Felix Salmon was nice enough to pick up my recent post on the Creative Economy (Note: Felix blogs for Reuters and I am doing video commentaries for the new Reuters Insider service, which makes us colleagues of a sort). However, he does put in a plug for a college education:
The long-term trend is inescapable: the returns to education are large and growing, and if you’re not a college graduate and you don’t own your own company, it’s becoming increasingly difficult to maintain a middle-class lifestyle.
He’s certainly right about the long-term trend, and I’m paying big bucks to put my children through college (hear that, kids? No slacking now).
But we have to be alert to possible changes in the economics of college. Take a look at this chart, which compares the average earnings of a young college grad with average annual tuition, room and board charges at 4-year colleges.
In 2000, the average young adult with only a bachelor’s degree earned about 4 times the annual cost of a 4-year college. By 2008, the average young college grad was earning less than 3 times the annual cost of college. Going to college is still a good idea–but the payback period is longer.
Here’s another way of seeing the same thing. This chart compares the real cost of 4-year and 2-year college (tuition and fees) with the average earnings of young college grads, young associate degree holders, and young high school grads. I’ve adjusted for inflation, and indexed these numbers to 1998 to make the trends clearer.
If you spend a bit of time with this rather complicated chart, you can see that young adult earnings in real terms have had a slight downward trend over this period for high school, associate, and college grads (FYI, advanced degree holders seem to be doing better, but that’s a different post).
Meanwhile the real cost of higher education has been increasing. Once again, the conclusion is that the payback period is likely longer, though a full analysis would require looking at unemployment rates and the value of the option to get a higher degree.
I tend to view this divergence between rising real college costs and flat or falling real earnings for young college grads as insupportable over the medium term for an economy like the U.S. Either real pay for college grads has to pick up (perhaps because of a surge of innovation), or the real cost of higher ed has to stop rising.
I am hoping that the next business cycle will bring more innovation and more high-paying opportunities for young college grads, and better times for high-education metro areas. But there are no guarantees, and unfortunately, current economic policy does not seem to be doing much to help.