The College Economy

By Anthony P. Carnevale    //    Volume 20,  Number 3   //    May/June 2012

As the United States grinds its way through a halting economic recovery, one thing has become abundantly clear: The recession of 2007 continues to reshape the economy in significant and permanent ways. Perhaps the most profound change is the accelerating disappearance of good-paying jobs that require only a high-school education or less. That means, of course, that an ever-growing share of the jobs that remain will be reserved for workers with some kind of postsecondary education and training.

Education has long been a well-traveled route to good jobs, economic advancement, and success. What has changed in recent decades is that the relationship between education and opportunity has become much stronger. Education—especially higher education—is no longer just the preferred path to middle-class status. Today, it has increasingly become the only path.

In fact, the middle class is dispersing into two opposing streams: upwardly mobile college-haves and downwardly mobile college-have-nots. People with B.A. degrees or better are moving on up to the top three income deciles of the income ladder. Those with high-school diplomas or less are falling into the bottom three income deciles.

Given such economic trends, the role that colleges and universities play in offering people pathways to economic success will only become more crucial.

The Data Tell the Story

Although the recent recession has cast it under a harsh spotlight, the shrinking opportunity for American workers with no better than a high-school diploma has been going on for years. Consider the following data compiled by my organization, the Georgetown University Center for Education and the Workforce:

  • In 1973, only 28 percent of jobs required postsecondary education and training. By 2007, that percentage had ballooned to 59 percent. In the aftermath of the most recent recession, that number will only grow higher: By 2018, 63 percent of all jobs in the United States will demand workers with at least some college education.
  • In 1973, almost three-quarters of workers in the American middle class had only a high-school education or less. By 2007, that number had dwindled to just 39 percent.
  • Since the 1970s, those with college degrees have earned a cool $1 million more over the course of their working lives than those with only high-school diplomas. The 2009 median annual pay of people who have finished college is 70 percent higher than it is for those who haven’t gone to college.
  • The average yearly earnings gap between those with a B.A. degree and those who have only graduated from high school has increased from $18,000 to $22,000 since 1990 alone. And the difference between high-school and graduate-school earnings has grown to an eye-popping $45,000 a year on average.
  • Although real wages of workers with at least a B.A. degree have declined since 2000, the relative differential between their wages and those of workers with lower levels of educational attainment has remained stable. Even with the decline in wages of college graduates, they can still expect to earn almost two times as much as their non-college peers.
  • The high school/college wage gap has grown even as the supply of collegeeducated workers has increased dramatically. Employed workers with at least some college have increased by more than 18 million since 1992, including 10 million new employed workers with a B.A. degree or better.
  • In 1967, as many as 70 percent of the households headed by high-school graduates were in the middle class. By 2004, only half of high-school graduates were still in the middle class, and virtually all of those who left the middle class had fallen into the lowest three income deciles.
  • Meanwhile, the share of families in the upper three income deciles with B.A. degrees has increased from 22 percent to 36 percent. Over the same period, the share of families with graduate degrees in the top three income deciles has increased from 32 percent to 56 percent.

Wanted: More College Graduates

The traditional explanation for the disappearance of well-paying jobs for those with only a high-school degree has been that we have moved from a manufacturing to a service economy. But that only partially explains why employers today favor workers with postsecondary education and training. In fact, even in the manufacturing sector, education and training requirements for employees have toughened. High school alone does not suffice anymore.

The root cause of this transformation is a process that economists call “skillbiased technology change.” In this case, the technology causing the change is the computer, which automates repetitive tasks and makes them extremely inexpensive to perform. In doing so, the computer allows employers to cut costs by eliminating positions that emphasize such repetitive work—a process accelerated by economic turmoil like the recent recession. Tasks that cannot be automated are, by definition, non-repetitive and more sophisticated, and they require skilled workers to perform successfully. Occupations with high levels of such tasks—professional and managerial jobs, for example—demand the more-advanced skills obtained through postsecondary education and training.

Our nation has been slow to react to that trend, however. According to our recent supply-and-demand analysis of wages at the Center for Education and the Workforce, America has been underproducing college graduates for 30 years. Now, with low-skill jobs disappearing at an increasing rate as a result of the recession, that gap threatens to widen even further. We aren’t developing collegeeducated workers fast enough to replace the retiring Baby Boomers. Between 1980 and 2000, America increased the share of workers with a college education by a hefty 20 percentage points. In contrast, between 2000 and 2020, we estimate the share of workers with at least some college will only increase by 3 percent, given the current rates of college-going.

Meanwhile, the jobs that are projected to grow the most are often in industries that require postsecondary training most intensely—such as information services, health care, and business and professional services. Of course, even industries that are not growing fast will still need workers. Although manufacturing’s share of employment is declining, between now and 2018, nearly 2 million jobs will open in that industry due to worker attrition from retirement and death. And even here, education requirements will be greater than in past years, with more job applicants needing at least some postsecondary education or training.

The importance of education is clear. While race, gender, and other factors can affect earnings and advancement in a career, education is the primary key for entrance to middle-class opportunity. Without postsecondary credentials, workers find themselves in an ever-shrinking pool where jobs are usurped by information technology and possibilities dwindle with each passing day.

More than Dollars and Cents

Social attitudes that emphasize individualism in American culture and politics have reinforced such changes in the economy. Many Americans welcome our increasing reliance on education as the arbiter of economic opportunity because, in theory, education allows us to expand merit-based opportunity without surrendering individual responsibility. After all, we each have to do our own homework to make the grades and ace the tests that get us into college and in line for good jobs. And that, in many people’s view, seems fair in a culture that champions the belief that individuals ought to advance themselves in life as far as their talents and character will carry them.

As higher education becomes the threshold requirement for middle-class inclusion, it will need to become more accountable for economic outcomes. In the past, the United States has flirted with a training system that was delivered and funded outside the traditional education pipeline. That system was intended to give students who hadn’t succeeded in the traditional system a “second chance.” It began with the Man-Power Development and Training Act in the 1960s and grew into the 1970s Comprehensive Employment and Training Act—which has declined in scope ever since, first as the Job Training Partnership Act and now as the Workforce Investment Act.

But what we learned from the “second chance” training system is that it’s the first chance at education that counts. Postsecondary education, especially the community college, has become the nation’s real workforce-development system, both by design and by default. For now the “second chance” system has been all but abandoned: Federal funding for training, in real 2003 dollars, has declined from $27 billion in the last Carter Administration budget to about $4 billion in the most recent Obama Administration budget.

Our workforce-development system is now dominated by two-year colleges, for-profit institutions, and the four-year college system. Most of the certificates and degrees issued by for-profit institutions and community colleges have an occupational focus. Even among four-year colleges and universities, only 10 percent of the degrees are now awarded in the liberal arts and humanities.

Thus, while European nations, for example, use their apprenticeship systems to train their workforces, America uses its colleges. Indeed, in the United States, education has gradually become our “third way” for distributing opportunity, as distinct from the guaranteed outcomes typical of the European “nanny state,” on one side, or the runaway train of unencumbered market capitalism, on the other. Hence, if education is not the most fair and efficient way to increase and distribute opportunity, the United States would be well-advised to focus on developing policies that make it fair and efficient.

Some educators and others who stress the value of the liberal arts and humanities in American colleges believe that the increasing economic value of education may force a reckoning between narrow economic needs and broader educational goals, resulting in a “commoditization” of education. They worry that college education will become job training. Their concerns are not entirely unfounded. But as the economic value of education increases, we as a nation will need to remember that education, especially higher education, is about more than dollars and cents. It should do more than provide foot soldiers for the American economy.

Education has intrinsic as well as extrinsic value. Educators in both secondary and postsecondary institutions have cultural and political missions to ensure that there is an educated citizenry that can continue to defend and promote our democratic ideals. Resorting to a narrow “vocationalism” will result in an underinvestment in both the social and economic value of postsecondary education.

Indeed, if “commoditization” means investing in narrow occupational training, it’s just bad economics. The economic value of general competencies—such as the critical-thinking, problem-solving, and analytical skills that one learns through a liberal arts education—exceeds and is growing faster than job-specific competencies. Moreover, while specific occupational skills have greater short-term economic value, more-general skills have longer-term latent value. A recent National Bureau of Economic Research study, for example, found that students with a general-education background are more likely to be employed when they are 50 years old than students with backgrounds in strictly vocational education. General competency leavens all subsequent learning and practical experience. It is the educator’s version of patient capital, or long-term investment in human capital.

We need to aspire to a pragmatic balance between the growing economic role of higher education and higher education’s traditional cultural and political independence from economic forces. Ultimately, however, we also need to do a better job of rationalizing the transitions between college and careers, because the inescapable reality is that ours is a society based on work. Those who are not equipped with the knowledge and skills necessary to get, and keep, good jobs are denied full social inclusion and tend to drop out of the mainstream culture, polity, and economy. In the worst cases, they are drawn into alternative cultures, political movements, and economic activities that are a threat to mainstream American life.

Hence, if secondary and postsecondary educators cannot fulfill their economic mission to help youths and adults become successful workers, they also will fail in their cultural and political missions to create good neighbors and good citizens. And increasing the economic relevance of education should, if done properly, extend educators’ ability to empower Americans to do good work in the world, rather than retreat from it.

Five Rules about Earning Power

There is no question that education is a vital gatekeeper to middle-class jobs and earnings. But it is not the sole determinant—particularly when it comes to matters of earning power. Education and occupation interact in complex ways, and it is not unusual to find circumstances in which workers with less education out-earn those with more.

To understand the nuances of this phenomenon, we at the Center on Education and the Workforce have developed five rules:

1 Degree level matters. In general, people with more education earn more than those with less education. For example, over a lifetime, bachelor’sdegree holders make 84 percent more than high-school graduates. That’s about $1 million over a lifetime.

But

2 Majors matter. Within degree levels, people have vastly different earnings, depending on their majors. For example, the highest-earning bachelor’sdegree major, petroleum engineering, makes $120,000 a year at the median, compared with $29,000 a year for counseling psychology majors.

And

3 Majors often trump degrees. People with less education can earn more money than better-educated colleagues depending on their major. For example, someone with a one-year certificate in engineering can earn more than most people with associate degrees and bachelor’s degrees. Almost 30 percent of people with an associate degree earn more than the average person with a bachelor’s degree, as a result of their choice of major.

But

4 Within occupations, degree level still matters most in determining earnings. For example, an associate’s-degree holder in engineering still makes less than a bachelor’s-degree holder in engineering, who in turn makes less than a graduate-degree holder in engineering.

But

5 Race/ethnicity and gender are wild cards. They can trump all else in determining earnings. For example, women have to earn a Ph.D. to make as much as men with a bachelor’s degree.—Anthony P. Carnevale

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