Higher Education Doesn’t Cause Higher Earnings

Posted: May 07, 2019 7:00 AM
Higher Education Doesn’t Cause Higher Earnings

Source: AP Photo/Seth Wenig

For several decades, children have heard repeatedly how important it is to go to college after graduating from high school. They are told that it is the ticket to higher wages and more success. It is the magic fertilizer for the good life. The investment in education is supposed to pay for itself and even make the accumulation of student loan debt worth it in the long run. Things aren’t quite stacking up like that for a lot of people these days. More graduates are finding it difficult to get the high-paying jobs that they were promised, or even any job at all. To make things worse, they graduate with a large debt burden that is very difficult to service.

The problem has several related facets. First of all, education has gotten very expensive. Economic history demonstrates that goods and services in market-based societies tend to get less expensive over time. The production of goods and provision of services get more efficient and competition drives inflation-adjusted prices down. There are few exceptions to this rule. In most of the exceptional cases, the sectors most highly manipulated, subsidized, or regulated by government actions are most resistant to gains in productivity and cost reductions, with education and health care being the two most prominent examples. When billions of dollars are arbitrarily funneled into an economic sector through politics, prices will tend to increase rather than decrease. Universities love more guaranteed student loans and government grants, because they can again raise tuition and fees.

Not all degree programs are created equal. If your major has a strong market demand, you are pretty likely to get a good job after graduation. If, on the other hand, your major has few potential jobs available, it doesn’t matter how many courses you took or how well you did, you will likely not be able to land a job in your field, and may end up with lower-end, unskilled work until you can build up more marketable education and experience.

The present labor market is saturated with people who have college degrees, and many programs have been watered down, so that the assumption of higher competence is not necessarily valid. Many jobs now hold a degree as the minimum requirement, not because the advanced education is needed, but only because it is a useful filter for eliminating applicants, however unfair that may seem. If someone had enough intelligence and fortitude to make it through a college program, chances are they will have more intelligence and fortitude than others for productivity at work.

People with college degrees do earn more, on average, but it is also true that people who are more intelligent and have a higher drive for success tend to be the ones who complete a degree program. They also tend to do better with any work they do. It is likely that the intelligence and drive is the primary cause of higher earnings on average. A degree is only a set of tools that help someone achieve goals. 

Many good jobs are available that don’t require a degree, such as the various trades, as more leaders are noticing, and intelligent, driven people will likely be much more successful at them. I have known many smart, diligent people who have not gone to college but have none the less been quite successful. They use the college years to earn a living and build experience and reputation. Many small business owners, sales people, and so on have become wealthy and happy without college diplomas. It is likely that education itself is not the primary cause of higher earnings. Rather, intelligence and drive are the causes of both seeking higher education and for higher earnings independently.