“Does College Still Matter? And Other Freaky Questions Answered”: In our second round of FREAK-quently Asked Questions, Steve Levitt answers some queries from listeners and readers.
New Freakonomics Podcast: Does College Still Matter? And Other FREAK-y Questions Answered
Our latest podcast is another attempt (here’s the first) to answer some of the questions you’ve asked us on the blog. (You can download/subscribe at iTunes, get the RSS feed, listen live via the link in box at right, or read the transcript here.) Here’s how it begins:
DUBNER: A reader named Jonathan Bennett asks, “Is it true that college education is no longer a factor, or [is] even a disadvantage, when it comes to employment?” Levitt, what say you?
LEVITT: [laughs] I think that never has anyone made a statement more false than Jonathan Bennett’s statement that education would be no help or a disadvantage in the modern economy. Of all the topics that economists have studied, I would say one we are most certain about are the returns to education. And the numbers that people have come up with over and over are that every extra year of education that you get will translate into an 8 percent increase in earnings over your lifetime. So someone who graduated from college will earn about 30 percent more on average than someone who only graduated from high school. And if anything, the returns to education have gotten larger over time. They’re as big as they have ever been.
Measuring something like gains to education is necessarily tricky: how do you sort out the effect of education itself when the college-going population is likely very different from the non-college-going population? To that end, Levitt describes a clever study that found a way to isolate the impact of education:
LEVITT: So back in Vietnam, men were entered into this draft lottery. And if you got a very low number, it meant you were likely to go to Vietnam. If you got a very high number, it meant you were safe. There was a way, however, to avoid service, which was to go to college. So what happened was, the men who were unlucky and got bad draft numbers, many more of them went to college than did the people who got high draft numbers. Now they wouldn’t have gone to college otherwise. They went only to avoid going to Vietnam. So what the economists have done is they’ve compared the people who got kind of medium draft numbers. So they weren’t sure if they’d be drafted or not, but in the end they ended up not being drafted. But many of those men still went to college. And they compared that group of people, who were identical in principle to the people who were lucky and got really high draft numbers. And those high-draft-number people — they didn’t have to go to college to avoid Vietnam. So many fewer went to college. And consequently, if you follow them through their lives — the people with the medium draft numbers, who didn’t go to Vietnam, but many more went to college — and you compare them to the people with the high draft numbers, who neither went to Vietnam nor went to college, and you see returns to education.
Another reader wanted to know Levitt’s view of healthcare reform:
LEVITT: Well, my friends in the Obama Administration aren’t going to be very happy with me, but I really, I don’t think it solved any of the important problems that we’re facing with healthcare. So virtually every economist will tell you that there were two things you needed to do to healthcare reform to materially improve the situation. The first was to break the link between the provision of healthcare and employment. And that is just an archaic element of our healthcare system, which really makes no sense. And yet because of tax subsidies, it’s the way most people get their healthcare — through their employer. It shouldn’t be. There’s no good economic justification for it. And yet, if anything, I think this healthcare reform bill actually strengthened that link. … [Healthcare] is virtually the only part of the economy where I can go out and get any service I want—cancer treatment, open heart surgery, have a wart removed, whatever it is—and I pay $3 for it or $5 for it or nothing, even if it costs $50,000 or $100,000. I mean, imagine if you had the same situation with automobiles. Where I could show up at the car dealership and I could say, ‘I want the Mercedes for free.’ Well, people say, ‘You can’t have the Mercedes for free. You have to pay $50,000 for it.’ You say, ‘Why not, I have an inalienable right to free healthcare. Right? Why don’t I have an inalienable right to a free Mercedes?’
Note to Levitt: I don’t think your friends in the Obama Administration are the only ones who won’t like your views. Smiley face.
Finally, Levitt also addresses a listener’s question about how recent drug busts in the slums of Rio de Janeiro will affect crime there. For his take on that — you may be surprised — check out the podcast. Thanks, as always, for your questions. They were excellent, and we’ll keep answering them in future podcasts.