Do College Degrees Cause Prosperity?

The Mackinac Center in Michigan has a new report that calls into question the effort by governments there, in Ohio and elsewhere to increase standards of living by increasing the number of fannies in college classrooms. The naïve faith that increasing the number of people who are college graduates can, in the words of the Ohio newspaper editorial linked above, “rescue the state's economy” misunderstands what college can and can’t do for a society.

The naïve belief holds that a college degree is a magic prosperity pill that increases the lifetime income of anyone who swallows it. It is certainly true that college graduates on average earn more than those who don’t get one, and that internationally the average education level of the population is associated both high higher average standards of living and with economic growth rates. Thus, more education should yield more prosperity.

Up to a point this is surely true. A society where no one can read and write is clearly not going to be as wealthy as one in which everyone can. Certain skills provided by education make people more productive. But potential skill is simply not equally distributed among the population. To model it in an instructively harsh way, imagine that there are two kinds of people, Lows and Highs. The two types are distinguished by their potential productivity. Highs, if given a college degree, are very productive, while the degree does nothing for Lows.

There are two types of mistakes the education system can make. The first is to fail to identify the Highs, and thus not provide them education that would clearly benefit them and, through their efforts in the marketplace, the rest of us too. The other mistake is to send Lows into college. If they don’t graduate, then incentives are powerful for standards to be lowered to allow them to graduate. Less-difficult majors are created, the distribution of grades shifts to the right, etc.

In addition, there is downward displacement. In other words, the large number of new graduates, only some of whom are Highs, means that jobs that didn’t use to require a college degree now do. Some students who are Highs then feel pressure to incur additional expenses to separate themselves from the Lows, and so go on to earn graduate or professional degrees that weren’t necessary before the expansion in access to undergraduate ones. In addition, the lower informational value of a college degree or transcript from all of this (it is no longer as clear whether a college graduate is a Low or High) lowers the overall average expected productivity, and hence wage, of college degrees.

How can we minimize the two kinds of mistakes? Clearly, we need to target potential Highs who are missed by the system. The GI Bill might be an example of a policy that achieves this. Access to college was much more difficult right after World War II, and that plus the life-changing nature of the war experience (how tough can it be to pass the philosophy final after seeing combat at Bastogne or Okinawa?) means that there are lots of people who can benefit from access to college. But sweeping policies designed to give lots of people college degrees simply will not necessarily magically increase everyone’s income; it is not the piece of paper itself, but what people can conclude about a person from the fact that he possesses the piece of paper, that matters.

While the taxpayers’ tolerance for such language will be understandably limited, it is worth reminding people that a primary benefit of a college education is simply the ability to live a more reflective life, to struggle with the great issues of human existence, and to be more capable of participating in consensual government. The “better jobs” argument, alas, can only be taken so far.