David Wessel writes,

Although the best-paid college grads are doing well, wages of college grads have fallen on average, after adjusting for inflation, in the past five years. The only group that enjoyed rising wages between 2000 (just before the onset of the last recession) and 2005 (the most-recent data available) were the small slice with graduate degrees.

…Explanations come in three strains, all of which have some merit. One, it’s more socially acceptable than it was a generation ago for the top-tier chief executive, hedge-fund manager or baseball players to make an enormous amount of money. Two, the world has changed in ways that make the No. 1 or No. 2 — whether a trial lawyer or a rock star — much more valuable than No. 19 and 20. As technology has helped create superstars, the gap between Oprah’s paycheck and those of local talk-show hosts is larger than ever.

And, three, there’s the influence on supply and demand of globalization and technology.

The point is that what used to be a college-degree premium is turning into a graduate-degree premium.A couple of issues here. Are we talking about cohort effects, or changes within a cohort?

Changes within a cohort would mean that college graduates of the class of 1980 were earning a higher wage in 1990 relative to their advanced-degreed peers than they are today. Cohort effects would mean that college graduates of 2000 are earning a smaller wage premium than college graduates of 1980.

If we are talking about a within-cohort effect, then we are saying that college degrees earned years ago are depreciating faster (or appreciating less) than advanced degrees. I find this a bit surprising, since technological change would tend to threaten at least some advanced degrees with obsolescence.

Of course, many people with advanced degrees are employed as professors, where having tenure means you can never be declared obsolete. I wonder if the graduate wage premium is simply an increase in rent capture on the basis of credentials in the fields of health and education. If so, then we are talking about very distorted markets, with lots of government involvement.

On the other hand, suppose that what is going on represents a cohort effect, with recent college graduates not earning the premium that their predecessors enjoyed. In that case, I think that changes within the education system itself may explain part of the problem.

My guess is that a lot of people who attend college today are not really ready for college. They get some remediation in college, but they also get “junk degrees” in subjects where standards are low.

If my hypothesis is correct, then folks who majored in real subjects, like engineering or philosophy or even economics, are holding up ok. That is, a philosophy major today is in the same spot in the income distribution as her counterpart 25 years ago.

However, the “average” college graduate is in a lower spot in the income distribution than her counterpart of 25 years ago, because the “average” now includes more people who majored in ethnic studies, or “communications,” or something else that does not require much in the way of critical thinking.