The State of Young College Grads

The 2009 income figures came out today, and I immediately gravitated to my favorite barometer for the state of the economy: The earnings of young college grads–that is, mean earnings for full-time workers, ages 25-34,  with a bachelor’s only.

I consider these workers to directly reflect the health of the U.S. economy. If young college grads are doing well, that means there is a demand for high-skilled labor, and there’s an incentive for young people to get an education.  But if young college grads are doing poorly, wow…that economy is not on a sustainable path.

Take a look at the chart above, which plots tuition and fees at 4-year colleges, public and private nfp, against the earnings of young college grads, male and female. The results show that college costs have kept rising, while the real earnings of young college grads have gone down since 2000. In particular, since the recession started in 2006,  real tuitions and fees have skyrocketed, while real earnings have plummeted.

This helps explain why college debt has become so much more onerous for students….wages have not risen as fast as college costs.

Comments

  1. Buckmemphis says:

    No chart nor link to a chart.

  2. Any explanation for the disproportionate increase in female college grads’ income from 2000-3, before it dropped back to match the males? Also, how do the colleges try to justify these massive tuition hikes: the same old line about how getting a degree will get you a well-paid job, no matter how overpriced the tuition? I wonder why there isn’t more competition given the constantly rising prices, even leaving out online, where are the new local colleges launching to get in on this gravy train? Education must be one seriously screwed up market, wracked with tons of crazy govt regulations, for these constant price rises to be sustainable. Oh well, online education is about to decimate existing colleges; I will enjoy watching all of them getting thrown out on the streets, just like I enjoy watching all the magazines and newspapers going under now and all the radio stations going out of business. :)

    • Offshoring, IT, and dotcom bust (not necessarily in that order of significance) affecting largely male dominated professions/job categories initially I’d say.

    • It’s not the regulation of education, it’s the subsidies and propaganda, and the general lack of agreement about what a good education should offer.

    • My own hypothesis is that males were hit first by the dot.com/IT bust in 2000, then females were hit disproportionately by the offshoring boom in ’03. As for the claim that subsidy is the main problem, if that were the case, there should be a college launching every day to get on that subsidy gravy train. The only reason that wouldn’t happen is because of regulations holding back college formation. I know much of college attendance is based on reputation, but the vast majority of students don’t go to a highly ranked school like MIT or CalTech, so I don’t see why students wouldn’t attend a new college over any normal pre-existing college.

      • I think, you are right that males and females represent different industries. I assert that it happens not only as a consequence of different business dynamic in the industries but also (or even exclusively) because of different technology adoption time (Think about propagation of the ripples on a pond). The closer an industry is tied to the technology originators, the quicker it realizes the whip.

      • nobody: Some industries (or more precisely job functions) are dominated by one gender, but beyond there are stereotypes that hold up only in a limited way. Many job functions even in “dominated” industries are fairly mixed – corp. sales, legal, HR, finance, etc.

  3. Cost increases are driven by a couple factors (I wouldn’t guess government regulation has much to do with it)… it’s not really about providing an undergraduate education, many universities are primarily concerned with research (prestige). Another factor is just increasing demand as more women particularly getting college educations. Since education is prestige based, and prestigious research can be as expensive as you can afford, it’s no wonder that prices go up.

    Anyway, here’s to hoping that online education destroys the old model. I just wonder what would fill the research gap — there’s a lot of popular appetite for government funding of “education”… but when the question is funding pure research, someone inevitably trots out some study of flying squirrels or volcanoes or rational actors, therefore proving that science is pork, etc., etc.

  4. At the same time, the unemployment rate is much higher among those without educations. So, we used to go to college to get a high paying job. Today, young people go to college in a nearly futile attempt to avoid unemployment. Something’s gotta change!

  5. Mike,

    Here’s a little different take on visualizing the disconnect between tuition costs and incomes. For your analysis though, which I like for its immediate connection between tuition costs and new hire pay, how far back can you go with the data?

  6. Education is one of those realms where what naive students are trying to buy and what idealistic educators are trying to sell are really not really the same. I think most students want to be able to get a job coming out of college (although many have no idea what they might be doing), and anything else is bonus. Many liberal arts educators hold the ideal of training well-rounded and well adjusted members of society with a respect for knowledge: anything else is bonus. Meanwhile, profs in more “practical” fields are more concerned with research or providing a pure introduction to the field.

    Students assume a “better” college will offer them a better chance to get a job, while educators equate a “better” college with meeting their own goals. There’s a lot of competition for “better” colleges, but the situation is a nice illustration of how markets don’t deliver great results when information cost is high (in this case, what a “better” college is or what a”rating” means is not well understood or communicated by many consumers). And the subsidization of education and the hype surrounding it only inflate the problem.

    • “Better” largely means branding and “connections” (getting to rub shoulders with important or otherwise externally connected people). Concordantly, some schools/programs advertise job placement rates and other related “data”.

  7. Michael,

    do you have data on education sponsorship by government and 3rd party?

    There is sense to do that in order to prime the technology and higher-end economy pump. It may not be obvious to free market addicts that think exclusively in terms of equilibrium, but it is reasonable for growth proponents and people that see globalization as a process that simultaneously creates “casts”. Countries are force-framed into certain ecosystems, that are attributed and sustain casts-like existence. It is a decisive moment to take best place in the emerging hierarchy.

    There is a black side to the extensive education growth: social whip effect. The excess of skilled work force in the sector that designs technology (the most profitable industry up to the day) accelerates new technology proliferation beyond the limits of natural adoption. Companies that adopt technology, don’t invest in personnel’s education. Education is individual’s concern in capitalistic societies. An abundance of skilled people let technology adopting companies substitute less educated general population with better educated supply.

    So -in a sense- what you describe could be an indication for economical downfall, or it could be an indication that the society has passed the point of no return. Social whip effect exterminates existence basis for the lower-wage personnel that doesn’t have proper skills to adopt new technology at an ever increasing pace. Yesterday’s BS are tomorrow’s GED?

  8. In discussions about the costs of college, we seem to always leave out the role of declining state support for public universities. If states cut back on support, the money has to come from somewhere.

  9. Trends in college-educated earnings reflect composition and supply as much as they reflect demand. As the % of those with college degrees rises, we are by definition drawing from further and further down in the ability pool. When 10% of the workforce had college degrees, they were elite; when 30% of the workforce has college degrees, they are very good, but not really elite. By exactly the same process, the increase in supply would put a damper on college-educated earnings. Although Goldin and Katz tell exactly the opposite story, so there’s still some mystery.

    • The correlation between (subject matter) skill and earnings does not seem to be very strong, so I don’t buy the aptitude argument. It is far more plausible that the (globally) available “educated” workforce substantially exceeds demand.

  10. “This helps explain why college debt has become so much more onerous for students….wages have not risen as fast as college costs. ”

    Yes, the rise in college debt is due to the rise in costs, but I think it also helps explain it. College costs have risen faster than the rate of inflation for at least 30 years. And throughout that time college loans with artificially low (often subsidized) interest rates have been readily available. Let’s see…cheap. easily obtained financing accompanied by a statrospheric rise in prices, where have we seen that before? As much as the intent was to make college more affordable, it seems that all that the Federal student loan programs have accomplished is to fuel a tuition bubble. How else can you explain a 30-year run of faster-than-inflation tuition increases?

    If it is a bubble, then presumably it can’t go on forever. Given analyses like the one you highlight, one can easily imagine that the end is in sight.

    • And like in the “other” bubble there will be an overhang of undischargeable debt that will be difficult, protracted, or impossible to pay back, for those who cannot get the well paying jobs they were banking on. And it will affect the personal balance sheets, credit scores etc.

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