The price system works marvelously to allocate resources in our society, but in higher education, prices often do not reflect the true value society places on resource usage, as they are often distorted by a variety of policies. The price of elite colleges, for example, is actually well below what demand-and-supply conditions would warrant, while the price of college in general has been distorted upward by extravagant federal student financial-assistance programs (although some would argue with that contention).
But labor markets are largely free of these distortions, and very recent evidence from them on the whole supports the hypothesis that the huge gains from obtaining a bachelor’s degree may be diminishing for a simple reason: Supply has been rising faster than demand for college graduates.
The large differential between the earnings of high-school and college graduates is often cited as proof that college has a high payoff. Elsewhere I have argued that this is not an entirely useful comparison, since the behavioral traits of high-school graduates are markedly different than those who complete college. Moreover, those differentials have actually narrowed some in recent years. Compare 2008 and 2010, looking at the average earnings of those working full-time, year-round. For males with a high-school education, earnings rose 1.87 percent, while for those with bachelor’s degrees, they fell4.17 percent (for those with master’s degrees, earnings were essentially unchanged). Those with a less than 9th-grade education fared better in terms of earnings change than those with degrees, whether associate, bachelor’s, or master’s. In inflation-adjusted terms, the earnings of those with bachelor’s degrees on average fell well over five percent (and over $3,500 in absolute dollars) at a time when college costs were rising at least as much. (Read more.)