A Wharton Professor Asks, Will College Pay Off?

Just over a year ago, New York Times economics writer David Leonhardt looked at some data on the “college wage premium” and declared, “The decision not to attend college for fear that it’s a bad deal is among the most economically irrational decisions anybody could make in 2014.”

The data that caused Leonhardt to make his declaration: a study showing that, on average, Americans with college degrees earned 98 percent more than Americans without a degree in 2013. Obviously, going to college and getting your degree is a superb investment!

I have often taken issue with that conclusion and am glad to see a new book out that also takes issue with it. I refer to Peter Cappelli’s Will College Pay Off? 

A professor at the Wharton School, Cappelli has taken a careful look at the relative costs and benefits of college and concludes that going to college can be a terrible decision for many young Americans. He objects to “unqualified statements about the big payoff to a college degree.” His book also provides some insight into the crucial question: What are employers looking for?

Cappelli easily brushes away the data that lead Leonhardt (and others who are cheerleaders for the “college for everyone” agenda) to conclude that choosing not to go to college is irrational. He draws an analogy to medicine: Even though a certain drug will be beneficial to a majority of patients, we know that it can be very detrimental to others. If you wouldn’t take a drug just because it helps most people, neither should you go to college because it helps most people. 

Just as drugs can have terrible side effects for some people, Cappelli points out, for some students, college undoubtedly has a negative rate of return.

Moreover, the data that lead the cheerleaders to exuberance are not especially relevant because they are backward looking. Cappelli writes, “The higher income of people with college degrees, which is the main evidence for a payoff, is based on data from individuals who on average have graduated from college decades ago.”

Instead of jumping to conclusions based on such statistics, Cappelli suggests looking at recent results and he finds that many young Americans have gone to college with little or nothing to show for it. 

They don’t have much to show for it intellectually because many students devote little time to studying. While some work very hard to master demanding course material, lots of students find that they can get by with little effort. 

And they don’t have much to show for college occupationally. Once students graduate, they are apt to find that employers don’t have the kinds of jobs waiting for them that they had been led to expect. Many end up competing for jobs “that may require less than a high school degree.”

Cappelli here puts his finger on an unintended consequence of the “college for everyone” mania, namely the way it “bumps” workers with lesser educational credentials down into the lowest parts of the labor market. Although our author doesn’t explicitly draw the connection between that and the supposed “college premium,” a large part of the reason why it appears that college bestows an “earnings premium” is because the glut of graduates keeps pushing non-graduates into work with low pay and scant prospects for advancement. (I have often made that point, such as in this article.)

Lots of those disappointed college grads (at least ten percent of whom earn less than the average high school graduate) were lured into narrowly focused degree programs aimed at occupational niches such as casino management and court reporting. Cappelli correctly observes that many colleges and universities, chiefly interested in keeping enrollments up, “persuade applicants and their parents that they can provide a job at graduation.” That’s why the liberal arts have faded away and have been largely replaced with occupational coursework.

The jobs pitch works with the large percentage of students who aren’t really inclined toward academic studies and just want to get into a career, but Cappelli points out that this is a risky idea. Suppose that a field that’s booming at the time a student enrolls has cooled off by the time he or she graduates. That leaves the student with a very limited set of skills that will make it hard to find employment except in one of those “high school” jobs that’s open to everyone.

Much better than the sort of narrow college degree that amounts to hardly more than on-the-job training, Cappelli argues, is a good liberal arts education plus some experience showing that the individual also has a good attitude and some work skills. 

But there is the sticking point. “New grads,” he writes, “find themselves in a real Catch-22 with respect to work skills: Employers only want to hire applicants who already have skills, but no one wants to give the new grads the opportunity to learn those skills on the job.” That’s right, and although Cappelli doesn’t mention it, recent regulations to raise the cost of labor (the minimum wage) and to clamp down on unpaid internships will make that problem worse.

Even though getting work experience is hard, students who want to maximize their job prospects need to give it their best shot.

What about students who really are not “college material”? The conventional wisdom has it that it is still important for students who would rather work with their hands than with books and ideas to go to college so they don’t miss out on that “premium.” Cappelli says that’s mistaken and cites a 2014 NBER paper as evidence. Young people who have an aptitude for mechanical work would be much better off finding ways to develop those skills than going to college. (Charles Murray made the same point in his 2008 book Real Education.) 

Where do such students go to learn skilled trades? Cappelli claims that good apprenticeship programs have been disappearing and many of those that remain are poor. Most of today’s apprenticeship programs, he writes, “are run by individual employers, and the apprentices in these programs do not perform as well as do those in the union-management joint programs, perhaps because employers are in more of a hurry to get the trainees into the jobs they need.”

He makes that claim, however, with no support. Looking at US Department of Labor statistics on apprenticeships, we find that the number of people enrolled in them has been growing, that they earn a starting salary of roughly $50,000 annually, and significantly improve their lifetime earnings over peers who do not go through an apprenticeship program. Moreover, I am told by a friend in the non-union construction industry, the apprenticeship programs those firms offer are of necessity good enough to produce workers who won’t make costly mistakes.

Therefore, the situation is better than Cappelli thinks for that substantial segment of young Americans who are best at work involving mechanical abilities. Perhaps some of the students who now automatically think that college is the only option should reconsider.

And just as students should not shy away from vocational training because they’ll miss out on the mythical college premium, neither should they be lured into STEM fields based on the supposition that this is where the good jobs are. Quite a few writers and politicians in some states (particularly Florida and Texas) have jumped on the STEM bandwagon, saying that the reason why so many college grads can’t find jobs is that they didn’t major in a STEM discipline.

Cappelli has no patience with that notion, pointing out that a) lots of STEM majors have had to accept work in other fields and b) that relatively few students have the necessary intellectual attributes to handle the work. 

The book’s subtitle is A Guide to the Most Important Financial Decision You’ll Ever Make and its big points are: don’t automatically assume that college is a good investment; if you do think college is worthwhile, don’t focus too narrowly on an industry; and look for ways to show prospective employers that you can do something besides accumulating course credits. 

Professor Cappelli provides sound advice that will help students and families get more for their higher education dollars—if they decide to spend any at all. His book is a welcome addition to the growing literature that questions the “college is a great investment” belief.