Ruinous Curve
Mike Mandel is an economist with a terrific blog, Mandel on Innovation and Growth.
In a recent post, he talks about one way to measure the health of an economy:
The earnings of young college grads–that is, mean earnings for full-time workers, ages 25-34, with a bachelor’s only.
I consider these workers to directly reflect the health of the U.S. economy. If young college grads are doing well, that means there is a demand for high-skilled labor, and there’s an incentive for young people to get an education. But if young college grads are doing poorly, wow … that economy is not on a sustainable path.
The graph at the right tells the story. College costs are rising -- as is the indebtedness of college grads -- but the real earnings of young college grads has been declining since 2000. And if you just look at the numbers since 2006, there's a pretty scary acceleration of that trend.
Something's wrong with what we're teaching college students, or how much we're charging them, or how stagnant our economy has become, or how an opportunity society became a sclerotic, slow-growing behemoth.
Smaller paychecks for college graduates means smaller payroll taxes, too. And with fewer young people supporting the Social Security benefits of more older people, this is what ancient Chinese economists used to call "The Ruinous Curve."
I guess there are a lot of possible solutions to this. But I'm not hopeful we'll all be willing to do what it takes.
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Comments :
Re: Ruinous Curve
Horrible, Rob. And beneath it all, a lot of student loan debt that college grads are feeling worse and worse about.
Jun '10
Re: Ruinous Curve
Every era has their ultimate status symbol. Sometimes tulips, sometimes Ivy-league diplomas.
Jul '10
Re: Ruinous Curve
Rob Long:
Something's wrong with what we're teaching college students, or how much we're charging them, or how stagnant our economy has become, or how an opportunity society became a sclerotic, slow-growing behemoth.
or how many decades they spend in college, often without jobs, or how little is expected of them to pass courses, or how many of our best absolutely must attend law school, or how perpetual adolescence isn't shamed out of well-meaning foolishness...
Sep '10
Re: Ruinous Curve
I refer you to Charles Murray's book "Real Education." The third chapter is titled "Too Many People Are Going to College" which I found credible when I read it.
I think too few who go to college ask themselves the following question: What will I do with my degree when I am done? I myself would love to return to school to earn a PHD in history, but fear if I did so I would end up being a greeter at Wal-Mart.with a PHD. So instead of getting that PHD I do the best I can to educate myself via reading a lot of good books.
I have heard pundits on talk radio say that there is an education bubble. I'm not sure where they are getting their numbers or if their assessment is valid. According to them, colleges are overstaffed with PHDs. The nontenured ones do all the teaching and the tenured ones publish. I would be interested to know if this education bubble spills over into the private sector as well. How many unemployed or underemployed MBAs are there? IT persons? Etc.
Re: Ruinous Curve
Man, it's almost like colleges can increase tuition like there's no demand-side constraint, almost as if there's some sort of universally-available loan to pay them, no matter what they charge.
Maybe the government should look into this…
Sep '10
Re: Ruinous Curve
Meanwhile, a classically trained Atelier artist, mentored by the proper teachers, can easily pull down six figures and have a much lower stress life.
Sep '10
Re: Ruinous Curve
Seems as if the market has begun to properly value the schooling, ( I am not willing to equate all college attendance with education) they are getting. It would be interesting to see a graph of hard science grads vs. social science. It might be more enlightening than the male/female division. I know 3 engineering students, all have early offers and I have heard no complaints regarding $.
Sep '10
Re: Ruinous Curve
Spoken like a free marketer!
May '10
Re: Ruinous Curve
Since when are "young college grads" a proxy for high-skilled labor? What a crock! Do you know where else young college grads are unemployed in record numbers? China. Is anyone worried about their "crisis?" I didn't think so.
Young college grads are weathering unemployment by continuing to live off of their parents. This is a natural reaction to recession and not surprising or shocking in any way. As for the rising gap between college prices and earnings -- this reflects value based pricing, Colleges are commanding a bigger share of the pie, narrrowing the ROI. This is how supply and demand operates. When the R is no longer worth the I, you will see buying fall off -- and this is happening at second and third tier colleges already, many of which are going under.
Final point -- the chart appears to reflect sticker price, which is nothing like what students actually pay. The gap between sticker price and actual fee paid has widened as well, as colleges have become smarter about extracting more cash from rich families.
This "crisis" is the flavor of the month, but one that the market is perfectly equipped to handle.
Edited on Oct 3, 2010 at 4:55pmMay '10
Re: Ruinous Curve
The other factor is the male-female dynamic. Women now earn the majority of degrees and historically tend to major in "softer" fields that pay less. That factor alone drives the starting salary line down in slope.
Smart people pick good majors and schools where they are not robbed. My own kids went to state schools as undergrads and finished all the way through grad school with no loans- a market issue, as Trace points out.
Edited on Oct 2, 2010 at 6:47pmJun '10
Re: Ruinous Curve
Imagine that, all those years of studying the history of 12th century poetry and no job offer. When will the injustice end.???