The notion that college education increases income is well established in the popular lore of the United States. In the last 50 years, public high schools in middle class suburbs all over the country have helped popularize the idea by counseling students that college-educated workers make a lot more money than their high school graduate counterparts.
Fortunately for students, this belief in the power of college is more than just a myth. Study after study has shown that college graduates earn more than people with less education. And the difference in earnings more than accounts for the costs of college. Even when the possibility of investing tuition and foregone earnings is accounted for, education is still a good idea.
So that's it, right? The government should dump cash into education by the bucketful and all students who know what's good for them should go to college.
Well, not necessarily. In actuality, education isn't the great key to public prosperity that everyone seems to believe it is. That's because even though it's clear that college graduates earn more than non-college graduates, no one is really sure why.
There are two basic theories that explain education-related earnings differences over time. The first says college graduates get paid more because education increases productivity. According to this theory, people who go to college learn skills that make them better workers, and they get paid more because they make more money for their employers.
The other theory holds that education merely serves as a screening device for companies trying to find people with minimum levels of trainability and intelligence. This line of thinking holds that education doesn't actually make workers better, it just filters out people who lack the motivation and intelligence to make it through college. And since people from wealthy families are more likely to go to college than their poorer counterparts, education also serves as a way for companies to find employees raised in society's upper echelons.
The debate is important, because it has broad implications about the social worth of education.
Consider what the screening theory means if it's really right. Instead of a way of improving the productivity of the work force, education is just an expensive and wasteful enterprise that should be eliminated if possible. If all education does is separate capable people from incapable people, then the country should find a more effective way to filter employees that doesn't involve four years of lost work and thousands of dollars in tuition.
Peter Mueser and Tim Maloney, economists at the University of Missouri and Bowdoin College, respectively, say many people are pushing for just such a system. Some personnel psychologists say general aptitude tests are a better and less expensive way for firms to make hiring decisions than educational backgrounds.
Furthermore, if the screening theory holds true, education may help solidify income inequalities. Although education provides a ladder for people from lower economic strata, it also helps wealthy kids stay at the top far more often than it helps poor kids move up. A study by Paul Volker, a prominent American economist, showed that it takes huge increases in state subsidization of tuition to entice even small numbers of low-income high schoolers to go to college. And since tuition subsidies tend to help students from all backgrounds equally—at the U, for instance, declining subsidies are increasing tuition for all students—state funding of education lets wealthy kids pay less than what they otherwise would have been willing to fork out.
So is the screening hypothesis true? Or does education actually improve worker productivity?
One test, used by Volker, involves comparing the wages of college graduates who get jobs in their field of study and those who don't. Volker and another economist, Paul Miller of Australian National University, looked at economics and science students in Australia. They found that graduates employed in fields that had nothing to do with their majors, like retail sales or auto mechanics, made the same as students who worked in fields for which they had specialized training.
The implication is that firms are only looking for someone smart enough to graduate from college. This sort of thing is easily observable in practice. A friend of mine recently got a bachelor's degree in English from Yale University. When he graduated, he signed on with one of the several investment banking firms recruiting at the school. The firm didn't hire Yale grads because they was trained well—my friend got all the training he needed directly from the company. Rather, the firm looked for employees at Yale because recruiters knew they could get bright people there. Why don't the same firms come to the U and hire better-trained business students, rather than English students from Yale? Because Ivy League schools serve as a way of pooling the best of the best.
Another test involves looking at wages over workers' entire lifetimes. If workers with college-level training make more money their whole lives, then that steady earning power must reflect actual improvements in productivity due to education, not screening used only in hiring decisions.
Barry Chiswick argues just that in a book titled "Does College Matter?" His analysis is flawed, however, because education not only serves as a screen in hiring, but also in promotion and training. Like my friend at Yale, people with college degrees are more likely to be selected for on-the-job training than less educated co-workers, and it's that training, not college education, that accounts for the real difference in lifetime earnings.
A final test involves comparing people who graduated from college to people who attended significant amounts of college, but never actually made it out. If education really improves productivity, people who took three years of college but never graduated should have earnings almost comparable to people with degrees.
Several studies have shown, however, that this isn't the case. People who attend college but don't get degrees earn substantially less than those who finish their educations, showing that it's the piece of paper, not the education, that really counts.
Critics of the screening theory say that if employers really did use college as a filter, they would have found a cheaper way to accomplish the same purpose long ago. The problem with this argument is that it wrongly assumes that other screening options are possible. Tests don't work because minorities tend to fare poorly on them, and they therefore violate non-discrimination laws. And firms obviously can't ask their employees directly if they came from a privileged background.
Like it or not, most students are in college not because it will make them more productive, but because it will help employers know that they're minimally intelligent people.
The screening theory makes the absurdities of education a lot more understandable. Why the difference in earnings between Harvard grads and U grads? It's not because of the quality of education, it's because of the quality of the hookups.
Everyone in the United States knows now that education increases individual earnings. Perhaps the screening theory is just a sophisticated way of saying something else that all Americans understand: It's not what you know, but who you know that really makes the difference.
John welcomes feedback at jmorley@chronicle.utah.edu. Send letters to the editor to letters@chronicle.utah.edu.
