Are Higher-Paying Jobs Worse than Lower-Paying Jobs?
By David Henderson
Where does a man get inspiration to write a song like that?
He gets it from the landlady once a month.
The above answer from Jeff (Jimmy Stewart) to Lisa (Grace Kelly) in Rear Window, which I rewatched on Thanksgiving weekend, is one of my favorite lines from a great movie. I think it’s self-explanatory.
I thought of it when I read the following:
While President-elect Biden’s choice to chair his Council of Economic Advisors [it’s actually spelled “Advisers,” as I was told regularly when I worked there], Cecilia Rouse, didn’t call for canceling student debt, she expressed awareness of the impact debt has on borrowers in a 2007 research paper.
Rouse, in a paper co-authored with Jesse Rothstein, now a public policy and economics professor at the University of California, Berkeley, found that holding student debt made it more likely for students to choose high-paying careers and eschew lower-paying ones like teaching.
In the study, Rothstein and Rouse, who is now dean of Princeton University’s School of Public and International Affairs, examined students at an anonymous university that had stopped giving out loans and only gave students financial aid through grants.
They found that every $10,000 in debt reduces by 5 to 6 percent the chances that a student at the university would take a job at a nonprofit, in the government or in education.
This quote is from Kery Murakami, “Biden’s Pick to Head Economic Advisors Seen as Sympathetic to Loan Borrowers,” Inside Higher Ed, December 1, 2020. Murakami’s tone suggests that he thinks it’s bad that students in debt would focus more than otherwise on getting a high-paying job. He also seems to think, possibly correctly, that Rouse and co-author Rothstein think it’s bad.
But is it? If graduates are choosing higher-paying jobs rather than working in nonprofits, government, or education, there’s a higher probability that they are serving people.
Huh? Isn’t it the opposite? Haven’t we been told incessantly that those in government are public servants and that people in nonprofits are pursuing noble goals? Yes, we have. But repetition doesn’t make those claims more likely to be correct.
How do we know when people are serving others? There’s one main test: are those others willing to pay for the service? Because the vast majority of government workers are paid by taxes, we don’t have a good market test. Postal workers are the rare exception: most of their pay comes from stamp and shipping revenue, not from taxes. And people who work for nonprofits, while they are serving the donors, are not necessarily serving others.
Education is more mixed. In private non-subsidized schools, there is a market test. For the vast majority of schools, K-12 and college, a large percent of salaries is paid for by taxes.
By the way, Murakami’s news story is nicely balanced, something you can’t always expect nowadays. (Maybe you never could.)
The idea of canceling student debt, however, remains controversial. In a working paper released Sunday, researchers at the University of Chicago’s Becker Friedman Institute for Economics argued that widespread debt cancellation would primarily help higher-income borrowers, because those on income-driven repayment plans will have their remaining balances forgiven anyway after about 25 years, depending on the plans. Expanding income-driven repayment plans to more people, they wrote, would be more likely to help lower-income borrowers than widespread debt cancellation.
When that’s taken into account, researchers Sylvain Catherine and Constantine Yannelis said, the top-earning borrowers would receive $5,944 in forgiveness, while those with the lowest incomes would receive $1,070 in forgiveness.