Because Russia Is Known for Its High Productivity

A week after I sarcastically told you you to trust your east coast media elite about higher education, the NYT’s Eduardo Porter takes the bait in, “A Simple Equation: More Education = More Income.” Porter wails:

Barely 30 percent of American adults have achieved a higher level of education than their parents did. Only Austria, Germany and the Czech Republic do worse. In Finland more than 50 percent of adults are more educated than their parents.

Here’s his chart showing the international education arms race (at all levels, not just college):

Loook Who's No. 1The number one country is Russia, which is known for its healthy, long-lived population and very little national income from locational advantages such as oil and gas deposits. Second to last is Germany, a country with very few manufacturing exports and unspeakable squalor, which is why you never hear about it.

Porter continues:

This pattern of stagnant mobility and rising inequality of education adds up to a dumbfounding paradox. American workers with a college degree are paid 74 percent more than those with only a high school degree, on average, nearly the biggest premium in the O.E.C.D.

Can you believe this a week after New York Fed economists report that college doesn’t pay off for everyone? Like seriously, read your own damn chart.

New York Fed Endorses Credential Fraud

Yes, I’m lying, but the New York Fed’s promised analysis of five-year and six-year college degrees calls the college premium into question, not that the authors understand why. They calculate that adding a fifth or even a sixth year of college costs workers ~$65,000 or ~$130,000 over their lifetimes, respectively. Thus, I wonder, “Why not graduate in just three years then to get on that wage-premium track earlier?” Maybe people could do it in two, or one, or just say they went to college even if they didn’t. It reminds me of the “seven-minute abs” scene from There’s Something About Mary, which for some reason YouTube doesn’t have a clean copy of. Feel free to explore on your own, but if you disagree with the zero-year bachelor’s degree, then you’re dreaming about Gorgonzola cheese when it’s clearly Bree time, baby.

The lesson is: Never reason from a college premium, which apparently even college graduates can’t figure out.

The more entertaining adventure is the New York Fed’s subsequent post in which it dares to question if a world outside the average college graduate exists. It’s titled, “College May Not Pay Off for Everyone.” Heretical, I know.

Here’s the authors’ chart, which unlike any research I’ve been able to do, goes back to the 1970s.

I guess The Graduate was art imitating life after all…

I’ve just received word that the authors’ security clearance has been revoked.

Don’t worry, though, they hedged themselves:

While we can’t be sure that the wages of this group wouldn’t have been lower if they had never gone to college, this pattern strongly suggests that the economic benefit of a college education is relatively small for at least a quarter of those graduating with a bachelor’s degree.

Yeah, in college-premium land it’s obvious that those grads are so stupid that if they hadn’t gone to college they would’ve been unemployed—and if they hadn’t finished high school, they would’ve sold themselves into slavery.

The obvious thing to ask is what kind of occupations these workers are in. If they aren’t in positions that require much college education, then that might imply that too many people go to college, that many college grads in highish-paying jobs benefit more from the signal their degree sends than the human capital developed through coursework, that the public is filled with endless garbage about the need for more college graduates (often at the behest of student lenders), and that a lot of these low-earners who have significant student loan debts will be unable to repay them, possibly culminating in a government write-down in the future.

Or they could just be really stupid and college qualifies them to be retail salespersons. And you shouldn’t worry, all those stories are just scaremongering and you should trust your east-coast media elite.

Tuition Cuts Beyond Thunderdome

Observing some law schools gaining 1Ls as they cut tuition, The Wall Street Journal chants, “Two applicants enter! One applicant enrolls! Two applicants enter! One applicant enrolls!”

I don’t think I’ve ever seen Mad Max Beyond Thunderdome without commercials. I don’t think there’s another way either.

Back on topic, the WSJ article appears quite well researched. I’ve never been big on tuition cuts drawing the crowds, but I’m willing to disagree with some of the quoted deans—in their favor, even—and say that the tuition cuts helped their enrollments. The real question, though, is whether tuition cuts can draw applicants who otherwise wouldn’t bother taking the LSAT. I ask that because it appears that the applicants are sending their materials to multiple schools and taking whatever they consider the best deal. In that sense the nominal tuition cuts are little different from the discounts the law schools have been touting. It’s when they can convince new applicants to step out of the ether that we can really say the tuition cuts are working.

We’ll also have to see whether the schools with high LSAT profiles are cutting their nominal costs. I bet plenty of 2Ls would love to transfer into Columbia and pay more than $55,000 per year.

In other news, the New York Fed people have started a series titled, “The Value of a College Degree,” which rehashes everything you’ve already heard repeatedly about the average college graduate. However, its authors promise to look at wage dispersions, which tell them that “college actually does not appear to have paid off for a sizable fraction of those who made the investment.” They said it’s hard to see whether the premium is due to innate abilities but then said they were going to explore what happens to five- and six-year graduates. Hint: If the five- and six-year graduates don’t make more than the four-year graduates, there’s a good reason to suspect that there are problems with the human capital hypothesis.

Here’s my spoiler version of the wage dispersion from a while back:

Dispersal of Earnings by Education (25 -34) (Thousands, 2012)

(Vertical lines are medians.)

Yeah, so not everyone who went to college makes the median income. (Mind = blown)

I gotta run. Take care, folks.

Grade Inflation: It Depends How You Define ‘Educational Quality’

On VoxEU, we have Raphael Boleslavsky and Christopher Cotton’s, “The unrecognized benefits of grade inflation.” The authors write:

Our analysis reveals a surprising link between grade inflation and investment in education quality – schools invest more when they are allowed to inflate grades than when grade inflation is banned. …

With grade inflation, student transcripts convey less information, and therefore the employer relies less on transcripts and more on school reputation when evaluating graduates. In this way, grade inflation increases the incentives that schools have to undertake costly investments to improve quality of education, and the average ability of their graduates. To the extent that school investments and a student’s own study efforts are strategic complements in human capital development, students who anticipate greater investments by schools in turn have greater incentives to increase their own efforts. [Emphasis LSTB]

You could replace the emphasized bits about “education quality” with “wasteful spending” or the like and you’d have an accurate description of what goes on at law schools.

For instance, we have expanding faculties:

Law School Faculty Per School (Calendar-Year Average, Index 1999=100, Excl. P.R.)

(Source: Official Guide, author’s calculations)

We have lots of internal grants and scholarships:

Spending on Internal Grants and Scholarships Per Law School (2013 $)

(Source: ABA (pdf), Bureau of Labor Statistics, author’s calculations)

We have no (net) positive impact on job outcomes:

Percent Employed by Status (NALP)

(Source: NALP)

We have a decline in legal sector labor productivity:

Legal Sector Labor Productivity (2005=100)

(Source: Bureau of Labor Statistics)

…And all this is covered with tuition hikes on the poor souls who are paying full tuition (if that):

Median Full-Time Law School Tuition (2013 $)

(Source: ABA (pdf), FinAid.org, Bureau of Labor Statistics, author’s calculations)

None of this is necessarily the result of grade inflation, which the authors’ model takes to be endogenous when I happen to think it’s exogenous (Hell, even the law school deans say so). If anything grade inflation is a symptom of the same pressures the schools are under to signal their degrees’ prestige to employers. But job outcomes is most of what this all comes down to. If there weren’t such a wide dispersion of jobs and salaries, then there’d be less motivation to engage in these kinds of wasteful behaviors. The free student loans are the accelerant.

However, there’s no reason to believe that, in the face of grade inflation, colleges and universities would improve their reputations by carefully investing in better student outcomes; rather, they would invest the bare minimum of what the employers want to see—not what actually makes the graduates more productive. That’s why the employers complain about how law students take frivolous courses but keep hiring from elite law schools nevertheless.

Revealed preferences, people. Revealed preferences.

The Future of the College Premium Debate

A few months back I picked up a copy of Divided: The Perils of Our Growing Inequality, edited by David Cay Johnston, who signed it when I hobnobbed with the (liberal) one percent a few months back. Its essays make for quick reads on planes, trains, and other forms of transit. One contribution by Jared Bernstein titled, “Inequality Across Generations,” struck me. At the end he advocates “‘college for all who are able’ … as an ambitious investment in building human capital assets for the disadvantaged.” (The essay was originally published in 2007.)

Curious, I looked on Bernstein’s blog and found a 2012 post in which he discusses whether college graduates in low-skill jobs still get a wage premium. The answer’s yes, but I’ll scrutinize why he says so in a moment.

But first, readers keeping score at home will recall that we’ve been sternly warned that regression analyses of higher education “premia” that control for occupations are invalid because “occupation is an outcome variable and not a pretreatment covariate.” And scorekeepers will also recall that I think that argument throws out standard economic theory on occupational wages. When your only tool is regression analysis, every omitted variable looks like a bad control.

(To defend Divided, one of its essays, “Why Do So Many Jobs Pay So Badly?” by Christopher Jencks, states, “The logic of a market economy is that we should all be paid the smallest amount that will ensure that our work gets done, and that is what low-wage workers generally receive.” (68))

I’m not alone, however. Bernstein wrote his blog post in response to findings by two researchers, Paul E. Harrington and Andrew M. Sum, who estimated that in 2012 half (!) of all college graduates under 25 were unemployed or employed in jobs that don’t really require much college education according to the Labor Department. Harrington and Sum should be better remembered for taking on Georgetown University’s Anthony Carnevale, who in 2010 estimated a shortage of college grads by 2018.

Please stop laughing. This is serious.

Harrington and Sum irresponsibly threw all caution into the wind and controlled for occupation in their analysis of college outcomes. They found, unsurprisingly, that college graduates in low-skill (“non-college”) jobs earn significantly less than college graduates in higher skill (“college”) jobs. The literature they cite calls this phenomenon “malemployment.” Harrington’s and Sum’s findings tend to show that occupations matter quite a bit for earnings, leading them to conclude, “If malemployment among college graduates simply does not exist, as the Georgetown forecasters [Carnevale] argue, then there should be little difference in the earnings among college graduates regardless of whether they were employed in college labor market occupations or not.” You can see their results charted in their response to Carnevale in all their brutality.

 

H&S Malemployment

(Yes, you read that right: Although it’s obviously a typo, advanced-degree holders in New England in 2009 earned just 6.6 percent more than high-school graduates if they were in non-college jobs. The next question is how well advanced-degree holders did if they found college occupations—rather than non-college occupations—that didn’t require any advanced training.)

To clarify, it doesn’t matter for Harrington and Sum if you think college mainly signals preexisting abilities or creates Very Important Human Capital. Their point is that there just aren’t enough college jobs to go around.

Bernstein, as well as David Neumark, another college-for-all academic, disagrees with Harrington’s and Sum’s methodology. Both argue that researchers should measure the college wage premium within occupations, and when they do so it’s huge. I’ll stick to Bernstein, since he kicked off today’s adventure:

Bernstein Premium

(Ironic that for all the drinking that supposedly goes on in college the intra-occupational premium for bartenders is scant. Guess they’d learn more about serving drinks in class?)

You might be tempted to ask how, exactly, college makes people 50 percent better at childcare, for example. I think I’m good with children, but it’s not because in my Plato seminar I read the Timaeus, where Socrates recommends educating children the rulers deem worthy and dumping the inferior ones onto the ranks of the proles. (This is also the dialogue where Plato talks about the (metaphorical!) island of Atlantis, which, sadly, is probably the thing he’s best known for.) Neumark, Bernstein, and those who agree with them are invited to satisfy your temptations. For my money, there’s almost no human capital effect on low-skill occupations.

I think it might be useful to go through the occupations Bernstein lists and show their wage dispersions. It turns out that even for the best case scenarios, Bernstein’s big premiums don’t account for a lot in annual earnings.

Occupation Intra-Occupational Premium 10th Percentile Annual Earnings 50th Percentile Annual Earnings 90th Percentile Annual Earnings
Retail Salespersons 49% $16,830 $21,140 $38,820
First-Line Supervisor of Retail Salespeople 42% $23,490 $32,700 $62,830
Waiters/Waitresses 20% $16,300 $18,590 $29,810
Customer Service Reps 45% $19,640 $30,870 $50,570
Cashiers 34% $16,420 $18,960 $27,710
Receptionists and Information Clerks 31% $18,330 $26,410 $38,170
Office Clerks 20% $18,040 $28,050 $45,340
Childcare Workers 49% $16,430 $19,600 $29,770
Home Health Aides 26% $16,690 $21,020 $29,480
Bartenders 9% $16,400 $18,920 $32,780
High School Grad, FT (25+) N/A $15,000-$17,499 $35,636 $70,000-$72,499
Bachelor’s-Degree Holder, FT (25+) N/A $25,000-27,499 $56,929 $100,000+

(Source Bureau of Labor Statistics Occupational Employment Statistics (OES) (2013), Census Bureau Personal Income tables. There’s some apples-to-oranging going on here as Bernstein’s premiums are for 18-30-year-olds and the OES wage ranges are for all ages. I’m also unclear on what Bernstein means by “less than college” in his table, which might include college dropouts or just be high-school graduates who never go to college.)

My point is even if a college education vaults someone into the upper earnings percentiles of a given non-college occupation, there’s little hope that he or she will earn as much as the median full-time college graduate. In many cases such individuals won’t even earn as much as the median high-school graduate. Some premium!

Although Bernstein wrote his post two years ago, the intra-occupational premium is really the endpoint of the debate on the college premium—once you’re willing to recklessly contaminate your regression results with bad controls based on the standard theory heresy that people will be paid “the smallest amount that will ensure that the work gets done” irrespective of educational attainment or student debts.

Except I can’t imagine someone at The New York Times deploying results like Bernstein’s with a straight face. Being in the 90th percentile of waiters/waitresses still means being a waiter/waitress. No, the media will just stick to the misunderstood Average College Graduate, who’s bound to be named Time‘s Person of the Year at some point.

In the meantime I hope we’ll see more work like Harrington’s and Sum’s, which I recommend reading.

NYT Says People Who Use BLS Inflation Data Are Conspiracy Theorists

Do not adjust your TV set. You did not leap into a parallel universe, and I am not suddenly sporting an evil Van Dyke. After enlightening us on how the Labor Department tracks inflation in higher education costs, the Timesresident champion of the elusive average college graduate, David Leonhardt, smugly compared anyone who uses government inflation data in good faith to conspiracy theorists like ShadowStats who think the government is cynically manipulating cost data.

(I’m using an image here instead of a block quote to show you I’m not kidding.)

(I’m using an image here instead of a block quote to prove I’m not making this up.)

One hastens to point out to Leonhardt that using the government’s published indexes, notwithstanding their flaws, to make an argument is not the same as (a) claiming the government is lying, or (b) cooking one’s own measurements based on repudiated methodologies to sell Web site subscriptions at fixed nominal prices. (For the record, I use Education Department data on college costs, though that’s probably problematic as well.)

So what prompted Leonhardt’s self-satisfied editorialization?

Answer: He discovered that until 2003, the Bureau of Labor Statistics tracked college tuition inflation by their stated prices and not their “net tuition” costs, which the bureau now largely tracks. It’s an interesting finding, but it deserved to be raised more professionally—and with better reasoning.

Leonhardt’s argument is that reporting on college tuition costs based on BLS data is “exaggerated” and “deeply misleading” because those data exclude financial aid discounts. He adds that only rich families pay sticker price and then compares college costs to retailers (e.g. Joseph A. Banks) that continuously discount their prices, making their sticker prices meaningless. Hence, he boasts that he’s knocked away yet another (sic) pillar people use to criticize the value of college education.

So what’s the problem here? One, the Joseph A. Banks comparison doesn’t work at all. Retailers that engage in psychological discounting in fact discount their prices—for everyone. They do not ask customers what their annual household incomes are and then charge them (in)appropriately. Colleges really do charge some people sticker price, so the sticker prices aren’t fictitious. Leonhardt hedges this fact by telling us this doesn’t matter because, allegedly, only rich families are charged full price.

The response, my second point, is if this is true so what? What are they paying more money for? Has the quality of education increased for people who pay sticker price? If you’re going to say that these students are paying for the privilege of learning with subsidized, smart people, then you’re going to have to prove that they actually learn more as a result. I’m also going to ask you to estimate when the marginal benefit of adding one more smart, subsidized student to an incoming class outweighs the additional cost to a given student paying full tuition. Note also that “graduating from college while well off” does not in fact ensure that a graduate will be well off going forward.

Finally, Joseph A. Banks’ prices are transparent once customers walk in, see the sticker, and do the math. Colleges, by contrast, advertise a *cough* *garble* *cough* percent-off sale. If this isn’t “real” inflation, why can’t families know up front what they will be charged?

I agree that the BLS should track inflation based on what people pay for goods and services holding the quality of those goods and services constant. However, the best Leonhardt can say about his discovery is that the composition of household spending on college has changed such that some students are asked to pay much more than they would have in the past so that other students can pay about what they would have in the past. If anything, this is a reason to track sticker price inflation, not ignore it.

Leave it to The New York Times to publish a blogger who trolls critics for using government data and then defines inflation away. Maybe Yale should give him an honorary B.S. in applied sophistry.

The Law Apprenticeship Scam

“It’s a cruel hoax. It’s such a waste of time for someone to spend three years in this program but not have anything at the end.”

So says Robert E. Glenn, president of the Virginia Board of Bar Examiners. No, Glenn wasn’t talking about Liberty University’s 34.4 percent employment rate in full-time, long-term, bar-passage-required jobs for its class of 2013, which had an average debt level of $81,045 (only!). Rather he was referring to the low bar-passage rates of Virginia’s law readers, who along with their peers in other states are the subject of a New York Times article, “The Lawyer’s Apprentice.”

Citing data from the National Conference of Bar Examiners, which the Times deserves credit for researching, we learn that only 28 percent of apprentices passed the bar versus 73 percent of ABA law school graduates. This fact prompts the ABA’s Barry Courrier to declare:

“The A.B.A. takes the position that the most appropriate process for becoming a lawyer should include obtaining a J.D. degree from a law school approved by the A.B.A. and passing a bar examination,”

I find this response disappointing for a few reasons: One, even if these statistics are for first-time test-takers only, a 73 percent pass rate is lousy. Law schools should be held to higher standards for what they charge students.

Two, the article appears to tacitly accept the ABA’s position that we can’t have good lawyers without many years of law school (and probably college too). The elephant in this room is selection bias. The reason people go to law school rather than these apprenticeship programs is that law schools broker jobs to people who already do well on standardized tests, to wit, the LSAT. Certainly in the age of PAYE, someone who can crush the LSAT has much better odds of finding a good law job by going to law school than trying to find a lawyer who will train him or her. If anything, law school is a more reliable path to qualifying for the bar exam. Indeed, the article acknowledges that “the lack of class rankings put clerkships with judges and plum gigs at big firms out of reach” for law readers.

If you’re wondering why people who don’t do well on the LSAT go to law school instead of these programs, I give three responses. One, they aren’t widely known and have no advertising. Two, many law students still buy into the versatile JD myth. Three, the largest proportion of people opting out of law school are people who don’t do amazingly on the LSAT anyway. So there. (The Times says these programs are “underpopulated,” but given the effort the would-be apprentices must go through to get established, one might think the problem is that there really isn’t much demand for new lawyers.)

I acknowledge that many of the apprentices interviewed in the article are sincere in their desire to avoid debt and only want to do small practice work. If anything, bar authorities should make it easier for people to choose that route. Instead they offer a post hoc rationalization for credentialism in legal education.

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