The Economist Asia - 03.02.2018

The EconomistFebruary 3rd 2018 51

1

Workers in America are more

educated now than in 1970

Share of workers* with at least a

bachelor’s degree, %

0

20

40

60

80

0

20

40

60

80

100

0 20

Health-records

administrators

Waiters

Bank

tellers

Machine

programmers

Human-

resources

clerks

CEOs and

public

administrators

Accountants

& auditors

Journalists

Primary-

school

teachers

Secondary-

school

teachers

Salespeople

Police and

detectives

Nurses

Statisticians

Aerospace

engineers

Software

developers

Education

counsellors

Education

managers

Chemical

engineers

*Aged 25-64 divided into 265 occupations

Sources: University of Minnesota IPUMS;

The Economist

40 60 80 100

2015

1970

Less-educatedworkers

More-educatedworkers

1

3

5

Share of total

workers, 2015, %

I

N A classroom in Seoul a throng of teen-

agers sit hunched over their desks. In to-

tal silence, they flick through a past exam

paper. Stacks of brightly coloured text-

books are close to hand. Study begins at

8am and ends at 4.30pm, but some will not

go home until 10pm. Like hundreds of

thousands of South Koreans, they are pre-

paring for the suneung, the multiple-choice

test that will largely determine whether

they go to a good university or a bad one,

or to university at all.

Over the course of a single generation

in South Korea, degrees have become close

to ubiquitous. Seventy per cent of pupils

who graduate from the country’s second-

ary schools now go straight to university,

and a similar share of 25- to 34-year-olds

hold degrees, up from 37% in 2000. Stu-

dents scramble to gain admittance to the

most prestigious institutions, with exam

preparation starting ever younger. Sought-

after private nurseries in Seoul have long

waiting lists.

workers, it seemsplausible thatmore will

need to be well-educated. And a degree is

an obvious way for bright youngsters from

poor families to prove their abilities.

But comparisons between countries

provide little evidence of these links. Rich-

er countries have more graduates, but that

could be because there is more money to

spare, and less urgency to start earning.

Rich economies grow more slowly, but that

is probably because they have fewer easy

ways to raise productivity, not because

education depresses their growth.

A truth universities acknowledged

The main piece of evidence cited by policy-

makers is the “graduate premium”—the dif-

ference between the average earnings of

someone with a degree and someone with

no more than a secondary-school educa-

tion, after accounting for fees and the in-

come forgone while studying. This gap is

often expressed as the “return on invest-

ment” in higher education, or the annual-

ised boost to lifetime earnings from gain-

ing a degree. Research by the New York

Federal Reserve shows that the return on

investment in higher education soared be-

tween 1980 and 2000 in America, before

levelling off at around 15% a year. In other

words, an investment equal to the cost of

tuition and earnings forgone while study-

ing would have to earn 15% annual interest

before itmatched the average value over a

working life of gaining a degree.

The World Bank has produced esti-

mates of this return for 139 economies. It

varies from place to place, but is substan-

tial everywhere. The Economist’s analysis

of the data finds that returns are linked to

the share of people with degrees, and the

range of earnings. Returns in Britain and

Germany are similar to those in America.

In sub-Saharan Africa, where degrees are

scarce and the least-educated workers earn

little, they are around 21% a year. In Scandi-

navia, where wages are less unequal and

two-fifths of adults have degrees, they are

around 9%.

But as a guide to school-leavers consid-

ering going to university—and to policy-

makers considering expanding access to

higher education—the graduate premium

is flawed. Even within countries the aver-

age conceals wide differences. Most stu-

dents know that a degree in mathematics

or finance is likely to be more lucrative

than one in music orsocial work. What

fewer realise is that the graduate premium

overstates the financial benefit of embark-

ing on a degree if their school grades barely

qualify them for entry, no matter what

they study.

In a comparison of the earnings of peo-

ple with degrees and people without

them, those who start university but do

South Korea is an extreme case. But oth-

er countries, too, have seen a big rise in the

share of young people with degrees. In the

OECD club of 35 countries, 43% of 25- to 34-

year-olds now have degrees (see chart 1 on

next page). In America the figure is 48%.

Between 1995 and 2014 government

spending on higher education in the OECD

rose from 0.9% ofGDP to 1.1%, while private

spending rose from 1.2% to 1.5%. As govern-

ment subsidies for tuition fees flow

through to institutions they have helped

inflate costs. Since 1990 fees for American

students who do not get scholarships or

bursaries have risen twice as fast as overall

inflation.

Policymakers regard it as obvious that

sending more young people to university

will boost economic growth and social

mobility. Both notions are intuitively ap-

pealing. Better-educated people should

surely be more likely to come up with pro-

ductivity-boosting innovations. As tech-

nological change makes new demands of

Higher education

All musthave degrees

SEOUL

Going to university is more important than ever for young people. But the financial

returns are falling

International

...............................................................

An interactive version of the chart above can be found

on our website, at economist.com/ReturnstoEducation