Mission Not to Accomplish
President Obama's call for more Americans to earn college degrees may not be the best way to improve the economy, writes Michael Rizzo.
In his first State of the Union Address, President Obama boldly asked for every American to commit to obtaining an additional year of higher education or training. He also set a goal that by 2020, “America will once again have the highest proportion of college graduates in the world.” There are two problems with this education plan. First, we have already achieved it. Second, even if we were not already the world leader in higher education attainment, it is far from clear that we would want to be.
OECD data seem to indicate that the U.S. no longer is the world leader in the share of its population obtaining a college degree (trailing Canada and Japan). However, at 29.4 percent, the percentage of Americans aged 25 or older with a college degree has never been higher (this trend holds for blacks and Hispanics, albeit at lower levels). Twenty years ago the share was below 20 percent – so our increase during that time has been nearly 50 percent. The U.S. is making substantial progress in educating its population at the postsecondary level. What is the problem?
Apparently, other countries are making progress at an even faster rate. U.S. improvement was only 15th best among 22 advanced countries whose group average increase was 75 percent since 1985, including Portugal, Austria, Spain, Korea, Italy, and Ireland – which have each doubled their college attainment rates. For a variety of reasons the OECD data report higher educational attainment than data from other sources. Economists Robert Barro and Jong-Wha Lee have extensively studied cross-country data, made adjustments for attainment by age and differences in the higher education systems across countries, and have found that the college attainment rate in the United States was over 50 percent larger than in the next most educated country, Korea. One reason for such dramatic differences is that the over-65 population in the U.S. is far more accomplished than their counterparts across the world – the OECD data look only at the 25-64 year old cohort.
|Country||2000 College Attainment Rate||1985-2000 growth|
|Germany (since 1990)||11.0%||41%|
|Source: Robert Barro and Jong-Wha Lee and author’s calculations|
Education in a Vacuum
Discussions about attainment statistics typically proceed under the inauspicious assumption that they are relevant. Rarely mentioned are reasons why such goals are important, and whether securing more higher education in particular is the best way (or even a good way) to achieve certain goals.
Is the president’s goal to increase the output and productivity of the American economy beyond what it would otherwise be? If so, then expanding the pool of graduates might do the trick if the number of Americans receiving a college diploma was the sole causal factor in determining economic growth. Alas, it is not. Education is but one of many ingredients in a mysterious growth recipe. Producing valuable goods and services requires the “right” mix of physical capital, labor skills, technological advances, institutions (such as secure property rights, the rule of law, customs and mores that promote trust, and so forth) and more than a sprinkle of luck. This mix differs across countries and over time and the recipe is wholly unknowable to any individual or group of individuals – in fact there is no recipe to follow. Every professional and lay social scientist to ever walk the face of the earth has gone to his grave trying to solve the mystery of growth – I do not expect any in our generation to enjoy a better fate.
More education has to be a good thing. After all, receiving more schooling can’t make you less productive, right? Education is like exercise, reading, spending time with one’s children, and sleeping – each of these is good for you. It is obvious that dedicating more attention to each of these is good. It is obvious … and wrong – for both individuals and societies as a whole.
While investing in each of these likely generates enormous benefits when starting from scratch, at some point each additional unit invested generates fewer benefits than the one before it – just as eating that fourth doughnut brings you less satisfaction than did the second. What if these so-called “diminishing returns” never set in for education? In a world of scarce time and resources, they must, albeit indirectly. Dedicating more resources to the production of educated workers must come at the expense of resources dedicated to creating other important capital goods, institutions, or consumption goods. An individual cannot dedicate 24 hours in a day to everything, nor can society dedicate all of its resources to everything. Put another way, if merely leading the world in educational attainment is desirable, why not aim to have every American receive a college degree? Better yet, why not aim to have every American earn a Ph.D.?
Is Education Necessary?
Leaving aside the possibility that higher education serves only a signaling function there is still room to ask the question: is education a necessary condition for economic achievement? A good deal of economic evidence points to a strong positive relationship across countries between educational attainment and economic growth. Given the small sample sizes involved in these studies and the difficulty of controlling all the factors influencing growth I would not stake much money defending these findings. To illustrate just one difficulty, were you to collect data on the time people spent on Facebook I am sure it would show up as a strong positive in growth estimations.
There are notable exceptions to the received wisdom. Several African countries made commitments to education since 1970 that were comparable to the countries with successful growth stories from that time, with no considerable economic growth to speak of. Hong Kong became one of the wealthiest regions in the world before it began any substantial investments in education. Within the United States there is a surprisingly small correlation between “economically dynamic states” and the level of educational attainment. In fact, the rank order correlation between how dynamic the state’s economy is and its share of bachelors degrees is only 0.34. While clearly some of the most dynamic states such as Massachusetts and California have terrific educational systems, other dynamic states such as Oklahoma, while short on college graduates, use some of the other “ingredients” mentioned above to promote their development. To be clear, I am not arguing that education is not important. What this does show is that neither is it a guarantee of success, nor lack of it a guarantee of failure.
Education and Human Capital
Education qua education is not a bad thing. It is nonetheless a mistake to conflate formal education with accumulating relevant human capital – the bundle of skills, experience, discipline, etc. required for an individual to produce things of value (broadly considered).
Colleges indeed develop social skills, help individuals identify with peers, and inculcate productive behavior – particularly important for students that did not grow up in an environment conducive to these habits. However, college also contains a considerable consumption component (this is no longer the exclusive domain of elite four-year colleges), and as information technology continues to advance at a breathtaking pace, so too does the opportunity for individuals to acquire important human capital outside of the academy. Despite the dizzying array of colleges, the forgoing factors might give one pause before urging the masses of Americans to attend college as the best way for them to accumulate human capital. These same factors are making it increasingly likely that the super-talented will eschew such formal training in favor of more customized real-life education.
Suppose that education is synonymous with human capital accumulation. Focusing on average educational attainment still makes the erroneous assumption that a year of additional education to every citizen increases the stock of human capital the same for each citizen, and also overlooks the possibility that changes in the quality of different levels of educational attainment may be more or less valuable investments than sending more people to college. For example, improving the stock of useful knowledge might be better accomplished by encouraging existing college graduates to obtain advanced degrees, with no change in high school graduate behavior. Alternatively, it might mean the same aggregate level of college completions, but changing who goes to college and who does not. It would be a wondrous coincidence if having lots of Americans complete four years of formal higher education was the appropriate way to increase the stock of human capital in America.
Where the Rubber Meets the Road
There are practical obstacles to reaching the president’s goal. Despite the measured and well publicized benefits of going to college, one-third of high-school graduates never attend, and roughly 50 percent of those that do attend actually remain until completion. To those of us who have taught large introductory courses (even in highly ranked universities) these figures are unsurprising. Aside from the considerable difficulty many of my students have writing, a number of them have basic vocabulary difficulties – as words such as scrutiny, anomaly, ascertain, isolate and mitigate continue to vex them.
It is a mathematical fact that as we expand college enrollments beyond what they are today, the average quality of students will go down. And while evidence is very strong that the current returns to receiving a college degree are quite large, increasing the supply of college-educated labor (everything else constant) puts downward pressure on these returns. Are political leaders and the educational establishment prepared for this, particularly if these trends -- by significantly increasing the enrollment of poorly prepared students at non-elite colleges -- increase the advantages of attending a prestigious college?
As enrollments increase, so too will financial pressures at most colleges. Student demand has recently surged in the U.S. and despite the fact that real state expenditures have been increasing at healthy clips over that time, per student expenditures have not kept pace. Proposals on the table to expand educational attainment include refundable tax credits and an expansion of Pell Grants – but these present a problem for many state colleges and universities in the form of an unfunded type of mandate. While they may help students afford college attendance, tuition and fees reflect only a small portion of the total cost of educating students at even the lowest cost colleges. Institutions with little excess capacity may find themselves in an increasingly difficult financial position particularly if they face political pressure to keep tuition low. Such supply issues are commonly overlooked in proposals that focus on expanding access on the demand side.
Skinning the Cat
The U.S. is already the world leader in its financial commitment to higher education – dedicating almost three percent of GDP to the sector (a share that has been rising, not falling, over time). Spending more might make sense, but rarely in these discussions does one encounter the question, “At what cost?” Does it make sense to sacrifice more and better carpenters or professional baseball players just to lead the world in college completions? Perhaps I am overplaying that hand. But there are many ways for individuals and societies to improve their human capital and productivity without relying on political forces to put more people through college.
Migration is one of the most powerful ways for an individual to augment human capital. International immigration vividly demonstrates this – a poor person living on $2 per day who migrates to the United States to accept a minimum wage job would experience a 20-fold increase in living standards just by moving here. Migration within the United States from areas with low-capital and low-productivity toward areas with more capital and higher productivity will have a similar effect. If the U.S. wishes to raise its average education levels, it would be far cheaper to simply encourage more immigration of educated workers from abroad. While such a move would undoubtedly alleviate some of America’s Social Security and Medicare problems, its low savings “problem” and its inner-city problems, it is a political non-starter.
Incidentally, that the rest of the world is “catching up” to the U.S. in educational attainment is cause for celebration, not alarm. For American consumers (we are all among them) this will mean access to innumerable new medicines, literature, advanced materials, etc. no less than if Americans were creating them. As the world grows wealthier and more connected, the market for American sourced goods and services is dramatically extended, as is the number of ideas for Americans to capitalize on – expanding opportunities for Americans without a formal education. Japanese auto-maker Toyota, for example, plans on producing its hybrid Prius here in the United States. Is this reason to worry about Japanese educational attainment surpassing ours?
Michael Rizzo is a lecturer in economics at the University of Rochester. He notes: “At the risk of being accused of taking away the party punch bowl, readers should know that I stand to benefit a great deal if more Americans partook in the college experience since I teach large numbers of introductory and intermediate economics students for a living.”
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