Tuesday, July 3, 2007

The College Payoff Shrinks

A close examination of the 2004 Census Report has verified what many Americans have feared: those who should be prospering in a knowledge economy – the college-educated – are instead losing wages. Real earnings for workers with only a bachelor’s degree have fallen for four straight years, for the first time since the 1970s. And the decline – about 5% since 2000 – shows no signs of abating.

This is a big deal economically. For two decades, from 1980 to 2000, pay for college-educated workers marched relentlessly upwards, leaving workers with a mere high school diploma in the dust. Economists wrangled for years about whether this growing “college wage premium” as it was called, was due to technology or globalization, or something else. But whatever the cause, few questioned that a college education is the best route to a good life.

Since 2000, however, the college wage premium has shrunk, because the pay of high school graduates has eroded less than that of college grads. Why? Outsourcing of skilled jobs to China and India is part of the explanation, as millions of their college-educated workers join the global economy. Wages may also be held down by oversupply in the US, since the number of college-trained workers here has grown by 32% over the past 10 years, compared with only an 8% rise for all other education levels. Technology may be getting simpler and easier, requiring less education to use. Or the drop in grads’ earning may be a temporary hangover from the tech bust.

Education Level

Change in Real Earnings 2000-04
(for workers aged 25-64)

High School Diploma


Some college, no degree


Associate Degree


Bachelor's Degree


Advanced Degree


Unless the trend of the past four years reverses, the clear benefit of attending college will become tarnished. That could make it a lot harder to persuade students and parents to ante up big bucks for tuition and room and board. Moreover, if the college premium continues to shrink, fewer young people will want to sacrifice to get a degree.

For the full story, including a report on this trend's political implications, please visit Business Week.

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