Magazine article Insight on the News

Market Demands Higher Education

Magazine article Insight on the News

Market Demands Higher Education

Article excerpt

The notion that a college degree is becoming increasingly irrelevant to economic success stands in sharp contrast to the actual experiences of most Americans. Rather than a hindrance, a college education has become a fundamental prerequisite for access to a decent standard of living in the United States.

In fact, one characteristic of the American labor market is the way in which it rewards those with additional years of schooling and punishes those who have dropped out of high school or have no postsecondary education. Further, the best forecasts of job growth in the nation suggest that the rewards of postsecondary education are likely to increase through the millennium as the economy continues to shift in ways that favor those with additional years of schooling.

The idea that a college education does not help young Americans entering the work force has its roots in the rocky transition from college to the job market in the early 1970s by a portion of the baby boom generation. In the years between 1965 and 1970, college enrollments soared by 45 percent. This extraordinary increase resulted from the sharp rise in the college-age population as the baby boom generation aged, combined with higher fractions of the draft-age population who enrolled in college to defer military service.

The resulting surge in the supply of bachelor's degrees occurred about the same time as the worldwide economic slump associated with the 1973 Arab oil embargo. Thus, a unique combination of labor-market supply and demand factors converged to produce a sharp, abrupt decline in the economic returns to a college education. Many believed that the days of the fifties and sixties, when a college degree meant automatic entrance into a comfortable lifestyle, were gone. The archetypal Ph.D. driving a taxi became the symbol of a college education.

Unfortunately, this archetype lingers despite overwhelming evidence of the growing gains associated with a college diploma. An analysis of labor-market developments since the mid-1970s reveals that the relative position of recent college graduates has improved enormously. In 1973, young men with a college degree earned only 19 percent more per year than their counterparts with a high school diploma. By 1992, young, male college graduates earned 70 percent more per year than young, male high school graduates. Differentials among young women are even greater.

Growth in college-earnings premiums have resulted in an extraordinary increase in the rate of return on investment in postsecondary education. Despite a substantial decline in the size of the traditional college-age population during the 1980s, full-time equivalent college enrollments rose 11 percent between 1980 and 1990. During the same period, real tuition and fees increased by 26 percent for public postsecondary schools while private colleges raised their tuition by 49 percent. Rising enrollments in the face of hefty tuition hikes signaled a powerful shift in the demand for a college degree. Moreover, this increase in demand occurred at a time when real median income of families with school-aged children actually declined 2 percent. Clearly, families were willing to make much larger sacrifices in order to obtain additional years of schooling for both children and parents.

What caused the growing earnings gap that triggered the surge in demand for a college diploma? It was due largely to fundamental changes in the job content of the American economy. Between 1979 and 1989, total employment grew by more than 20 million, or about 21 percent. Yet, half of this employment growth was concentrated in the nation's college-graduate-intensive service sector. In just 10 years, that sector saw its employment level increase by about 40 percent, double the overall growth rate.

As the service sector experienced unparalleled expansion during the 1980s, employment in manufacturing actually declined. Manufacturers traditionally have hired people with relatively few years of formal schooling. …

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