During the past 30 years, higher education has boomed worldwide. Virtually every country has significantly increased the fraction of its young men and women who go on for a college or university degree. The higher education boom is just as large in developing countries as it is in developed countries, although naturally poorer countries still lag behind in the fractions of young persons with college degrees. China is an extreme example of what has been happening in developing countries, as enrollments in Chinese universities increased several fold during past 15 years. The United States also increased its enrollments, but at a slower rate than many other rich countries. When measured by the fraction of young people with a college education, the US ranking has dropped from among the top three countries several decades ago to somewhere between 10th and 15th.
A worldwide trend suggests that universal forces lie behind it. In the case of the higher education boom, one major force is the introduction of computer and other technologies that give an advantage in labor markets to individuals who command information and knowledge. The rapid transfer of technologies from richer to poorer countries, partly the result of foreign direct investments, is also raising the demand for educated persons in many less developed nations.
If the value of higher education in the modern information-oriented economy has been overrated, the sizable growth in the number of educated persons should have lowered the earnings premiums for college graduates, and raised the unemployment rates of these graduates. In fact, these earnings premiums have generally risen, not fallen, and often the growth has been large. Moreover, unemployment rates of the college-educated have remained much below those of high school graduates and high school dropouts.
In the United States, for example, the average earning of persons with four year of college increased from about 35% above the average earnings of high school graduates in 1980 to about 55% higher in 2009, despite a growth during this period in the fraction of the American labor force with a college education. The earnings premiums for persons with a post-graduate education have increased even faster over this 30 year-period. Moreover, the unemployment rates of lower educated persons have remained much higher than the unemployment rates of persons with higher education.
The rise in the earnings premiums in the United States since 1980 for college-educated persons, is consistent with growth over this period in the demand for college graduates that dominated the increases in their supply. A rise in the earnings premiums for persons with a higher education in found in most countries, except sometimes where the growth in the supply of college-educated persons has been unusually rapid, as shown by developments in China. Starting in the mid-1990s China had an extremely fast increase in the supply of persons with a college education. Since so many young college graduates entered the labor force, the earnings of young graduates dipped a little below those of young high school graduates. But the earnings of college graduates with considerable work experience continued to grow sharply, suggesting a sizable increase in the demand for college graduates with much job experience (this is based on research by James Liang of Stanford University).
This brings me to Paul Krugman’s analysis that Posner commented on. I agree with Krugman that not everyone in the United States or elsewhere will benefit from a college education, but the United States and pretty much all other countries are very far from that extreme. However, if Krugman were correct that software was replacing college educated persons on a large scale, that high wage jobs have been more “offshorable” than jobs done by the low-paid, and that college education is becoming less helpful in finding good jobs, then surely during recent years the earnings gains of college graduates should already have begun to fall behind the gains of less educated persons.
Yet since the early 1990s and even during the last decade, the facts are the opposite: the average earnings premiums of college graduates in the US, and especially the premiums of persons with a post-graduate education, have continued to increase, despite the growth in the numbers of educated persons in the labor force (this evidence can be found in “Explaining the Worldwide Boom in the Higher Education of Women” by Gary Becker, William Hubbard, and Kevin Murphy, The Journal of Human Capital, Fall 2010). So the most recent trends in the earnings of college graduates do not support the view that the US is overeducating its labor force.
All this indicates that President Obama is correct, and that America has to make greater efforts to increase the number of persons qualified to enter and finish colleges and universities. This is mainly a male problem since the fraction of American women who complete college has grown rapidly: women now receive about 60% of all four-year college and masters degrees, while men receive only 40%, whereas in 1970 women received about 40% of these degrees.
Part of the American problem results from the high dropout rates from high school, including in the dropout rate students who only get a High School Equivalency Degree (GED). These dropout rates have remained stable at about 25% of all high school students, a depressing figure relative to those in other developed countries, where dropout rates are usually below 10%. The students who are dropping out do not get good jobs since the evidence is overwhelming that the pay of dropouts is very low, and their unemployment rates are very high. Not much support in these data for any “hollowing out” of job opportunities alluded to by Krugman. Especially disturbing is that African-Americans and other minorities are vastly over represented among those dropping out of high school.
So my conclusion is that America will benefit greatly from increasing the numbers of young men and women who go to and graduate from colleges and universities. To do that, however, will require improving the preparation received at K-12 levels, including the education at the very earliest school levels for young children poorly prepared for school. The challenges are enormous, but the potential gains are worth considerable effort from public and private bodies.