA Times)”

Lester C. Thurow, former Dean of the MIT Sloan School of Management

Economists Frederic L. Pryor of Swarthmore College and David L. Schaffer of the University of Wisconsin at Eau Clair

Paul Krugman, the MIT Ford International Professor of Economics

Kevin J. Clancy, chairman and CEO of Copernicus, a global marketing consulting research firm    

The editor/author of this material is Walter Antoniotti.