The sure path to economic success?

August 1, 2012

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No one would argue that postsecondary education is the most likely path to greater earnings and a better quality of life. However, just how much education and what type is debatable.

For decades, parents and educators have preached fervently that a college education—preferably at a top-tier school— is the way to wealth, happiness, and security, and advanced degrees offer even more assurance that you will achieve these prized goals. And for decades, that message proved to be true for many who chose that route.

Things have changed. Having a college degree no longer guarantees that you will find a job in your chosen field, much less be wealthier, happier, and have more security than someone who chose a different path. In fact, it may be a liability.

Last year, bloomberg.com published an opinion piece by Laurence Kotlikoff, a professor of economics at Boston University and president of Economic Security Planning Inc. Kotlikoff cited a study by economists Stacy Dale and Alan Krueger, which showed that going to more selective colleges and universities makes little difference to future income once one accounts for the underlying ability of the student.

But Kotlilkoff didn’t’ stop there. He asked, “… does higher education pay in the first place?

“The answer seems obvious. On average, doctorate holders earn more than those with master degrees, who earn more than those with bachelor degrees, who earn more than high school graduates. How can education not pay?

“The answer is that education isn’t free. Top undergraduate programs are now charging students $50,000 a year to eat, sleep and, hopefully, attend class. But that’s just the direct cost. Education’s hidden cost is the time spent learning rather than earning.”

Kotlikoff illustrates his premise by offering examples of four equally talented 18 year-olds—Joe, Jill, Sue, and Matt.

“Joe takes a pass on attending college. Instead, he decides to become a plumber.

“Jill chooses medicine. She goes to an expensive private college for four years, an expensive medical school for four years, does a low-paying internship for two years followed by a low-paying residency for one year, and finally, 11 years after high school, gets a real job, as a general practitioner.

“Sue and Matt both get bachelor’s degrees in education at the same expensive college Jill attends, but Matt spends an extra two years after college getting his masters.

“All four of these hypothetical kids settle down in Ohio, remain single, and retire at 62. At age 50, the peak earnings year for all four, Joe, the plumber, makes $71,685 (in today’s dollars). Sue, the teacher, makes $89,584. Matt, the teacher with the master degree, makes $103,250. And Jill, the doctor, makes $185,895. All figures and others used in this analysis are based on earnings data by age, state and occupation.”

Kotlikoff does the math, and accounting for education costs and lost income-earning years, Jill the doctor gets to spend only $423 more per year in retirement than Joe the plumber.

Both Sue and Matt have less, with the more highly educated Matt having less than Sue.

Astronomical tuitions, continuing media reports of crippling student debt, the dismal job market, and examples such as Kotlikoff's are changing the perception of higher education and driving more high-school graduates and displaced workers to choose trade school programs instead of 4-year college degrees and graduate school.

Cnnmoney.com reported yesterday that “trade schools nationwide are bursting at the seams as demand for skilled factory workers pushes enrollment to record highs.”

The enrollees comprise young people starting out, midcareer workers who are retraining after a layoff, and incumbent factory workers, who are drawn not only by job opportunities, but also by pay. “Starting salaries of $50,000 to $60,000 are not out of range for high-skilled talent.”

Noted in the article is the unique challenge schools are facing. “Many are running at or beyond full capacity for the first time in decades.”

Efforts are underway to hire more instructors and secure funding for additional equipment and classes.

“Unlike 20 years ago, manufacturing today requires workers who are computer literate and skilled in computer-aided design and engineering, said Sandra Krebsbach, executive director of the American Technical Education Association.”

Commenting on the boom E.J. Dangle, director of robotics and manufacturing at Dunwoody College of Technology (Minneapolis), said the number of enrollees at the school are at the highest level in 15 years. He also said, “We graduated 20 students in June and we had 400 inquiries about them from manufacturers.”

As Kotlikoff said about his examples of Jill, Joe, Sue, and Matt, “ … they treat higher education as purely a financial investment and ignore its tremendous personal and social nonpecuniary rewards. Still, (they) present a big red flag for those who pursue higher education solely for the money. And they raise a major question about government policy that promotes higher education as the sure path to economic success.”

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