Tuesday, May 29, 2007

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An incentive puzzle on education

Via Brad DeLong comes this puzzling Washington Wire post from Wall Street Journal economics reporter extraordinaire Greg Ip:

College graduates earn more than high-school graduates, and that premium is a lot bigger than it was 20 years ago. There are numerous reasons but one might be that after rising for most of the postwar period, the share of the work force with college degrees stopped growing, constricting supply just as demand for highly skilled workers took off.

Earlier this decade, there were signs of a shift. Responding perhaps to both the college wage premium and the weak job market, the proportion of high-school students who enrolled in college the fall after they graduated rose from 61.7% in 2001 to 68.6% in 2005, the highest since data began in 1959. To be sure, many of those enrollees never finished college but on balance it suggested the supply of college graduates was about to head higher.

But last fall, the college enrollment rate dropped back to 65.8%, the Bureau of Labor Statistics reported this week.

Exactly why is unclear. The tighter labor market ought to have encouraged some kids to take jobs instead of go to college. But the report showed just 46% of high-school graduates were working last fall, down from 49.3% the prior year. The proportion unemployed but looking for work rose to 13.7% from 11.4%, and the proportion neither working, looking for work nor in college also rose, to 12.3% from 9.9%.

The failure to respond to incentives is, well, puzzling.

It could just be a statistical hiccup. Another possible half-assed blog explanation, drawn strictly from casual empiricism: the decline is due to a greater number of high school graduates taking a year off before entering college. There is a swath of upper middle-class kids who are either working or backpacking for a year instead of heading straight to school. But I have no idea about the magnitude of this trend.

Alternatives are solicited from readers.

posted by Dan on 05.29.07 at 11:45 PM


Doesn't this puzzle consider only the reward side of the situation? College tuition costs have been going through the roof. Admittedly - this conjecture is equally without any hard support. But one might suspect that at some point, the increased borrowing required to attain a college degree, and the payments (and accordance inflexibility) is going to dissuade marginal students from attending college.

posted by: Anon on 05.29.07 at 11:45 PM [permalink]


I think the trend is real, but no less puzzling for that. I'm 54 and am the 5th of six children. My dad spent 29 years in the Navy, enlisting when he was 17; my mom was a nurse. All six of us kids got some form of college degree, with four of us doing graduate work as well (and two of those gaining graduate degrees).

My wife Sandra and I have nine children between the two of us (combined families from a prior marriage for each of us), ages 21 through 33. Of those nine kids, so far only one has a college degree, though a few others are plodding away at one. I'm appalled and, as noted, puzzled. Sandra and I stressed the importance of education, the kids grew up in a home with a few thousand books in it, we've paid for their schooling, and so on. And I've cited on multiple occasions the various studies showing the lifelong financial impact of schooling (or the lack thereof).

In retrospect, I think we should have been more pushy about it, but when I grew up, college was just such an obvious commitment that I couldn't conceive that the kids would just flake out. I mean, my mom and dad grew up during the Depression; Dad fought in WWII (Pearl Harbor, Guadalcanal, Guam); and both Mom and Dad worked full time to provide for us six kids. I would have been embarrassed and ashamed to go back to my folks and say, "Y'know, I'm just not interested in college right now; I'd rather just hang out with my friends and do stuff." But beyond that, it never occurred to me _not_ to get a college degree, it was so clearly a key part of doing interesting things with my life and being financially independent of my parents.

My impression is that several of the kids lack any real driving goal in their lives -- almost an ennui. A few have made lifestyle choices that have interfered with their educational efforts, but more than that, it appears to be mostly an unwillingness -- to succumb to a cliche -- to buckle down and do the hard work.

The kids are generally bright, and most could have pulled down a 4-year degree (or at least a 2-year) without much trouble; in fact, all but two have actually attended college. But most have to date just don't seem to get the concept of deferred gratification and so have wandered off the track in pursuit of more short-term interests and pleasures. A few are back on track and in school, but finding it difficult since they are now older adults, in some cases with spouses and/or children.

Anyway, the figures don't surprise me, but I still don't understand what the shift is. ..bruce..

posted by: Bruce F. Webster on 05.29.07 at 11:45 PM [permalink]


It's mighty dangerous to try to explain national-level trends based on anecdotes from the Ivy League set. Those of us who teach at and attend highly expensive private universities are *not* statistically representative, how ever much we seem like a "swath". All the top 20 liberal arts colleges put together have no more undergrads than UT-Austin alone. A youth working to pay for their own part-time attendance at Cal State or UMASS-Boston is orders of magnitude more representative of the national population than an 18 year old choosing between starting Tufts this fall or having daddy pay for a year windsurfing in Thailand first.

If the fraction of kids unemployed but job hunting declined at the same time that the fraction not looking for work increased, your theory might have a chance. With the combined picture of employment down, unemployment up and "doing nothing" up, seems far more likely a classic labor market slowdown (hitting low skill youth even if the national aggregate picture is good) with some of them becoming discouraged workers.

As for decline in college attendance, well, 1 year could easily be a hiccup until we have some idea what the usual year-to-year variance is.

If there really is less of a trend towards college than incentives ought to imply, you might look to things like:

-- labor market problems means more trouble keeping up part-time jobs to pay for college
-- This years' huge increase in student loan interest rates
-- Housing market problems make tapping home equity to pay for tuition more difficult
-- higher energy and food prices knocking out some marginal commuter students

posted by: AnIRprof on 05.29.07 at 11:45 PM [permalink]

Seems to me they are looking for better jobs that don't exist and which they have no expectation will exist. They realize the randomness of the market and have a bit of affluenza.

posted by: Lord on 05.29.07 at 11:45 PM [permalink]

The "incentives" are only half the equation. The costs of college tuition have been rising precipitiously, likely at a faster rate than the incentives from differential spread of college and high school graduates.

I'd humbly suggest that this is something that academia needs to start taking seriously, because otherwise regulation of public and private colleges (both rely heavily on government-backed loans for student's tuition) will be a hot topic in a decade or so, if not earlier.

posted by: Wisewon on 05.29.07 at 11:45 PM [permalink]

Maybe it is because the fastest growing demographic segment of society is one of the least likely of the demographic groups to go to college or graduate high school.

posted by: Mark on 05.29.07 at 11:45 PM [permalink]

Theory: Kids don't become sensitive to the incentives until it is too late and they've got a crappy school record.

posted by: Jon H on 05.29.07 at 11:45 PM [permalink]

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