The Economist Asia - 03.02.2018

52 International The EconomistFebruary 3rd 2018

2 not finish are lumped in with those who

never started, even though they, too, will

have paid fees and missed out on earnings.

Their numbers are considerable. In Ameri-

ca 40% of college students fail to graduate

with four-year degrees within six years of

enrolling. Drop-out rates across the devel-

oped world average around 30%. It is the

students admitted with the lowest grades

who are least likely to graduate.

Including dropouts when calculating

the returns to going to university makes a

big difference. In a new book, “The Case

Against Education”, Bryan Caplan of

George Mason University argues that the

low graduation rates of marginal students,

and the factthat, for a given level of qualifi-

cation, cleverer people tend to earn more,

mean that the return on a four-year degree

in America ranges from 6.5% for excellent

students to just 1% for the weakest ones.

Part of that difference is because the

weakest students attend the worst univer-

sities, where drop-out rates are highest.

When they make it into better institutions,

the returns may be higher. In a study pub-

lished in 2014 Seth Zimmerman of the Uni-

versity of Chicago compared the earnings

of school-leavers in Florida whose grades

were close to the minimum for admission

to a good state university. Those just above

the cut-off were much more likely than

those justbelow to start courses in good in-

stitutions. They graduated at a rate similar

to that of the broader student population.

They went on to earn considerably more

than those just belowthe cut-off, and their

return on investment was substantial.

Overstating the graduate premium is

not the only reason policymakers overesti-

mate the wider benefits of increasing the

share of young people who go to universi-

ty. The usual way to calculate the social re-

turns of higher education is to sum up all

the graduate premiums and subtract any

publicsubsidies. Butdegrees are in part a

way to access a “positional good” that

benefits one person at the expense of an-

other. Part of the premium comes from

gaining an advantage over others in the

competition for a good job, rather than the

acquisition of productivity-boosting skills

and knowledge. A complete calculation

would include not just gains to graduates,

but losses to non-graduates.

Degrees are also signalling devices. The

premium includes the income-boosting ef-

fects of personal characteristics that are

more likely to be held by those with de-

grees, not because they acquired them at

university, but because they possessed

them on admission.

As degrees have become more com-

mon, their importance as signalling de-

vices is rising. Recruiters, who pay none of

the cost of jobseekers’ higher education,

are increasingly able to demand degrees in

order to screen out the least motivated or

competent. A recent study by Joseph Fuller

and Manjari Raman of Harvard Business

School found that companies routinely re-

quire applicants to have degrees, even

though only a minority of those already

working in the role have them. This in-

creases the graduate premium—but by

punishing non-graduates rather than

boosting the absolute returns to degrees.

Analysis byThe Economistof American

census data finds that between 1970 and

2015 the share of workers aged 25-64 with

at least a bachelor’s degree increased in 256

out of 265 occupations (see previouspage).

Some of these are intellectually demand-

ing jobs that changed a lot over that period,

such as aerospace engineer or statistician.

Others are non-graduate jobs such as wait-

ing tables. Sixteen percent of waiters now

have degrees—presumably, in most cases,

because they could not find a graduate job.

But other jobs that are mostly done by

graduates, such as journalism, nursing and

teaching in primary schools, used to re-

quire only shorter training, often received

while working. Today, having a degree is

usually an entry requirement.

The Economisthas produced a measure

of over-education by defining a graduate

job as one which was staffed mostly by de-

gree-holders in 1970. We find that just 35%

of graduates work in such occupations to-

day, down from 51% 45 years ago. Judging

by job titles alone, 26.5m workers in Ameri-

ca—two-thirds of those with degrees—are

doing work that was mostly done by non-

graduates a half-centuryago.

That calculation exaggerates the trend.

Advances in technology have doubtless

made some of these jobs more demand-

ing. But not all of them, at least judging by

pay. We find only a weak link between

higher shares of graduates in an occupa-

tion and higher salaries (see chart 2). For

around half of the occupations that em-

ploy higher shares of graduates now than a

half-century ago, real wages have fallen.

Andreas Schleicher, the head of educa-

tion research at the OECD, reckons that

“countries have skills shortages, not degree

shortages”. The way universities have

come to monopolise higher education, he

says, is a problem in part because universi-

ties do not suit all kinds of learners. And

university dropouts tend to see little in the

way of financial benefit from the part of

their course that they have finished.

One promising development is that of

“micro-credentials” or “nano-degrees”—

short vocational courses, often in comput-

ing and IT. Udacity, an online education

company, offers a variety, including one in

self-driving cars approved by Uber and

Mercedes-Benz, and another on digital

marketing approved by Facebook and

Google. EdX, a collaboration between MIT,

Harvard and other leading universities, of-

fers similar courses free. Students can take

exams to prove theirmasteryof the materi-

al for a few hundred dollars.

Boot campus

For now, such courses are mostly add-ons

to degrees, rather than replacements.

Three-quarters of edX’s students already

had a bachelor’s degree upon enrolling.

But the collaboration with sought-after

employers makes it more plausible that

they could eventually become established

as a stand-alone testament to a job appli-

cant’s worth.

In the meantime the decision not to go

to university remains risky, even though

many graduates will end up doing work

that used to be done by non-graduates—or

struggle to find a job at all. Around half of

unemployed South Koreans now have de-

grees. For them, the very concept of a

“graduate premium” may seem a mockery.

Kim Hyang Suk, a recruiter in South Korea,

says that half the applicants for customer-

service jobs at her firm are graduates, even

though only a secondary-school educa-

tion is specified.

She would prefer school-leavers with

experience, says Ms Kim, to inexperienced

graduates whom she will have to train. She

is not looking for swots, but people who

are “engaging, good on the phone”. But

when few employers are this open-mind-

ed, most young people will want a degree.

It may not boost their earnings as much as

they had hoped, but without one, they will

probably fare even worse. 7

Swot teams^1

Source: OECD

25- to 34-year-olds with tertiary degrees

% of total

0

10

20

30

40

50

60

70

1981 85 90 95 2000 05 10 16

South Korea

OECD average

United States

Airplane pilots and navigatorsProofreaders

Foresters and conservation scientists

Registered nurses

Managers and specialists in marketing@ advertising@ and public relationsInspectors and compliance officers@ outside construction

Athletes@ sports instructors@ and officials

Photographers

Computer software developers

Writers and authors

Accountants and auditors

Other telecom operators

Police@ detectives@ and private investigators

Art makers: painters@ sculptors@ craft-artists@ and print-makers

Financial managers

Designers

Chief executives and public administratorsBroadcast equipment operatorsActors@ directors@ producersAir traffic controllersStatisticians

Dietitians and nutritionists

Surveyors@ cartographers@ mapping scientists and techniciansNot-elsewhere-classified engineersReal estate sales occupationsSalespersons@ n.e.c.

Public transportation attendants and inspectors

Purchasing managers@ agents and buyers@ n.e.c.Atmospheric and space scientistsOther health and therapy

Construction inspectors

Business and promotion agentsAgricultural and food scientistsEditors and reporters

Civil engineers

Electrical and electronic (engineering) technicians

Musician or composer

Motion picture projectionists

Managers of properties and real estate

Computer and peripheral equipment operatorsIndustrial engineers

Statistical clerks

Archivists and curators

Aerospace engineer

Photographic process workers

Transportation ticket and reservation agents

Bank tellers

Material recording@ scheduling@ production@ planning@ and expediting clerksOperations and systems researchers and analystsAdministrative support jobs@ n.e.c.

Retail sales clerks

Other science techniciansBiological technicians

Radiologic tech specialists

Farmers (owners and tenants)

Respiratory therapists

Insurance sales occupations

Repairers of data processing equipment

Fire fighting@ prevention@ and inspection

Patternmakers and model makers

Sales demonstrators / promoters / models

File clerks

Personal service occupations@ nec

Electrical engineer

Data entry keyersChemists

Buyers@ wholesale and retail trade

Sales engineers

Podiatrists

Stenographers

Optometrists

Managers of food-serving and lodging establishments

Payroll and timekeeping clerks

Bartenders

Mechanical engineers

Child care workers

Managers of medicine and health occupationsShip crews and marine engineersCorrespondence and order clerks

Supervisors and proprietors of sales jobs

Funeral directors

Dental laboratory and medical appliance technicians

Secretaries

Drafters

Precision makers@ repairers@ and smiths

Baggage porters

Graders and sorters in manufacturing

Architects

Waiter/waitress

Dressmakers and seamstressesGeneral office clerks

EngraversDancers

Biological scientists

Door-to-door sales@ street sales@ and news vendors

Art/entertainment performers and related

Guards@ watchmen@ doorkeepers

Actuaries

Bookkeepers and accounting and auditing clerks

Recreation facility attendants

Weighers@ measurers@ and checkers

Power plant operatorsPharmacists

Taxi cab drivers and chauffeursOptical goods workersAnnouncers

Chemical technicians

Military

Hotel clerks

Parking lot attendants

Railroad conductors and yardmasters

Ushers

Duplication machine operators / office machine operatorsTelephone operatorsLibrary assistants

Librarians

Dispatchers

Other law enforcement: sheriffs@ bailiffs@ correctional institution officers

Clinical laboratory technologies and techniciansStock handlers

Postmasters and mail superintendentsMisc textile machine operatorsOther financial specialistsPest control occupations

Timber@ logging@ and forestry workers

Explosives workers

Mail carriers for postal serviceMail and paper handlers

Purchasing agents and buyers@ of farm products

Hand molders and shapers@ except jewelers

Railroad brake@ coupler@ and switch operators

Social workersCashiers

Nursing aides@ orderlies@ and attendants

Interviewers@ enumerators@ and surveyors

Locomotive operators (engineers and firemen)Fishers@ hunters@ and kindredPrimary school teachers

Bill and account collectorsShoe repairers

Computer systems analysts and computer scientistsRepairers of industrial electrical equipmentTelecom and line installers and repairersUrban and regional plannersAircraft mechanicsMeter readers

Bakers

Dentists

Supervisors of cleaning and building service

Furniture and wood finishers

Metallurgical and materials engineers@ variously phrasedWater and sewage treatment plant operators

Messengers

Cooks@ variously definedVeterinarians

Stock and inventory clerks

Cabinetmakers and bench carpentersInsulation workers

Economists@ market researchers@ and survey researchersHairdressers and cosmetologists

Bus drivers

Health aides@ except nursingSocial scientists@ n.e.c.

Typesetters and compositorsConstruction trades@ n.e.c.

Dental assistants

Shipping and receiving clerks

Crossing guards and bridge tenders

Dental hygenists

Garage and service station related occupations

Drillers of oil wells

Food counter and fountain workers

Heat treating equipment operators

Health technologists and technicians@ n.e.c.

Physical scientists@ n.e.c.Metal platers

Physicists and astronomersPsychologists

Electric power installers and repairers

Customer service reps@ investigators and adjusters@ except insurance

Misc material moving occupations

Mixing and blending machine operativesTextile cutting machine operatorsElectricians

Petroleum@ mining@ and geological engineers

Repairers of household appliances and power toolsMachinery maintenance occupationsAssemblers of electrical equipmentForge and hammer operators

Insurance underwritersLaundry workers

Excavating and loading machine operatorsMolders@ and casting machine operatorsTruck@ delivery@ and tractor driversMechanics and repairers@ n.e.c.Packers and packagers by handWaiter's assistantCarpenters

Lawyers

Janitors

Elevator operators

Lay-out workersBookbinders

Gardeners and groundskeepers

Farm workers

Painters@ construction and maintenance

Automobile mechanics

Structural metal workers

Licensed practical nurses

Textile sewing machine operators

Barbers

Physicians

Furnace@ kiln@ and oven operators@ apart from food

Glaziers

Housekeepers@ maids@ butlers@ stewards@ and lodging quarters cleanersMiners

Millwrights

Packers@ fillers@ and wrappers

Washing@ cleaning@ and pickling machine operatorsPlumbers@ pipe fitters@ and steamfittersButchers and meat cutters

Heating@ air conditioning@ and refigeration mechanicsHeavy equipment and farm equipment mechanicsPainting machine operators

Lathe@ milling@ and turning machine operatives

Drillers of earth

Punching and stamping press operativesGarbage and recyclable material collectors

Helpers@ surveyors

Knitters@ loopers@ and toppers textile operativesOperating engineers of construction equipmentCrane@ derrick@ winch@ and hoist operatorsMachinistsGeologists

Rollers@ roll hands@ and finishers of metalSlicing and cutting machine operatorsConcrete and cement workers

Boilermakers

Masons@ tilers@ and carpet installers

Winding and twisting textile/apparel operativesRoofers and slatersUpholsterers

Recreation workers

Tool and die makers and die setters

Secondary school teachers

Welders and metal cuttersAuto body repairers

Paving@ surfacing@ and tamping equipment operatorsGrinding@ abrading@ buffing@ and polishing workersSawing machine operators and sawyers

Drywall installersPlasterers

Clergy and religious workers

Shoemaking machine operators

Earth@ environmental@ and marine science instructors

Chemical engineers

Paperhangers

Teachers @ n.e.c.

Managers in education and related fieldsKindergarten and earlier school teachers

Human resources clerks@ except payroll and timekeepingVocational and educational counselors

Health record tech specialists

Programmers of numerically controlled machine tools

Earning by degrees^2

Sources: University of Minnesota

IPUMS; The Economist

*Divided into

265 occupations

United States, employment by occupation*

Workers aged 25-64, 1970-2015

Share of workers with at least a bachelor’s degree,

percentage-point change

Average wages, % change

60

30

0

30

60

90

+

• 
  

20 10 – 0 + 10 20 30 40 50