Economix: Why College Brings a Huge Return

My column in the Sunday Review section makes the case for going to college and cites two just-released reports, one by two Georgetown University researchers and the other by two Hamilton Project researchers. Each report has some charts worth reproducing.

The opening chart in the Georgetown paper, by Anthony Carnevale and Stephen Rose, estimates the demand for and the supply of four-year college graduates, both past and future.

Center on Education and the Workforce, Georgetown University

The supply of graduates is easy enough to measure; it is simply the number of graduates. To estimate demand, the two economists look at the wage premium for graduates. When the premium is rising, demand is outstripping supply. When the premium is falling, demand is rising more slowly than supply.

Looking ahead, Mr. Carnevale and Mr. Rose use school enrollment to estimate supply. Future demand is trickier to estimate. Mr. Rose, by e-mail, explains:

Over the last 100 years, the growth in demand for college-educated workers has varied within a narrow range and averaged 2.8% increase per year. Given the current high penetration of computer technologies, this paper takes the conservative position that this growth in demand from 2010 to 2025 will grow by 2 percent per year.

The bottom line is that, unless the country begins producing more graduates, supply is unlikely to catch up to demand — and income inequality is unlikely to fall by much if at all.

The next chart, from Hamilton, estimates the annual return from different investments, including college tuition:

The Hamilton Project

I was surprised that two-year colleges had a higher return than four-year colleges, but Adam Looney, one of the authors, notes that tuition at two-year colleges tends to be very low.

And the fact that two-year colleges have a higher return does not mean it makes sense to stop after two years. The next two years of college still have a huge return. You can see this by comparing the total value of the two degrees, known in economic terms as net present value:

The Hamilton Project

The Hamilton researchers — Michael Greenstone and Mr. Looney — also offer a chart on lifetime earnings, which shows that a big part of college’s value is that it brings much larger raises over someone’s career:

The Hamilton Project

Finally, the Georgetown paper points out that the value of college is not merely that it’s necessary for many good jobs, like doctor, teacher, scientist or corporate executive. A college degree also often lifts people’s earnings in occupations that do not require a degree, like construction worker, day-care worker, plumber and secretary:

Center on Education and the Workforce, Georgetown University

My column and the chart that ran with it have more details on this last point.

Article source: http://feeds.nytimes.com/click.phdo?i=4b129f6a28ec4e4edaa5ebdb6f3397fa