A Matter of Degrees

It is unusual nowadays to venture more than five minutes into any debate about the American economy—about widening income inequality, say, or threats to the country’s global competitiveness, or the squeeze on the middle class—without somebody invoking the great economic cure-all: education. We must improve it. For a moment, partisan passions subside and everybody nods.

But only for a moment. How, exactly, do we improve education? Where does the problem reside—in elementary schools, high schools, or colleges? Is the answer to recruit better teachers, or to get more students moving from high school to university? Should we spend more public money? Change the way schools are organized and paid for (supporting charter schools and vouchers, perhaps)? In no time, correctly orthogonal positions are laid down, and the quarreling resumes. But nobody challenges the importance of the issue. The centrality of education as a driver of the nation’s economic prospects appears beyond dispute. [See page 52 for excerpts from 150 years of Atlantic education coverage.]

Yet the connections between education and economics are not as they seem. To rest the case for improving schools and colleges largely on economic grounds is a mistake. It distorts education policy in unproductive ways. And though getting education right surely matters, more is at stake than a slight increase in economic growth.

Everybody understands that, as a rule of thumb, more school means a bigger paycheck. On average, having a college degree, rather than just a high-school degree, increases your earnings by about two-thirds. A problem arises, however, if you try to gross up these gains across the whole population. If an extra year of education equipped students with skills that increased their productivity, then giving everybody another year of school or college would indeed raise everybody’s income. But take the extreme case, and suppose that the extra year brought no gain in productive skills. Suppose it merely sorted people, signaling “higher ability” to a would-be employer. Then giving an extra year of school to everybody would raise nobody’s income, because nobody’s position in the ordering would change. The private benefit of more education would remain, but the social benefit would be zero.

Would sending everybody to Harvard raise everybody’s future income by the full amount of the “Harvard premium”? Yes, if the value of a degree from Harvard resided in the premium skills you acquired there (and if the college’s classrooms could be scaled up a little). Well, ask any Harvard graduate about the teaching. The value of a degree from Harvard lies mainly in the sorting that happens during the application process. So the answer is no: if everybody went to Harvard, the Harvard premium would collapse.

In the case of an extra year of education, it need not be all or nothing; another year of study usually does impart some productivity-enhancing skill. But how much? A year of extra training in computer programming presumably has a direct material value. An extra year spent learning medieval history might improve a student’s intellectual self-discipline and ability to think analytically, but has lower material utility: nobody studies feudal land grants for the boost to lifetime earnings. So aggregated figures such as the proportion of high-school graduates going on to college—a number that is constantly cited and compared internationally—tell you very little.

Totting up college matriculations as a way of measuring national success is doubly ill-conceived if the signaling function flips over, so that a college education becomes the norm, and college nonattendance is taken to mean “unfit for most jobs.”

In 2004, 67 percent of American high-school graduates went straight on to college, compared with just under half in 1972. This is widely applauded. It looks like progress—but is it really? Failing to go to college did not always mark people out as rejects, unfit for any kind of well-paid employment. But now, increasingly, it does. In a cruel paradox, this may be one reason why parental incomes better predict children’s incomes in the United States than they used to—in other words, one reason why America is becoming less meritocratic. A college degree has become an expensive passport to good employment, one for which drive and ability less often can substitute, yet one that looks unaffordable to many poor families.

Many occupations are suffering from chronic entry-requirement inflation. Hotels, for instance, used to appoint junior managers from among the more able, energetic, and presentable people on their support or service staff, and give them on-the-job training. Today, according to the Bureau of Labor Statistics, around 800 community and junior colleges offer two-year associate degrees in hotel management. In hotel chains, the norm now is to require a four-year bachelor’s or master’s degree in the discipline.