As the consequences of the global recession and the debt crises in the western countries continue to affect national economies and labor markets, the importance of higher education has been questioned by some citizens. A report by McKinsey concluded that 41% of graduates from the USA’s top colleges could not find jobs in their chosen field and 50% would choose today a different major or school; while Chegg, a company that provides online help to students and collaborated with the study added that only 39% of the managers say that students are ready for the workforce. In several European countries, youth unemployment raised sharply, even between among those with higher education, leading to the belief that the returns for investing in higher education are not as high as in the past (i.). For these reasons, some economists have asserted the existence of a “bubble in higher education”, meaning that the comparatively high amounts paid by students to get a college degree (principally for US) do not correspond to future employment prospects and wages of these students. (ii.)
The value of a degree boils down to supply and demand. The difference between average pay for university graduates and those with secondary-school degrees is called the “college wage premium”. When firms need more skilled workers their demand for university graduates grows, and the premium rises. When the supply of graduated workers grows faster than the supply of less-educated workers, the premium will stabilize or decrease.
In the last century, in rich countries firms demanded more and more of the best-educated workers, but recently the increase in demand has been lower than the increase in supply. In the case of OECD countries, and according to data from the World Bank, the percentage of enrollment rates on tertiary education passed from 51% in 2000 to 71% in 2012. So rapid was the change in labor markets that they became “saturated” with new graduates, consequently the premium has been decreasing.
Also, students are paying more for education and borrowing more to do so (from 1993 to 2012 the share of American graduates taking student loans increased 25%), and the big problem is that returns on investment in education are also getting more volatile. A study from Payscale, a research firm, concluded that the returns vary according to institution and degree. They estimated the return by taking into account the investment (the cost of the degree after financial aid) and how much they earn today. Graduating in great universities like Caltech and MIT creates a 30-year return on a bachelor degree of about $2,000,000, while attending in not-so-good schools like Valley Forge Christian College made $148,000 worse off graduates. The return is estimated in the case of degrees, engineering is always a good bet; an engineer from the U. C. Berkeley can expect to be $1,100,000 better off after 20 years than someone that never went to college, even the least lucrative courses generated a 20-year return of $500,000; in the case of arts and humanities the returns are much more varied, an art degree from Columbia pays off generously while an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his graduation. A caveat in this study is that they compared the graduate’s earnings with the earnings of people that just finish the secondary instead of graduate’s earnings if they did not have done college, overstating the true value; some people did not go to college just because they did not have enough grades to get in, so the premium that graduates earn can be higher because they are smarter on average than non-graduates. (iii.)
As more and more people are completing higher education some students are now investing in higher education not to learn but to signal to firms that they are as good as the others that went to the university, this is still rational but certainly not efficient. Students need to start to look to studies like Payscale and make more informed choices as returns to higher education are getting more volatile.