Thursday, March 08, 2012

America's Obsessive Focus on College Degrees

Interesting educational facts:
 
1. In the U.S., the high school graduation rate is only 72%, and about 2/3 of those high school graduates go on to college.  Of those students who start college, only about 60% will actually graduate within six years and the other 40% will likely never earn a college degree.  

2. In Germany, about 97% of students graduate from high school, but only about 1/3 of those graduates go to college. 

Those facts are from Alex Tabarrok's article in yesterday's Chronicle of Higher Education, "Tuning in to Dropping Out," here's a key point:

"The obsessive focus on a college degree has served neither taxpayers nor students well.  The U.S. college dropout rate is about 40 percent, the highest college dropout rate in the industrialized world. That's a lot of wasted resources. Students with two years of college education may get something for those two years, but it's less than half of the wage gains from completing a four-year degree. No degree, few skills, and a lot of debt is not an ideal way to begin a career."

Read more here

45 Comments:

At 3/08/2012 9:34 AM, Blogger W.C. Varones said...

Not to mention the Great Student Debt Ponzi.

 
At 3/08/2012 9:43 AM, Blogger PeakTrader said...

If high school is good for students, then why isn't college good for students, particularly when a four-year college degree today is equal to a high school degree 50 years ago?

 
At 3/08/2012 9:44 AM, Blogger PeakTrader said...

Also, many of the new jobs in the Information-Biotech economy require more than a four-year college degree.

 
At 3/08/2012 9:47 AM, Blogger bix1951 said...

When I was young I got the idea that the point of college was to get a liberal education, in the sense of knowing more about the vast fields of knowledge humanity has developed.
This was good for your soul, not you bank account.

 
At 3/08/2012 10:11 AM, Blogger juandos said...

"Also, many of the new jobs in the Information-Biotech economy require more than a four-year college degree"...

In fact some of those jobs almost demand some sort of continual, ongoing education, right?

 
At 3/08/2012 10:24 AM, Blogger PeakTrader said...

Juandos, perhaps, similar to an MD (training and experience, along with education).

People live longer. Perhaps, ideally, you complete your education or degree(s) by 25 or 30, work 30 productive years, and retire before 60.

 
At 3/08/2012 10:47 AM, Blogger PeakTrader said...

The Baby Boomers (born between 1946-64) are still near their peak productive years (35-54), because the 55-64 age group is the second most productive group, and people are living longer.

This depression, similar to the depression of the 1930s, which took a world war for the economy to recover (chart below), is a waste ($3 trillion of lost real output so far).

http://www.web-books.com/eLibrary/Books/B0/B62/IMG/fwk-rittenmacro-fig17_001.jpg

 
At 3/08/2012 10:54 AM, Blogger Jon Murphy said...

Woah woah woah owah

Can we please stop perpetuating the myth that WWII cured the Great Depression? Rationing, war, shortages, massive destruction, and unbelievable loss of life is never a recovery.

 
At 3/08/2012 10:59 AM, Blogger PeakTrader said...

Jon, the chart (above) shows WWII closed the output gap, and the U.S. emerged as the greatest superpower the world ever saw, for decades, because the other major economies were destroyed.

 
At 3/08/2012 11:48 AM, Blogger Jon Murphy said...

It closed the output gap because we were producing tanks and guns! We could do the same thing today! That does not mean the economy was prospering!

 
At 3/08/2012 11:57 AM, Blogger PeakTrader said...

Jon, yes, "WWII cured the Great Depression."

You don't view "tanks and guns" as goods?

How would the U.S. economy prosper if it couldn't defend itself?

 
At 3/08/2012 12:05 PM, Blogger Jon Murphy said...

Tell that to the people who had to stand in line for rationed meat, butter, toilet paper, gas, nylons, etc.

I'd rather of a depression producing goods people demand than "prosperity" producing tanks and guns.

True prosperity only comes from the production of goods and services people demand. Defense goods are needed, but they should never, ever be the source of economic "gain".

Economic growth is a straight-forward plan when the nations at war and there's a draft. If every man was employed in the army and fleet, we'd have full employment and output, and nothing to eat.

 
At 3/08/2012 12:16 PM, Blogger morganovich said...

peak-

jon is right.

building tanks never makes you rich.

ww2 destroyed much of the world's productive base. sure, that wound up benefiting the US, but it did not "end the great depression" which was a worldwide event.

to claim it did is just a massive application of the broken window fallacy.

 
At 3/08/2012 12:30 PM, Blogger PeakTrader said...

Jon and Morganovich, when you're wrong, you change the subject.

The chart shows when WWII started, the Great Depression ended (not before).

The extent of prosperity is another subject.

 
At 3/08/2012 12:36 PM, Blogger Colin said...

As we once were, Germany is still an export nation.

 
At 3/08/2012 1:25 PM, Blogger AIG said...

Well, these are a bunch of numbers without any explanation of what they mean, or are claimed to mean.

Ie, the rate of college grads in Germany and the US, once you work out those numbers...is actually almost identical! 29.1% for Germany vs 28.8% for the US.

Second, the average US college graduate, and the average participant in the US labor market in general, has a substantially higher starting salary and average salary than their German counterpart.

So, in the process of producing the exact same amount of college graduates, our educational system produces employees which are substantially more profitable than their German counterparts.

And yet somehow, WE have a problem?

97% HS graduation rates in Germany mean nothing, since it is almost impossible to drop out of HS in Germany.

What these numbers seem to indicate, to me, is that US students have a lot of other opportunities other than college, whereas German students pretty much are confronted with no other opportunities. IE...most people I know who dropped out of college, did so because they saw that it wasn't a fit for them, and they found something else they considered better (I'm not sure if we are counting all community colleges and trade schools in this number)

And finally, we have to take into account cultural differences; Germans being Germans, and Americans being a mix of lots of different people with very few common characteristics.

One has to take into account things like the American obsession with plopping out babies the moment they are physically capable of doing so (thanks to people like Rick Santorum), which is probably accounts for a HUGE % of people who didn't graduate from HS, or who dropped out of college; ie they got pregnant or got someone pregnant, and had to abandon their life plans.

And of course, lastly, we should not ignore the fact that a large % of our students are recent or 1st generation immigrants from countries where they, or their parents, received very little or no education at all.

 
At 3/08/2012 1:40 PM, Blogger AIG said...

So I don't see the argument that there is an "obsessive focus on college degrees". There is just an obsessive focus on...trying...and on opportunity.

Of course, for Germany we heard that 97% graduate HS, and 1/3 of these go to college. But how many...graduate? Digging around I found that number to be around 72%...which is only slightly higher than the US 60%.

So again, the results are pretty close, except that the ONLY REAL result, is the productivity that these graduates are PRICED at in the market. US grads are priced higher.

Of course, Germany was chosen as a comparison here because out of all the European countries, it is the one with the most favorable numbers compared to the US. The rest produce college graduates like there is no tomorrow.

But doesn't this argument go against the supposed "grade inflation" and "college bubble" theories? If we WEED out so many people both in HS, and in college, then how can there be "grade inflation"? If the schools are interested in getting more money, then why would they ever let any of their students go?

Of course, the real problem, is the reasons for this "weeding out". I'd say, a big component of it, is certainly the misallocations of resources towards various liberal arts degrees. That's one part and a very serious part. And it is important to differentiate this problem from the various "anti-college" arguments one hears mainly from the right (strangely enough, from people who got useless liberal arts degrees too, and think they can apply their inferiority complex to the rest of the world)

But another part, is the "Rick Santorum Syndrome" of glorifying a primitive lifestyle at the expense of self-improvement. This primitive lifestyle, leads to kids who don't know how to behave when they do go to college, or to kids who'd rather have babies then get an education. This isn't a problem that Germany has (except amongst its mainly Turkish-Kurd minorities, which have cultures strikingly similar to Rick Santorum's)

 
At 3/08/2012 1:45 PM, Blogger AIG said...

One last thing, keep in mind that the German equivalent to an undergrad, is only 3 years in length.

 
At 3/08/2012 1:57 PM, Blogger Mike said...

"One last thing, keep in mind that the German equivalent to an undergrad, is only 3 years in length."

The European undergrad system is something that should be adopted here. Less time, fewer 'nonsense' courses should translate into less money.

The college degree has become a bizarre gate-keeper here when you have to have one just to get an interview for a standard sales job.

 
At 3/08/2012 3:02 PM, Blogger Ken said...

@ PeakTrader,

If high school is good for students, then why isn't college good for students, particularly when a four-year college degree today is equal to a high school degree 50 years ago?

Education is good for people, not degrees. Confusing the two is easy and damaging as it relates to public policy.

The Baby Boomers (born between 1946-64) are still near their peak productive years (35-54)

Those born between 1946-64 are 48-66, not 35-54.

Jon, the chart (above) shows WWII closed the output gap

All this shows is how misleading the single number GDP can be. Jon's right saying that rationing and massive destruction is not the path to wealth. GDP is so high during those years due to massive government spending devoted to diverting resources away from US citizens that they could use to improve their lives and diverting those resources to the war effort. By focusing on GDP and ignoring personal consumption during WWII, you are ignoring the realities that personal wealth and consumption did not increase during WWII.

@ bix1951,

When I was young I got the idea that the point of college was to get a liberal education, in the sense of knowing more about the vast fields of knowledge humanity has developed.
This was good for your soul, not you bank account.


Fine, then don't hurt other people's bank accounts to improve your soul. Pay for college yourself, don't make others pay for your college.

 
At 3/08/2012 3:07 PM, Blogger AIG said...

"The European undergrad system is something that should be adopted here. Less time, fewer 'nonsense' courses should translate into less money."

Of course not. I pointed out that it is 3 years, so that we understand that we are not comparing equivalent units here.

In countries where "undergraduate" education is 3 years, high school is typically 5 years! Plus, most people will complete the 3+2 and get an equivalent to the "masters" degree in the US.

It is not that any of them do it faster, better, or more profitably than we do. It is also certainly not the fact that they do it any better than we do. The measure of success, is ultimately the price the market places on graduates from these systems.

 
At 3/08/2012 3:15 PM, Blogger AIG said...

"The college degree has become a bizarre gate-keeper here when you have to have one just to get an interview for a standard sales job."

It's not bizarre at all. it is a perfectly logical, reasonable and cost effective method of providing information to the ultimate CUSTOMER: your employer.

This is what we need to understand; the degree you get has as its customer your future employer. Not you. Your cost may be getting higher etc etc, but the cost to the employer for filtering and selecting employees, gets considerably cheaper.

The single most important factor to any employer's success, is selecting the right people. Having their candidates vetted through 4 or 5 or 6 years by an external auditing agency, reduces their risk. Which is why they are willing to pay more for such candidates.

Of course, this dynamic is shifting fast now that employers need higher quality and higher skill...but the general concept still applies.

To me...it is amazing why free-market people do not recognize this concept, but instead insist on creating some abstract model where all things education are grouped together, and all actors in the market are completely ignorant and irrational.

To say that there are distortions in this market, is one thing. To say that the market itself is illogical, is another.

 
At 3/08/2012 3:30 PM, Blogger PeakTrader said...

@Ken, in reply to your three responses:

1) Finishing what you start (including in education) is a signal.

2) You missed the other two-thirds of my statement:

"...the 55-64 age group is the second most productive group, and people are living longer."

Also, I may add, lower net wealth will force Americans to work longer, which adds to future economic growth.

3) Do you really believe the U.S. would've been better off continuing the massive decade-long under-production path rather than enter WWII?

 
At 3/08/2012 3:35 PM, Blogger Mike said...

"it is a perfectly logical, reasonable and cost effective"

Yes, totally logical to exclude someone with 5 years of lower-level (or comparable) sales experience who never went to college in favor of some idiot who squeaked by with a degree in something generic.

I'm not saying I don't understand it, I just don't happen to think this produces outcomes good enough to depend on the way people do.
Media sales is a fantastic example. Give me an old school guy who somehow snuck in to a tiny market over someone with a degree every single day.

Had this conversation with a high-ranking exec, he'd like to hire a guy who had started and run a couple of businesses but the guy had no degree. He said there was just no way he could get it through. Perfectly logical and cost effective...

 
At 3/08/2012 4:08 PM, Blogger PeakTrader said...

Of course, it would've been better to jolt the economy out of the Great Depression with appropriate economic policies rather than war.

Economics of WWII

The overall result was a dramatic increase in GDP, the export of vast quantities of supplies to the Allies and to American forces overseas, the end of unemployment, and a rise in civilian consumption even as 40% of the GDP went to the war effort.

This was achieved by tens of millions of workers moving from low-productivity occupations to high efficiency jobs, improvements in productivity through better technology and management, and the move into the active labor force of students, retired people, housewives, and the unemployed.

Americans saved a high portion of their incomes, which led to renewed growth after the war instead of a return to depression.

The public paid 3/4 of the face value of a war bond, and received the full face value back after a set number of years.

This shifted their consumption from the war to postwar, and allowed over 40% of GDP to go to military spending, with moderate inflation.

Americans were challenged to put "at least 10% of every paycheck into Bonds".

Compliance was very high, with entire factories of workers earning a special "Minuteman" flag to fly over their plant if all workers belonged to the "Ten Percent Club". There were seven major War Loan drives, all of which exceeded their goals.

The labor shortage and gasoline and tire rationing caused many stores to stop delivery. They found that requiring customers to buy their products in person increased sales.

 
At 3/08/2012 4:24 PM, Blogger Walt G. said...

Mike,

The other guy who applied for the job I have now used your same argument. He now works for me. I don't know what he was doing after work for the last few years, but my butt was at a college desk getting a graduate degree. If you can't beat them, join them.

 
At 3/08/2012 5:27 PM, Blogger AIG said...

"Yes, totally logical to exclude someone with 5 years of lower-level (or comparable) sales experience who never went to college in favor of some idiot who squeaked by with a degree in something generic. "

Certainly, this isn't a realistic scenario you are proposing here.

"I'm not saying I don't understand it, I just don't happen to think this produces outcomes good enough to depend on the way people do."

But you are speculating on how people use it, and then creating caricatures of how someone with no college degree and 5 years of experience, and someone with a college degree (in a unsubscribed major)and no experience...are judged.

These are not realistic caricatures, and this is not how companies behave. A "degree" in "something" has its highest value at the initial start of someone's career. It quickly diminishes in value. But the proper comparison is between a 22 year old with a degree in some field related to your business, but no experience, and a 22 year old with no degree and no experience in your business.

"Media sales is a fantastic example. Give me an old school guy who somehow snuck in to a tiny market over someone with a degree every single day. "

That's great. And you assume that companies DON'T know this? People with no experience and just a degree, in sales, start out at the very bottom of the ladder anyway.

In fact...sales is a TERRIBLE example, not a "fantastic" one. There is no college degree for "sales", last time I checked, and is a field that is chocked full of people with no college degrees of any sort.

"Had this conversation with a high-ranking exec, he'd like to hire a guy who had started and run a couple of businesses but the guy had no degree. He said there was just no way he could get it through."

Sure, lets start with the "anecdotal evidence", once the rest of the evidence doesn't fit out view.

"Perfectly logical and cost effective..."

Absolutely. After all, employers pay premium prices to get people with degrees in whatever field they are interested in. The whole argument against this would be...all the employers are total idiots?

 
At 3/08/2012 6:16 PM, Blogger Hydra said...

. "The measure of success, is ultimately the price the market places on graduates from these systems."

===============================

Your lack of education is showing, if you think that is the only measure of success.

 
At 3/08/2012 6:24 PM, Blogger Mike said...

AIG,

"Certainly, this isn't a realistic scenario you are proposing here."

Are you serious? Really? It happens every day where I sit. How much college does it take to sell maintenance plans? Try to apply at Trane or Schindler to do just that without one. You won't get past screen one. If you think that's made up, you need to get out more.

I'm not even sure what you're arguing, but then again, I'm not sure you do either.
"Last time I checked..." you may want to check again...and that's my whole point. Companies have started requiring degrees to apply for entry level BS jobs. That's the whole point of everything I've been saying. I'm not talking about highly skilled jobs...everything I've mentioned has been about entry level.

I never said there was a sales degree (?)....in fact I never said half the stuff you're spewing.

 
At 3/08/2012 6:32 PM, Blogger Mike said...

Oh God, I missed this one...

"But the proper comparison is between a 22 year old with a degree in some field related to your business, but no experience, and a 22 year old with no degree and no experience in your business."

No, this is YOUR comparison. You may be shocked by what I'm about to tell you, but you don't know what you're talking about. I can see how you may think you're right on this if you only take your experience and knowledge as credible information....and you call me selective and anecdotal. Hilarious.

 
At 3/08/2012 6:40 PM, Blogger Mike said...

Walt,
I don't know what you do, but - as I'm trying to explain to an oddly defensive AIG - I'm talking about companies with entry level job postings that now state a college degree as a requirement for applying. I thought I was clear on that but I guess not.

 
At 3/08/2012 8:00 PM, Blogger Itchy said...

This obsession will stop when people my age (31) get old enough to be in charge. Getting a college degree in some useless liberal arts field means you took classes where having a pulse is 2/3 of what it takes to get an A and you could start your weekend on Wednesday.

The nerds are taking over. just having a piece of paper will only get you so far. People in the Boomer generation are too impressed by the act of just finishing college.

 
At 3/08/2012 8:02 PM, Blogger Walt G. said...

Mike,

I teach heating and air conditioning to students, write curriculum and online course material using advisory board input, career-coach college students, and keep the program aligned between multiple campus locations in the state now. We had to develop a vocational bachelor degree program to address the problems you stated. Yes, there are additional credentials needed to get a good paying job now. A huge part of the college degree requirement for entry level jobs is because a high school diploma does not prepare graduates for the 21st century workforce.

 
At 3/08/2012 8:05 PM, Blogger Walt G. said...

Itchy,

The nerds have the money. Do you want some?

 
At 3/08/2012 8:19 PM, Blogger Itchy said...

Itchy,

The nerds have the money. Do you want some?


I am one. I have credentials.

 
At 3/08/2012 8:20 PM, Blogger Itchy said...

This comment has been removed by the author.

 
At 3/08/2012 9:31 PM, Blogger Ron H. said...

Peak says:

"Jon, yes, "WWII cured the Great Depression."

For Peak a depression is a mathematical result only, and no actual people are required. A recovery, likewise is GDP growth alone, no matter what's being produced.

Production of tanks is as good as anything else for this purpose, as is digging holes and then filling them back in.

Another Keynesian, The former economist Krugman, asserted that the destruction of the Twin Towers had a positive outcome, as it created a lot of demand for construction work.

If GDP is up, we are happy.

 
At 3/08/2012 9:45 PM, Blogger Ken said...

Do you really believe the U.S. would've been better off continuing the massive decade-long under-production path rather than enter WWII?

This is an entirely different question than asking if WWII ended the Great Depression. Even if their had not been a Great Depression it seems like it would have been a good idea to fight WWII.

In other words there is a reasonable argument to be made that fighting some wars are good for the country. But there is no reasonable argument to be made that wars end recessions and improve people's lives by increasing wealth.

 
At 3/08/2012 9:45 PM, Blogger Ken said...

The "WWII ended the Great Depression" is the broken window fallacy writ large.

 
At 3/08/2012 10:20 PM, Blogger Ron H. said...

Peak: "3) Do you really believe the U.S. would've been better off continuing the massive decade-long under-production path rather than enter WWII?"

Well, let's ask the 400,000 US soldiers who died in the war for their thoughts on the matter. We should probably also check with their families and survivors.

What's the difference to the average person who can't get all the things they want because they're unavailable or rationed due to the war effort?

How is standing in line for rations different from standing in a bread line?

One noticeable difference is that there are fewer men in line during WW2. 10 million of them were in the service by the end of the war, with many employed as targets in foreign countries.

But hey, unemployment was almost none existent, and GDP was WAY up.

Good times, eh?

 
At 3/08/2012 10:22 PM, Blogger Ron H. said...

Peak: "3) Do you really believe the U.S. would've been better off continuing the massive decade-long under-production path rather than enter WWII?"

Well, let's ask the 400,000 US soldiers who died in the war for their thoughts on the matter. We should probably also check with their families and survivors.

What's the difference to the average person who can't get all the things they want because they're unavailable or rationed due to the war effort?

How is standing in line for rations different from standing in a bread line?

One noticeable difference is that there are fewer men in line during WW2. 10 million of them were in the service by the end of the war, with many employed as targets in foreign countries.

But hey, unemployment was almost none existent, and GDP was WAY up.

Good times, eh?

 
At 3/08/2012 11:17 PM, Blogger Ron H. said...

Peak: "Americans saved a high portion of their incomes, which led to renewed growth after the war instead of a return to depression."

Of course they did. There was little to spend it on, except for high priced black market goods.

"This shifted their consumption from the war to postwar, and allowed over 40% of GDP to go to military spending, with moderate inflation."

Inflation? Wage and price controls helped with price inflation, don't you think?

The measurements you like to use don't work well in a war economy. Too much distortion.

 
At 3/09/2012 12:32 AM, Blogger PeakTrader said...

Obviously, some people make up their own definitions of economic depressions, when they need to fit round pegs into square holes, while their simple conclusions explain almost nothing.

 
At 3/09/2012 1:06 AM, Blogger PeakTrader said...

The facts remain.

WWII jolted the U.S. economy out of the Great Depression, there were "spillover effects" from economic activity, including improved technology, productivity, management, sales, etc. (it wasn't soley the broken window fallacy or digging holes and filling them up again), and the high saving rate provided fuel for the subsequent post-war economic boom.

Of course, I also stated above:

"It would've been better to jolt the economy out of the Great Depression with appropriate economic policies rather than war."

 
At 3/09/2012 1:57 AM, Blogger Ron H. said...

Peak: "Obviously, some people make up their own definitions of economic depressions, when they need to fit round pegs into square holes, while their simple conclusions explain almost nothing."

Au contraire. An economic depression has a particular well understood definition, but attempting to fit it, or GDP or unemployment, or any other normal economic measures to a wartime command economy is just silly.

Price inflation couldn't rear it's ugly head when prices and wages are frozen by government decree.

GDP was through the roof with 40% government spending on things that were shipped overseas to be blown up or sunk in mid ocean, with no direct benefit to consumers. Government spending on digging then filling in holes is of equal value to consumers.

Unemployment couldn't be found when 10 million men were forced into jobs through conscription, and 400 thousand of them killed.

It's not clear what "appropriate economic policies" you think would have worked better than war, but is seems that it was misguided Keynesian policies that caused the Great Depression, then more of the same from that Mussolini fanboy FDR that prevented recovery until after the end of the war.

 

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