AEI: Studies exaggerate college payoff

Going to college and picking the right major will increase your earnings, but not as much as you think, write Andrew G. Biggs and Abigail Haddad of the American Enterprise Institute. Recent high-profile studies confuse correlation and causation, they argue. “Simply because two things tend to occur together — such as college attendance and higher incomes — does not necessarily mean that one causes the other.”

In a recent study, Michael Greenstone and Adam Looney of the Hamilton Project conducted a seemingly simple cost-benefit analysis: While four years of college today can cost in excess of $100,000, a typical college graduate earns roughly $13,000 more per year than a high school graduate. They conclude that, despite rising tuition costs, the annual “return” to college education tops 16 percent, far exceeding investments such as stocks or bonds.

First, going to college isn’t the same as graduating from college, write Biggs and Haddad.  Only 58 percent of people began college in 2004 had graduated six years later.  Mediocre students — the sort who aren’t sure whether to go to college or find a job — do much worse.

Second, high school graduates who enroll in college are quite different from those who don’t.

High school students who go on to college took a more rigorous high school curriculum, scored better on tests of reading and math, came from higher-income families, were in better physical and mental health, and were less likely to have been arrested. These are all correlated with higher earnings regardless of whether a person attends college, either because they contribute directly to higher pay or because they proxy for other factors that do. How much a college education increases the incomes of those who attend is a different question than the simple difference in earnings between college grads and individuals with only a high school diploma.

Using the 1997 National Longitudinal Survey of Youth it is possible to control for these and other differences between college grads and the rest of us. Once you control for both the risk of not graduating from college and differing personal characteristics, the earnings boost attributable to college attendance is cut in half.

Studies on the best-paying college majors also are flawed, they write.  The Center on Education and the Workforce at Georgetown University reports that four-year graduates in engineering, mathematics or computer science have median earnings that top $70,000, while graduates in the arts, education or social work earn less than $47,000. The choice of major also “determines unemployment,” Georgetown advises.

However, engineering majors start out ahead of arts majors, Biggs and Haddad write.

. . . high school graduates aiming for high-earning majors such as engineering enter college with higher average SAT scores, according to the National Center for Education Statistics, while those aiming for lower-paying majors have lower average SAT scores. But  SAT scores almost certainly are correlated with higher incomes regardless of college major chosen. Similarly, high-paying jobs also entail longer work hours. Numerous studies . . . have found that controlling for SAT scores, hours worked and other factors explains most of the pay differences that initially appear to be driven by choice of college major.

Young people considering their futures need to remember that they’re not average. Individual characteristics — intelligence, work ethic, interests — will determine their future. Bill Gates dropped out of college and did OK. Are you Bill Gates? Nurses with associate degrees make good money. If you faint at the sight of blood, that’s not your best choice.


POSTED BY Joanne Jacobs ON December 27, 2012

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[...] Going to college and choosing a technical major will increase your earnings — but not as much …, argue two American Enterprise Institute scholars.  Confusing correlation and causation exaggerates the college payoff. [...]

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