Is the labor market return to higher education finally falling?

by on June 27, 2013 at 2:04 am in Economics, Education | Permalink

Peter Orszag considers that possibility in his recent column.  About one in four bartenders has some kind of degree.  Orszag draws heavily on this paper by Beaudry and Green and Sand, which  postulates falling returns to skill.  It’s one of the more interesting pieces written in the last year, but note their model relies heavily on a stock/flow distinction.  They consider a world where most of the IT infrastructure already has been built, and so skilled labor has not so much more to do at the margin.  This stands in noted contrast to the common belief — which I share — that “IT-souped up smart machines” still have a long way to go and are not a mature technology.  You can’t hold that view and also buy into the Beaudry and Green and Sand story, unless you think we have suddenly jumped to a new margin where machines build machines, with little help from humans.

Rather than accepting “falling returns to skill,” I would sooner say that education doesn’t measure true skill as well as it used to.

The more likely scenario is that the variance of the return to having a college education has gone up, and indeed that is what you would expect from a world of rising income inequality.  Many people get the degree, yet without learning the skills they need for the modern workplace.  In other words, the world of work is changing faster than the world of what we teach (surprise, surprise).  The lesser trained students end up driving cabs, if they can work a GPS that is.  The lack of skill of those students also raises wage returns for those individuals who a) have the degree, b) are self-taught about the modern workplace, and c) show the personality skills that employers now know to look for.  All of a sudden those individuals face less competition and so their wages rise.  The high returns stem from blending formal education with their intangibles (there is also more pressure to get an advanced degree to show you are one of the privileged, but that is another story.)

This polarization of returns — among degree holders — explains both why incomes are rising at the top end, and why the rate of dropping out of college is rising too.  At some point along the way in the college experience, lots of students realize they won’t be able to “cross the divide,” and the degree alone won’t do it for them.  They foresee their future tending bar and act accordingly.

Too many discussions of the returns to education focus on the mean or median and neglect the variance and what is likely a recent increase in that variance.

Andreas Moser June 27, 2013 at 2:17 am

Tending bar is a tough job, but somebody has to do it.

If the bartender with a degree is happier than he would be without a degree, then it was worth it. This article seems to suggest that students only study to get a job. Many of us study to avoid getting a job too early, though, and we enjoy the experience. It also ain’t bad to be the smartest guy at the bar, with a degree in Egyptology and literature.

mike June 27, 2013 at 3:20 am

“Many of us study to avoid getting a job too early”

On the one hand obviously I would like to hear the explanation of what it means to get a job “too early”, on the other hand I have the feeling that I would end up punching a wall if I heard that explanation.

Urso June 27, 2013 at 9:56 am

Because jobs are not fun, and college is?

Some people value fun more than money. If that revelation makes you want to punch a wall, sucks to be you.

Ad Nauseum June 27, 2013 at 11:02 am

College is very expensive fun. It may be better to travel the world tending bar at that price, but hey, its all about preferences.

Urso June 27, 2013 at 11:52 am

Fair enough, but these arguments about whether college is “worth it” always seem to operative from the base assumption that (1) college is universally some extremely expensive endeavor, and (2) everyone ends up with a useless degree in something like Egyptology. But it’s not, and they don’t. Most people attend public universities. Most people do not graduate with degrees in the liberal arts.

And for what it’s worth, tending bar in a foreign country sounds awful to me. As you say, it’s all about preferences.

JWatts June 27, 2013 at 11:05 am

Some people value fun more than money.

More power to them! Just don’t ask me to help pay off your student debt.

Vernunft June 27, 2013 at 4:24 am

Totally worth a quarter mil to be Cliff Claven.

John Thacker June 27, 2013 at 5:47 am

If the bartender with a degree is happier than he would be without a degree, then it was worth it.

For him, sure. But it certainly weakens the case for public support of his classroom education. After all, while it is good that he is happier, why should the things that make him happy be subsidized more than things that make other people who enjoy more experiential education happy?

Andrew' June 27, 2013 at 7:31 am

Except he’s not. And it’s a stupid idea. And one you never hear anywhere else.

Andrew' June 27, 2013 at 7:32 am

“If the patient is happier with the superfluous diagnostics…then they are worth it.”

See, it doesn’t work.

John Thacker June 27, 2013 at 8:17 am

I’m pretty sure that people make that argument for privately supported activities all the time.

John Thacker June 27, 2013 at 8:19 am

I apologize, but I’m not sure what your “he’s not” is referring to. I’m fairly certain that university education is subsidized in a lot of ways relative to other sorts of spending.

Andrew' June 27, 2013 at 9:37 am

First, I wasn’t disagreeing with your comment, I was disagreeing with the supposition that “if it feels good, do it” is a complete economics argument.

As in He’s not really happier. He might be proud of the endowment effect for his degree in a society that irrationally supports degrees. And if he is happier, it may only be because we have a regime of overspending on the education charade. He might not be happier if he personally did not get his useless degree. But he would almost certainly be happier if we did away with the useless degree raj.

John Thacker June 27, 2013 at 10:04 am

Ah, thank you for the explanation, I believe I understand better now.

I think it’s tricky to disagree with people about whether or not they are happier. (It’s tricky to measure it and to believe as well, certainly.) So I think it’s perfectly fine to let people “overspend” on things that don’t objectively help them, and I think it happens all the time. However, as I think you agree, the effect on public spending is different.

john personna June 27, 2013 at 9:25 am

There is nothing wrong with working “happiness” into your ROI, but costs still matter. Lower costs still produce better ROI.

Andrew' June 27, 2013 at 9:39 am

Right, “working in” is not the same as “is so important that we need to take YOUR money because it makes this bartender happy to have a psychology degree (not to mention it helps with the ladies!)”

Ed June 27, 2013 at 2:56 am

This appears to be overthinking the issue, thouogh people will yell “lump of labor” if you get close to what is really going on.

Basically, the university system emerged to train professionals (originally mostly clergy). If its function -”colleges” plus graduate school is still mainly to train professionals, for several decades they have been turning out more degree holders than the professions can absorb. But the cost to students has been rising sharply, for a diminsihing chance of making a success in the professions.

An alternative explanation is that in the United States, secondary institutions shouldn’t be grouped with graduate schools, but instead with high schools. A college degree is really the equivalent of what the high school diploma had been fifty years ago. But then this is a sneaky way to charge people for what the public school system used to provide “for free”! And of course if you charge quite a bit for something that had been free at the point of service, then the returns of that thing will have diminshed.

Incidentally, if you view the college degree as it stands now as a sort of license to enter the labor market, then the rising cost of college could be one explanation for the falling labor force participation rate.

Australian June 27, 2013 at 2:58 am

It’s not just the variance, it’s the risk. I.e. a predictable spread would have less impact than a capricious spread. Also, the risk of debt is now (perceived to be?) higher, so that increases the impact of the risk.

I think there’s a structural piece to it as well – universities aren’t responding fast enough to the absolutely massive impact the social web is having on recruitment. Like the old media, on the slide to oblivion, unless they can re-invent themselves ground up. It’s not education that doesn’t have a value, it’s the overall package linking income with outputs that now doesn’t sit right with the market.

The base challenge for any educator: demonstrate that the skills an educatee gains are (a) meaningful in the market and (b) gained as a consequence of their learning. If they can do that, then they have enduring value.

Jared June 27, 2013 at 3:04 am

“Where did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income”, by Ian Dew-Becker and Robert J. Gordon, September 8-9, 2005

http://zfacts.com/metaPage/lib/gordon-Dew-Becker.pdf

“We argue that economists in their explanations of growing income inequality have placed too much emphasis on “skill-biased technical change” and too little attention to the “economics of superstars,” i.e., the pure rents earned by the top CEOs, sports starts, and entertainment stars. This source of divergence at the top, combined with the role of deunionization, immigration, and free trade in pushing down incomes at the bottom, have led to the wide divergence between the growth rates of productivity, average compensation, and median compensation.”

“To be convincing, a theory must fit the facts, and the basic facts to be explained about income equality are not one but two, that is, not only why inequality rose after the mid-1970s but why it declined from 1929 to the mid-1970s. Three events fit neatly into this U-shaped pattern, all of which influence the effective labor supply curve and the bargaining power of labor: (1) the rise and fall of unionization, (2) the decline and recovery of immigration, and (3) the decline and recovery in the importance of international trade and the share of imports…. Partly as a result of restrictive legislation in the 1920s, and also the Great Depression and World War II, the share of immigration per year in the total population declined from 1.3 percent in 1914 to 0.02 percent in 1933, remained very low until a gradual recovery began in the late 1960s, reaching 0.48 percent (legal and illegal) in 2002. Competition for unskilled labor not only arrives in the form of immigration but also in the form of imports, and the decline of the import share from the 1920s to the 1950s and its subsequent recovery is a basic fact of the national accounts.”

John Thacker June 27, 2013 at 5:49 am

Hmm, but what are the policy recommendations from this? Surely not “let’s have another Great Depression and World War II to decrease inequality,” one hopes. And personally even if immigration increases national inequality, it certainly seems to decrease global inequality, and I place value on that.

Aidan June 27, 2013 at 3:08 am

What are these “personality skills that employers now know to look for”? How are they different from personality skills that employers looked for 20 years ago? How did employers learn to look for them?

dearieme June 27, 2013 at 6:04 am

With the decline of marriage there are fewer son-in-laws to hire.

Ted Craig June 27, 2013 at 6:48 am

Yes, but now you don’t need a son-in-law. You just hire your daughter.Eugene Meyer could have spared everybody a lot of trouble.

Luis Pedro Coelho June 27, 2013 at 3:51 am

If you have 2 types of degrees: (1) tangibly valuable ones and (2) not-tangibly valuable ones and the ratio (1)/(2) shifts, you get this result.

Haven’t repeated posts here discussed how the growth in college degrees have mostly come from soft degrees?

Joss Delage June 27, 2013 at 9:24 am

I agree with Luis. I think those discussions are useless without a look at majors. Without this, we’re comparing apples to oranges.

JWatts June 27, 2013 at 9:47 am

If you have 2 types of degrees: (1) tangibly valuable ones and (2) not-tangibly valuable ones and the ratio (1)/(2) shifts, you get this result.

Nice sentence!

However, you don’t even need a shift in the ratio between (1) & (2) to get this result. Even, if the ratio is constant, but the degree’d population is rising (more high school graduates going to college) and the demand for (2) is not rising as fast as the the degree’d population is, then you get a surplus of (2).

The surplus drives the wages for (2) down, which should theoretically reduce the supply in the long run except the type of student who would pursue not-tangibly valuable degrees are less price sensitive than the general population.

Therefore, we end up with a lot of bartenders with degrees in Egyptology and literature. And the world has never had much demand for Egyptologists, nor is that likely to change.

Marisa Gunther June 28, 2013 at 6:07 pm

Totally agree with you.

uffy June 27, 2013 at 4:02 am

Who, exactly, “face less competition and so their wages rise” in this scenario and why? Would not this explanation involve a somehow diminished lump of those with “true skill”?

At least we are having this conversation though.

Rahul June 27, 2013 at 4:12 am

Bartenders and taxi-drivers are a biased sample though. These have traditionally been the refuge of intelligent, often highly-educated people who somehow did not want to pursue traditional routes.

Lack of skill is the wrong explanation here; it has to do with other reasons often: A disillusionment with systems, rebellion, idealism, desire to stay with a gf / bf, strong geographical preferences, ennui, boredom, flagging of motivation etc.

JWatts June 27, 2013 at 10:05 am

Lack of skill is the wrong explanation here; it has to do with other reasons

I think a lot of the problem is the signaling mechanism was inefficient for a generation or two. I think the Baby Boomer’s parents told them to get a college degree and you’ll do fine, and simultaneously the access to college degree was rapidly rising. And the advice was good.

However, the Baby Boomer’s gave their children the same advice. However, by that time, the ability of the market to absorb college degrees was saturating and so the the price point for entry level positions started slipping and the demand for the jobs became greater. So many of the Gen X’rs who took the advice and got degrees, but didn’t think it mattered what the major was in and so obtained intellectually interesting or fun degrees without any intrinsic value.

The weird aspect is that this has been recognized as a problem (too many useless college degrees) for at least a decade and all kind of solutions have been discussed, but nothing has been done. Why hasn’t the public school system started ramping up the number of trade school positions? Why aren’t more parents telling their children that getting a well paid job as a plumber is a better way to raise a family than following your desires, because after all your only young once.

I’m believe the advice to young people to follow their hearts desire while they are young is ultimately self destructive and irrational.

Frederic Mari June 27, 2013 at 5:12 am

Tyler said: “The more likely scenario is that the variance of the return to having a college education has gone up, and indeed that is what you would expect from a world of rising income inequality”.

Sorry but isn’t that tautological in the modern western world? The real question is why is this variance now appearing?

“Many people get the degree, yet without learning the skills they need for the modern workplace. In other words, the world of work is changing faster than the world of what we teach (surprise, surprise).”

That’s a possible explanation but I suspect it is either wrong or, more precisely, very partial. What has changed so dramatically about the workplace that the employers now no longer value vast swath of diplomas. Furthermore, is there such a huge difference between the ‘lesser trained’ (I would say, graduates from less prestigious programs) and the others?

“The lack of skill of those students also raises wage returns for those individuals who a) have the degree, b) are self-taught about the modern workplace, and c) show the personality skills that employers now know to look for. All of a sudden those individuals face less competition and so their wages rise”.

How? Unless there’s been a drop in the quantity of these top students/individuals, why should the returns accrue to them simply because there are more badly trained/inadapted students lying around? CEOs salaries didn’t get higher because we increased the supply of low skilled immigrants.

“there is also more pressure to get an advanced degree to show you are one of the privileged, but that is another story.”

I think that’s more what needs to be explored. In general, the college premium has been stagnating while the top 1% or top 0.1% kept on doing well. It seems like a different dynamic at work.

“Too many discussions of the returns to education focus on the mean or median and neglect the variance and what is likely a recent increase in that variance”.

I think you ought to look at European experiences, notably France’s. There is, afaik, nothing ‘likely’ about the increase in variance. It is happening. Ditto the compression of the college premium and the over-qualification for mundane jobs etc. I think the USA is ‘just’ catching up because 1- college is far more expensive there so educational attainment was lower in the US than Europe and 2- the USA, for a host of reasons, including supply-sided ones, had a more dynamic economy in the last 15-20 years and thus the consequences of this polarisation and segmentation were less obvious/were not happening to the same extent.

dearieme June 27, 2013 at 6:06 am

“educational attainment was lower in the US than Europe”: I saw that explained recently by the assertion that the American high schools were designed to turn out people who were literate but not educated.

Frederic Mari June 27, 2013 at 7:40 am

If you mean American high schools focus too much on reading, writing and maths to the exclusion of too much else that’s needed in college, I am ill-placed to comment, having no experience with the US system.

I think the high price tag of college is a simpler explanation but, well, maybe that’s not the whole explanation, fair enough.

John Thacker June 27, 2013 at 6:12 am

It’s true that jobs that used to not require college education now do.

Another effect is that while the percentage of people going to college and getting decreases in increasing, the percentage of people (as a percentage of the overall age cohort) getting “traditional” majors is stable. The increase in college education is entirely in majors that are direct “job preparation” type majors, many for jobs that did not used to require a bachelor’s degree, from nursing to criminal justice to undergraduate business majors to actuarial science majors.

uffy June 27, 2013 at 3:50 pm

That’s interesting data I had not seen before and seems to complicate this picture even further. Doesn’t seem to support the view that the “truly skilled” per capita should be declining.

Ashok Rao June 27, 2013 at 7:10 am

As someone noted, I doubt bartenders are a representative sample, though that doesn’t say much because we see this trend for file clerks as well. We can’t talk about this without discussing the debundling of education that is occurring. If you take each person’s prior normal distribution for future salary, which we can never measure but it’s a good thinking tool, the uncertainty comes from Charles murray like “intangibles” and just luck. What you are suggesting when talking about the variance of the larger normal distribution is one where individual means diverge That may be the case. But the important action is that the individual *variances* will increase. The variance of variances is where the action is, and the picture may not be so bleak (http://bit.ly/10Yavrg):

“Except it’s not the variance that’s important. I see it this way. Every college student’s future earning potential, after controlling for background and genetics, is normally distributed. The uncertainty arises from intangibles (call this the Charles Murray factor) but also dumb luck. As Cowen has it, we would agree that it is the variance of means that increases when, in fact, it is the variance of variances. There’s no way to forecast this, or even form a Bayesian prior on what one’s normal distribution is. But we can assert that it exists, and that it will change.

It’s a little tricky to explain why I think this. An increase in variance, other things equal, means there’s a higher chance that someone with a lower mean (because they came from a poor family and such) will end up in the top decile. That’s clearly not the case. So we can take the inequality of prior means to be a background condition, the symptom of an unequal country. Within this context, the debundling of education will increase the variance by allowing students to more accurately target their strengths. There’s also much more room for falling below the curve without the guidance of an environment.

Net net, you will see that more surprisingly poor kids make it “out” in the debundled world, than the counterfactual of our current education system. And you’ll see more people do even worse. So Cowen is right, in a sense, that the variance of the aggregate normal distribution will increase. However this is predicated on a background trend (inequality) that almost guarantees that result. “

Andrew' June 27, 2013 at 7:30 am

Thankfully, the education system does a good job with aptitudes, opportunity matching and career planning.

Rahul June 27, 2013 at 7:43 am

One flaw lies in clubbing all higher education together: There doesn’t seem to be much falling return to skills such as those of doctors, nurses or chemical engineers.

Not all degrees are made equal. It’d be interesting to see the classification by major of these bartenders.

Axa June 27, 2013 at 8:46 am

It’s kind of a paradox.

For some periods in my life, I’ve had the same income as a bus driver. But, thanks to college I learnt to think about the future, how to make plans and stick to them, do investments. Despite having the same (even less) income as the bus driver, I was securing a comfortable financial future. I learnt to do that in college, not sure if it was knowledge from classes, interacting with other intelligent people, feeling that you may me lagging behind all the intelligent people or simply that I need money to make a beautiful woman stay by my side. Anyway, I learnt.

Meanwhile, we bash the bus driver for being a simpleton, for not educating his kids in the best possible manner, for being incapable of doing a little critical thinking. Yes, he’s an idiot for watching and believing Fox News and not caring about savings and investments.

The case is: I got my financial education during college years while I’m not sure about the source. Is there anyway the rest of the population can also get financial education without going to expensive college so they can also build a secure future?

It’s a funny contradiction, we mock the poor for being unrefined and stupid and complain at the same time for spending public resources on higher education….on the poor. We are disgusted by their ignorance and hate to pay for making them less ignorant. Today we complain there’s a guy behind a bar with a college degree, today also we complain about the old people living on welfare cause they could not build a secure financial future while young. So, what to do?

Ps. It would be interesting to compare a population of “guys with college degree behind a bar” with a “co-workers without college degree” in 30 years to find out if college was a bad investment or not.

Andrew' June 27, 2013 at 9:41 am

Are you sure that everything you think you learned during college years is attributable to college? No, you aren’t sure. A lot of other people seem sure.

JWatts June 27, 2013 at 10:21 am

Maybe that’s where he learned to mock bus drivers? So he fit in with the hip crowd.

Phil June 27, 2013 at 10:26 am

Bartenders can be reasonably well compensated, so I’m not sure why having college-educated bartenders is an issue or even surprising.

A college education is no doubt a benefit for those bartending positions where interaction with highly educated customers is needed. Not coincidentally, these bartending jobs are often higher paying.

Floccina June 27, 2013 at 11:02 am

I worked with a girl who had graduated with a very high average and a degree in in computer science but was not a good programmer. I worked with other with great credentials but where poor programmers. I have also worked with a guy with AA degrees who is an amazing programmer. IMHO programming ability is a quirky talent not well measured by schools.

Peldrigal June 28, 2013 at 10:59 am

It may not be measured by schools, but sure is valued and measured by employers. The two friends of mine that everyone recognizes as the best programmers among them, dropped from college for a variety of reasons. Both landed well paying programming jobs.

Master of None June 27, 2013 at 11:53 am

“lesser trained students end up driving cabs”

And then we invent driverless cabs, and they become ZMP workers…

jseliger June 27, 2013 at 12:05 pm

The more likely scenario is that the variance of the return to having a college education has gone up, and indeed that is what you would expect from a world of rising income inequality. Many people get the degree, yet without learning the skills they need for the modern workplace.

I also wonder about the extent to which a college degree is now part of what I’ve begun calling a “lottery ticket” effect. Students get an undergrad degree because they know it will open up some options that might be closed, and, if those options don’t work out, they go back to bartending, or whatever. Getting a degree is part of what Paul Graham calls “staying upwind.”

Furthermore, most 18-year-old high school graduations probably don’t know very much about themselves or about their real prospects five to ten years later. Getting a degree is one way of discovering information about their job market skills and prospects. If you start working at age 18 you know you’re unlikely to get a white-collar job at age 24, but if you get a degree you have a chance of a white-collar job at age 24 and bartending remains a viable fallback.

mulp June 27, 2013 at 12:22 pm

“They consider a world where most of the IT infrastructure already has been built, and so skilled labor has not so much more to do at the margin.”

Yes, that goes along with the world where in the US 60MPH passenger and freight rail infrastructure serve every city and factory and farm depot, the nuclear power plants are fully built out to provide power to cheap to meter, the power grid is built to handle failure in a robust fashion to prevent widespread failure, the roads and highways are modern and provide capacity for decades in the future.

I can’t figure out what happened to economists in the past couple of decades where they are so detached from reality where capital always fall in value over time.

Instead the idea that as control over real capital assets is centralized, investment in the capital can fall below depreciation, but monopoly power allows the returns to be maintained or increased, resulting in higher prices for the capital even as it falls in value.

The nuclear power plants are not falling in price fast enough to reflect reality, so SONGS had some minimal investment made, which had a high price tag, based on SONGS having a high price. When the investment made the problems of aging at SONGS worse because they did not employ enough college graduates for long enough, like for the past decade, all of a sudden, the price of SONGS fell below zero to become a huge liability.

All sorts of scientists and engineers have been looking at US infrastructure for decades and predicting doom, and in the nuclear R&D sector both government employees and industry employees and independent people have been warning of problems and recommending actions. But the pressure has been to reduce, not merely hiring of college grads in nuclear, but actually reducing actual employment.

One place where advocates of more investment, and where people predict looming need for workers is in the career and university sector.

If you have an interest in nuclear, you can easily find lots of reasons to study nuclear science and engineering:

- nuclear power plants worldwide are reaching end of life

- nuclear solves the pollution problem that coal presents – look at smog in Asia

- new solutions are needed for the 3% used up fuel which is currently treated as waste because Jimmy Carter placed a temporary halt to reprocessing to extract plutonium for making another 10,000 bombs

- 90% of current nuclear scientists and engineers are over age 50

Obviously, graduating with a nuclear degree means a great job market because the investment in going to be huge in nuclear in just a few years.

Apply the same to hundreds of skill areas, from civil engineering specializing in rail or road transport, in bridges, etc, to the trades like welding and machining and large scale foundry operations, and there are many exciting career opportunities.

Except political-economists have made investing in actual capital too great a burden on society and too high a risk, but instead argue that pump and dump asset churn price inflation is the solution to creating wealth, which IS growth. And if you have growth, jobs are created.

I grew up in an world where new and higher paying jobs created growth.

But I grew up in a world where investment started with creating jobs and those jobs created capital that increased production while the income created the demand.

Now it is a world where government is supposed to create demand even as jobs and incomes are cut, but government should not create demand by giving welfare or by buying things like nukes that will never be used or bridges that replace decaying bridges that have not failed yet – instead, government create demand by pumping cash into the economy by buying the debt from asset churn in an effort to inflate asset prices.

The Fed is buying MBS on existing capital in order to promote churn in real estate to drive up housing prices, because if housing prices are going up, the mortgages can be refi’d based on the higher prices “creating wealth” and maybe new houses will be built creating some jobs, or at worse, after a refi,,,

… you will have more money in your pocket to take a cab driven by a college grad to dinner where you will be served drinks by a college grad bartender and served your meal by a college grad waiter.

Finch June 27, 2013 at 3:46 pm

Young people are justifiably afraid of majoring in nuclear engineering because you never know when the government is going to step in and turn your job off forever. There’s just too much political risk.

If you were really highly confident in global warming forecasts, and you thought that the consequences of global warming would be severe for the first world, maybe you could be confident that eventually politics would come around as nuclear power is the only reasonable solution if it’s a real problem. But outside of politicians, I don’t think anyone is all that confident in the science and economics. The guy who could be a nuclear engineer could also be an electrical engineer, and then he doesn’t have to deal with all this risk even if he’s reasonably confident he’s right about the problem being real.

Finch June 27, 2013 at 3:54 pm

By confident in the science and economics, I don’t mean “confident the earth has warmed some in the past 200 years and people are partially responsible,” I mean “confident the earth will warm a lot in the near future and it’s worth doing something about it because it will have very serious negative effects for people in Cleveland if we don’t.” You need to think the second to be confident in a nuclear future.

Unless you plan a career in subs. My experience was most of the people in the nuclear engineering department were Navy guys.

JWatts June 27, 2013 at 4:14 pm

Young people are justifiably afraid of majoring in nuclear engineering because you never know when the government is going to step in and turn your job off forever. There’s just too much political risk. .. The guy who could be a nuclear engineer could also be an electrical engineer,

I resemble that remark. And yes, talk to young engineers at the UT Knoxville campus and they’ll tell you that choosing nuclear as a career means a future of dwindling options.

How good do think all the recent German graduates in nuclear engineering are feeling? My guess is their considering either a) going back to school or b) emigrating.

Al June 27, 2013 at 12:39 pm

“I would sooner say that education doesn’t measure true skill as well as it used to.”

This one line cuts right through the confusion one might have after reading the Orszag article.

paul June 27, 2013 at 7:43 pm

The correct return to education is measured in utility, not in money. As our society gets wealthier, the cost of forgoing a high income job falls, because it does not imply destitution. I’ve spent some years working overseas, and have noticed that the offices of many international NGOs like the Clinton Foundation are overflowing with young people from top schools, who graduated at the top of their classes, and are taking home less pay than taxi drivers and bartenders. These are often not liberal arts degree holders; these are people who could have taken expensive Wall Street jobs but chose not to. Equally the many highly educated carpenters of Boulder, or organic farmers of Massachusetts.

The growing norm of finding happiness outside of financial success is lowering the measured financial return to education, especially to the extent that this norm is most prevalent among the highly educated.

Phil Goetz July 8, 2013 at 8:11 pm

I’m following you through this point:

“Rather than accepting “falling returns to skill,” I would sooner say that education doesn’t measure true skill as well as it used to. The more likely scenario is that the variance of the return to having a college education has gone up, and indeed that is what you would expect from a world of rising income inequality.”

My interpretation: Education doesn’t measure true skill as well, and rising inequality has increased the variance of the return to having a college education. Unclear whether you mean these to be two things that have both happened, two alternatives, or a result and a cause. But this much seems clear: You’re saying rising inequality is the CAUSE of rising variance of college degree value.

This makes sense. In the 1950s, your career would not be greatly impacted by getting a doctorate from Harvard vs. from state university, and there was not as much income inequality whether your career was middling or outstanding. Today, students at Harvard / Yale / Princeton / Oxford / Cambridge are the only people allowed into the clubs with stratospheric incomes in finance, law, & consulting, and are also almost the only people who get grants or academic tenure. A degree from Harvard is now worth many times more than a degree from Michigan State, because rising inequality of income and increased focus on undergraduate college on a resume means the jobs you can get with a degree from Harvard are worth much more than the jobs you can get with a degree from Michigan State.

Then you suddenly make a 180 turn in mid-paragraph:

“Many people get the degree, yet without learning the skills they need for the modern workplace. In other words, the world of work is changing faster than the world of what we teach (surprise, surprise). The lesser trained students end up driving cabs, if they can work a GPS that is. The lack of skill of those students also raises wage returns for those individuals who a) have the degree, b) are self-taught about the modern workplace, and c) show the personality skills that employers now know to look for.”

This is reversing the causality, saying that there is an initial variance in skill that CAUSES the variance in income. There’s no reason to believe this. Even if the world of work changes faster, this wouldn’t cause any skill differential. It would make it equally more-difficult for everyone.

The only reason to support this view is that it justifies income inequality, saying that it is the result of skill inequality, and therefore makes rich people feel like they’ve earned their money. But this hypothesis is absurd. The dramatic recent increase in income inequality is a result of a sudden, unexplained increase in variance of skill?

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