The College Premium

The everyone-should-attend-college camp often cites the “college premium” — people with college degrees make a lot more money in life than those who do not.

In his recent Econtalk interview, Bryan Caplan adds interesting nuance to this claim. The most important takeaways, in my own words:

  • An average college grad makes 83% more money in an average year than an average high school grad.
  • Folks with some college (who don’t graduate) make on average 10% more than high school grads.
  • Why is there such a premium? The usual story points to the value of the college education itself. Bryan sooner points to the kind of people who attend college.
  • There’s a big difference at the starting point of college. Those who sign up to go to college are, at the outset, going to have higher IQs and an accumulation of other initial advantages than those who choose not to sign up. It stands to reason that those inclined to sign up were going to succeed either way — it has less to do with what they actually learn in school.
  • The 5-year graduation rate for a 4-year college degree (i.e., giving someone five years to graduate) is roughly 55%. In other words, almost half of people who start college do not finish.
  • It’s pretty predictable who will drop out: those with weak academic ability in high school will probably not graduate. Caplan: “For students in the bottom quartile of academic ability [in high school], paying a year’s college tuition is almost as foolish as buying 10,000 lottery tickets.” I previously blogged about this phenomenon in my post Who Should and Should Not Be Going to College.

Bottom Line: The earnings premium college grads enjoy is complicated and may not have much to do with college per se. And fewer people should be attending college — especially those who struggle in high school.

6 Responses to The College Premium

  1. DaveJ says:

    Do you have recommendations for what they should do instead? Despite the experience of you and other high-ambition entrepreneurs, most who do not do well academically also are only moderately motivated professionally. One obvious answer is a vocational/technical education – goodness knows we need more skilled plumbers, auto mechanics, and other sorts of technicians. What else?

    • Ben Casnocha says:

      For those of poor ability, definitely the trades — learn a trade, preferably one that’s durable in the 21st century, and do that. Your point about plumbers is exactly right.

      For those of high ability, well, they’ll have the motivation to do various self-learning and carve their own path.

      • DaveJ says:

        I think you are confusing motivation and ability.

        Even someone who is only marginally motivated needs to earn a living. Suppose you have someone who has reasonable ability but limited ambition / motivation. Take the recommendation that they “get motivated” off the table. What sort of path would you recommend?

        • Ben Casnocha says:

          Isn’t this mix — decent ability, low ambition — the exact case for the plumber? Reasonable ability required. But not too much ambition — otherwise the job seems boring / rote.

  2. Dave Carlson says:

    I completely agree with your point about the trades. People need to earn a living, and I think trades are a bit underappreciated in this day and age.

    Where do the more intangible, but not particularly high skill, jobs (sales, real estate, etc.) fit into this metric? I’d say they fall in the “decent skills, high motivation” camp, but many don’t need a college education to be viable.

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