The Economics of Higher Education, Part 4: Worldwide Returns on College

We’ve discussed before — in blog posts and a podcast — the value of a college degree. Writing for the New York Times Economix blog, Catherine Rampell points out that college degrees are particularly valuable in the U.S. “According to a report released this week by the Organization for Economic Cooperation and Development, across the developed world the average person who has graduated from college (either two-year or four-year) and has any earnings makes about 57 percent more than a counterpart with no more than a high school education,” writes Rampell. “In the United States, the comparable earnings premium is 77 percent.”  

Despite the value of a college degree in the U.S., college graduation rates in the U.S. are increasing at a much slower pace than in other rich countries.  And, as Rampell points out, it’s not just individuals in the U.S. that benefit from a college degree: “[T]he average return to taxpayers [of tertiary education for the average man] is $230,722 in the United States, versus less than half that, $104,737, across the developed world.” 

For more on “The Economics of Higher Education,” see Part 1, Part 2, and Part 3.

Also: Oregon is thinking about letting students pay no college tuition, instead pledging a share of their future earnings. Lest you think this is straight out of Portlandia (like this is), know that Australia runs a similar college-tuition program

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  1. Eric M. Jones says:

    This reminds me of the time when my dad said (regarding some point of discussion) “Half the people in the world have two-digit IQs”.

    For a moment I was going to argue with him., but of course it was obviously true. Then he told me that I had hardly any dealings with these people and my notions of what the world was like was flawed by my association only with people with IQ’s way above 100.

    This article remind me of this issue. Do the authors have any actual understanding of what the world is like? What plans do you/they have for the 50% of humanity below the 100 bar?

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    • L.A.Williams says:

      They’re required to live in the Northern United States, so I’m not terribly concerned :p

      All clearly non-prejudiced and totally backed up by voting records jokes aside, I would say that High IQ is a foolish measure because for ANY group, IQ averages at 100. That’s the whole definition of IQ, it’s a measure of intelligence versus the mean of whatever group is being measured. If Einstein had the situation of Biblical Adam, his IQ would have been 100 until about the time Eve showed up, at which point both would presume the other’s IQ to be around 66. The average IQ in my high school was 100, though less than 15% of our 300 strong graduating class went to College and one of us(me) managed to graduate with a 1.57 un-weighted GPA.

      Additionally, some of the most economically, socially and academically worthless people I know have “high IQs” compared to whatever test group they’re in. IQ is a poor indicator of potential and an awful predictor of outcome. The meritocracy fetishists would have you believe that success springs from intelligence, but it does not. Success is a social thing, and we can easily see that the most successful producers are making something that connects the world together. Computer science geeks like B. Gates, brilliant art crazies like Steve Jobs, misogynistic computer science geeks like Mark Zuckerberg, Kim Kardashan, Google’s entire staff, Twitter’s entire staff, LinkedIn, Disney, Warren Buffet, every movie star ever, sports icons, the list goes on.

      The one thing all of these people do is give people a reason or a means to interact with other people. Kim Kardashan might seem out of place in the list, but she’s managed to get my sisters to release each other’s throats long enough to discuss the humor in allowing Kanye to name their kid “North”.

      Finally, to answer the question you DID ask: of the plurality of my peers(and self) who chose not to attend college for financial, familial or admissions filtering reasons, two have “traditional” corporate jobs, one is a technology consultant(me), 20 have joined various branches of the armed services, 40 are in prison, several have been shot, stabbed or beaten to death over narcotics, and the balance work in retail, food service or landscaping. Apart from the dead ones, some of whom I shall sorely miss, all are productive members of society. The plan is, as it has always been, for somebody to bag the groceries, serve the food and carry the bags. And fill the prisons.

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  2. Greg says:

    I am always skeptical of these studies because in today’s society most people are told to get a degree in order to have a good job. Therefore people who are determined to get a good job go to college. So really there would need to be a comparison of 2 groups of individuals who are randomly selected and one group is not allowed to get a degree then compare the 2 groups to see how much they make.

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    • Matt says:

      I agree. There is a correlation, but no determination of causation. They should study whether people who get degrees could potentially be just as successful without having received a degree. My guess is there are plenty of people who got degrees, but that was not the cause of their success.

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  3. Michael says:

    They can work in Congress.

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  4. Joe J says:

    Curious with the Oregon plan, (link seems to be broken), But I have seen some other non detailed articles. What do they do with people who don’t graduate or who transfer in/out.

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  5. Enter your name... says:

    From a quick look, “college” appears to encompass all tertiary education, including “vo-tech school”, not just proper universities. I’d expect a certified master plumber to get paid pretty well compared to someone who is trying to get a job with just a high school education, so this is probably both appropriate and not surprising.

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  6. JK74 says:

    The link to the Oregon system is broken, so I can’t comment on it, but here in Australia it’s not quite “a share of future earnings”. A fraction of the cost of the degree (typically about 25%, but it varies) is charged to the student. Once their earnings reach a certain level (if they ever do) that’s about equal to the average full-time worker’s income (and this level is indexed), the debt is repaid through the tax system. The amount repaid increases as earnings increase, so a small pay increase can actually result in less net pay – but the debt is being repaid faster. The interest rate is 0% pa. real; that is, the debt increases at the rate of inflation. The loan can be paid off at any time with a 5% discount. Once the loan is repaid in full, payments cease. If a person leaves the country and never earns Australian income, or never earns more than the threshold, and dies with the debt unpaid, it’s written off by the govt.

    It’s not a perfect system, but it does recognize that both the student and society benefit from their education, so it splits the costs between them as well.

    As to the returns to college being higher in the US, that’s no surprise. With the costs of a degree high, the benefits must be high, too, in order to give enough incentive to bear the costs. Or in reverse, in countries where the costs of a degree are lower, there is less disincentive to obtain one, so the benefits of doing so are less.

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