Dropping Out and the Return to Education

One point I’d like Murray to expand upon is that a lot of people who start the BA don’t finish.  He tells us that college…

…is still too intellectually demanding for a large majority of students, in an age when about 50 percent of all high school graduates are heading to four-year colleges the next fall. The result is lots of failure. Of those who entered a four-year college in 1995, only 58 percent had gotten their BA five academic years later. Another 14 percent were still enrolled. If we assume that half of that 14 percent eventually get their BAs, about a third of all those who entered college hoping for a BA leave without one, often after accumulating a large student-loan debt.

This is probably Murray’s strongest response to labor economists’ conventional wisdom that more people should be getting BAs because the rate of return is so high. [1]  The problem: labor economists normally estimate the return to completed education.  It only takes a small drop-out rate to drastically reduce the expected return of trying to complete a year of school.  If the rate of return for a completed year of education is 10%, but 6% of students who start a year don’t finish (and waste a year of their lives plus tuition), the expected rate of return is only 3.4%! [2]  If the marginal student is less likely to finish than the average student, the effect is even more drastic.

The upshot: Murray’s critics can’t dismiss him merely by waving around standard estimates of the return to education.  One of Murray’s main points is that for many students, the “standard” return is just a honey trap.

Notes

[1]  In fact, labor economists often add that instrumental variables methods show that the marginal return to education is, if anything, higher than the average return.

[2] If the student has a 94% chance of a 10% return, and a 6% chance of wasting a year’s worth of time and tuition, the expected return is .94*1.1+.06*0=1.034.

Also from this issue

Lead Essay

  • Down with the Four-Year College Degree! by Charles Murray

    In this month’s provocative lead essay, the American Enterprise Institute’s Charles Murray draws from his new book, Real Education: Four Simple Truths for Bringing America’s Schools Back to Reality, to argue against America’s obsession with the four-year BA degree. Murray argues that the BA “wreaks harm on a majority of young people, is grotesquely inefficient as a source of information for employers, and is implicated in the emergence of a class-riven America.” Murray contends that vocational training and a new regime of certification testing would provide a superior alternative to a college degree for many high school grads.

Response Essays

  • If the BA Is the Work of the Devil, It’s Not His Best Work by Pedro Carneiro

    Economist Pedro Carneiro of University College London — an authority on the relationship between education, human capital, and wages — agrees with much of Murray’s argument, but questions its relevance. Some people may be making a mistake in pursuing a BA, but it’s not a very big mistake, Carneiro says. “For most of those enrolling in college, a BA has a good expected return, but there is some risk,” and not notably more risk than with other investments. The real worry, Carneiro argues, is that stagnation in college enrollments “may cause problems for [economic] growth in the years to come.”

  • Murray Needs a Model — How About Mine? by Bryan Caplan

    George Mason University economist Bryan Caplan agrees with Charles Murray’s claims that not everyone is suited to college, that four years is too long, and that few career-relevant skills are learned there. But then what explains the wage premium for college grads? Caplan notes that Murray flirts with a “signaling” model but argues he needs to take it more seriously. But then why haven’t certification test already caught on, Caplan wonders. Why don’t employers already cut out the college middle man and directly hire top high school grads? “An unfortunate implication of the signaling model is that cutting the BA down to size will be a lot harder than Murray thinks. As far as employers are concerned, the BA works.”

  • The Best of American Opportunity by Kevin Carey

    Kevin Carey, research and policy manager for Education Sector, argues that the “mass production of bachelor’s degrees” in the 20th century gave the United States one of the world’s best-educated labor forces, and all signs point to the stunning success of mass higher education. Carey says that Murray “does not come close” to showing that the “BA is the work of the devil.” If an alternative system of certification testing made sense, Carey argues, we would expect to see it already, but we don’t because “employers value the bachelor’s degree.” The flexibility of the American system, which allows students to get a good general education without committing to narrow vocational training, is one of its strengths. And so many drop out of college, Cary maintains, not because they are unprepared or unable to benefit, but because the academic environment and teaching are often discouragingly low. “The bachelor’s degree represents the best of American opportunity,” Carey writes. “We need to make it better, not tear it down.”

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