Are Government "Investments" in Higher Education Worthwhile?

At least one state has adopted public policy rooted in the idea that more education leads to increased prosperity. In 1999, Oklahoma enacted a program called “Brain Gain 2010” with the objective of raising the percentage of state residents with college credentials to 28 percent from the 1996 level of 20 percent.2 The implicit assumption underlying the program is that people with college degrees will necessarily earn more than people without them.

Cornell University economics professor Ronald Ehrenberg favors that approach, having written, “State governments need to be educated so that they understand the role that higher education plays in economic development and in boosting the incomes of state residents.”3 Income statistics appear to bear out Ehrenberg’s position. On average, individuals who have college degrees have substantially higher lifetime earnings than do individuals who end their formal education at an earlier stage. Based on census data, in 2005, the median annual income for people with bachelor’s degrees was $51,206, compared to a median of $27,915 for people with only high school diplomas.4

Despite these figures, though, I believe that not only should government not increase its spending on higher education, but also that the case for subsidizing it at all is very weak.

To begin with, the crucial assumption that there is a direct, causal relationship between “educational attainment” and income is contrary to readily observed facts. On the one hand, many highly successful people—Bill Gates being only the most prominent example—do not have college degrees. Would Gates have done better still had he not dropped out of Harvard? It seems far more likely that had he stayed in school to complete his degree, at best, the development of Microsoft would have been delayed. One might argue that this is only one person and, therefore, that it cannot be used to make a point about college. However, this one person might have been out tens of billions of dollars had he stayed in college and the rest of society might have lost also. So this one example is actually strong support for the case against college.

On the other hand, many people with college degrees work at jobs that call for scant academic preparation, jobs in which they earn little or no premium on their “investment.” In their book Who’s Not Working and Why, Frederic Pryor and David Shaffer document the increasing numbers of young people with college credentials who are flooding into “high school” jobs. They attribute this phenomenon to the “low functional literacy of many university graduates,” which they regard as “a serious indictment against the standards of the U.S. higher educational system.”5 Their observation is confirmed by data compiled by the Bureau of Labor Statistics showing the educational levels of workers aged 25 to 44 in a vast array of occupations.6 The data show, for example, that 47 percent of fitness and aerobics trainers have college degrees, as do 25 percent of retail sales supervisors, 31 percent of airline flight attendants, 26 percent of travel agents, and 22 percent of customer service representatives.

In short, having a college degree is neither a necessary nor a sufficient condition for success in life. The conventional wisdom holds that students who go through college learn a lot that makes them more valuable as workers, but today’s college experience often fails to do that. As Charles Murray says in his book Real Education, “Four years of residence on a college campus is seldom the best way to acquire the knowledge that most students want to acquire.”7 Murray echoes what many others have said about the ease with which one can obtain a degree these days: “[A]lmost anyone can do it if he shops for easy courses in an easy major at an easy college.”8

That is what many young people do. They have been led to believe that having a college degree is essential for a prosperous life, but all they want is the credential and, thus, they try to obtain it with minimal effort. Many schools, eager for students (or, as a friend suggests, “tuitioners”), have willingly accommodated students who just want “easy courses” by lowering admission and academic standards.9 In Generation X Goes to College, Peter Sacks explains how, to keep his teaching job in the face of extremely negative course reviews by students who had negligible academic ability, he had to make his journalism course more entertaining but much less rigorous. Among other adjustments he made, he stopped giving students much criticism of their poor writing.10

Now we can see one reason why the income differential between college graduates and non-graduates is so misleading. That statistic includes many people who earned their degrees decades ago, before the erosion of standards. Looking at such statistics does not tell us anything about the probable results of putting a marginal student through college today. Many of them learn little, enter a labor market glutted with others who have low-grade college credentials, and settle into jobs that could be done by an average high school student. Politicians’ expectation that simply processing a student through college will automatically bring about a great increase in his human capital and lead to a dramatic boost in his earnings is mistaken.

Isn’t it true, however, that more and more jobs require a college degree? In arguing for increasing government support for higher education, Secretary of Education Margaret Spellings often observes that “90 percent of the fastest-growing jobs in America require a college degree.”11 What does it mean to say that a job “requires” a college degree? It would be natural to think that the work is so demanding that only someone with the training available in a college could perform it. Rarely is that the case. As Engell and Dangerfield observe, the U.S. has become a “rigidly credentialized society,” where a college degree “is required for jobs that by no stretch of imagination need two years of full-time training, let alone four.”12 The degree “requirement” often has nothing to do with any particular knowledge or skills. Rather, the employer is using college credentials as a screening mechanism in lieu of more-direct means of assessing a job applicant’s capabilities.13 As college degrees have become increasingly common, employers have responded by establishing the degree (and it’s revealing that almost any degree will usually suffice) as a “requirement” for more and more jobs. Consequently, increasing the number of college graduates is apt only to ratchet up credential inflation.

We can also now see why the “we’re falling behind internationally” argument ought to be disregarded. However beneficial it may be to countries now “ahead” of the United States in college degrees to have more graduates in their labor forces (a point about which we know nothing from the simple degree statistics),14 it is evident that the U.S. has already oversold higher education. We devote substantial resources to subsidizing students to go to college, but many end up working in jobs where their college studies are of little or no benefit. Striving to put still more students through college, many of them academically marginal at best, cannot improve the ability of American firms to compete in the international economy.

There is good reason, in fact, to believe that additional higher-education spending would be detrimental. In his book Going Broke by Degree, Richard Vedder studied the effects of higher-education spending on state economic growth. He found that the relationship was negative. A ten-percent increase in state higher-education spending, Vedder calculates, reduces economic growth by 5.2 percent.15 That surprising result (Vedder himself expresses surprise, at least) is not difficult to explain. Much government spending on higher education has nothing to do with education per se but, instead, funds many non-teaching activities) and most states are already putting so many young people through college that additional expenditures to produce a few more graduates have negligible impact on the level of workforce ability. The funds used for higher education, however, cannot be used for other things. States, therefore, that put less money into higher education can use this money for things that are more productive, such as more roads, or can reduce taxes. In short, if states want economic growth, they can find better ways of allocating resources.

Finally, let’s ask if a case can be made for any government subsidy for higher education.

In his provocative essay “The Economic and Social Impact of Free Tuition,” Armen Alchian asked why it would be preferable to have more students pursing college degrees than we would have if they had to pay the full cost.16 He found no grounds for thinking that society benefits from having the state subsidize college education. “To think that college-caliber students should be given zero tuition is to think that smart people should be given wealth at the expense of the less smart,” he wrote. Those who truly stand to gain from college studies will augment their earnings, and that prospective gain is sufficient to induce them to undertake the optimal degree of education. Subsidizing their education through government merely confers a windfall on them.

Bear in mind that an end to government subsidization of higher education would not end subsidies. Charitable organizations could (and do) raise funds for scholarships for promising students. Corporations could (and do) target financial assistance to students (who are sometimes current employees) for courses that will be beneficial. Voluntary subsidies are far more likely to encourage serious academic work than is governments’ current policy of automatically subsidizing nearly anyone who feels like going to college.17

If government withdrew from subsidizing higher education, the principal losers would be the large number of professors and administrators whose activities are not sufficiently valuable to pass the test of the market.