Research: Is the Value of College Going Really Declining?

Abstract

Hollomon presented a pessimistic view of future economic value of college going. Since their article has received wide national attention, their data should be analyzed with particular care. In examining comprehensive cost and earnings data, one can come to conclusions quite different from those of Freeman and Hollomon. Freeman and Hollomon think that golden age of higher education came to an abrupt end at outset of 1970s. Claiming that job market for college graduates was exceptionally strong during 1950s and 1960s, they see 25-year boom withering into a major market bust. By all relevant measures, they say, the economic status of college graduates is deteriorating, with employment prospects for young declining exceptionally sharply. As a result of decline in relative incomes and starting salaries and in face of continued increases in tuition and fees, rate of return on college investment has fallen significantly.... Analysis of causes of seventies' turnaround suggests that market developments represent a major break with past and are not simply cyclical or temporary phenomena.... If proportion of young that elects higher education does not, for whatever reason, change in expected manner, depressed market is likely to last throughout 1980s. Other researchers have looked at this same issue. Calculating discounted difference in earnings between collegeand high school-educated workers, Stanley D. Nollen finds that supply of college-educated white males has increased rapidly because market benefit of a college education has increased faster than cost. Assuming that young men are responsive to relationships of benefits and costs, he thinks current narrowing earnings gap for persons 25 to 34 years old could mean downward pressure on future enrollments. Lewis B. Mayhew believes that economic value of investment in a college education decreased in early 1970s, is still decreasing, and that, for this and other reasons, higher education has become a declining industry. Stephen P. Dresch predicts economic incentives to go to college will remain low, causing undergraduate enrollments to decrease 30 percent below 1974 levels by year 2000. Elias Blake, Jr., and other members of board of trustees of Carnegie Foundation for Advancement of Teaching see fast declining rates of pay for college graduates as compared with high school graduates, sharply ising costs of college attendance that have been associated with accelerated inflation rates and accompanying increases in tuition and other college charges, and declining rates of return on investment in a college education. Claiming that, since 1930, colleges paid higher salaries to faculty members and met other higher costs but did not raise their productivity, they believe the price of higher education rose more rapidly than prices generally; that it is reasonable to expect that all such increases in costs cannot be passed through to sources of income in future and will need to be offset, in part, by productivity increases; that real sources are unlikely to rise by more than 1.5 percent per year, thus requiring almost a 1 percent gain in productivity per year. This will be hard to achieve over long run. The rate of return on college investment, which is main focus of these studies, is measure of productivity that relates costs of resources expended in instruction to values of benefits produced by instruction. In this measure, costs, which are concentrated in a brief span of years in early adulthood, and stream of benefits, which is spread over most of remainder of a lifetime, are combined in computation of internal rate of return. In this computation, benefits in form of additional earnings of college graduates over those of high school graduates are discounted to recognize that far-distant benefits are valued less highly than benefits just a few years in future.