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Education is not just a financial transaction
When I write about economics on this blog, I frequently write about global phenomena, like the growth of inequality, or how housing has globally become unaffordable. But after reading about the "jobocalypse", the disappearance of entry level jobs for college graduates replaced by AI, and unemployment for college graduates being higher than for people without a degree, I realized that this phenomenon is either unique, or at least highly concentrated in the US. Why?
I'll start by talking about my university days. I started as one of 108 students at that university in the chemistry department. By the time I got my diploma (masters degree), there were only 32 of us left. The other 70% had dropped out, having failed too many exams. On the other hand, we paid just 49 bucks in tuition per semester, so while we still had to pay for our cost of living and study materials, the financial burden was a lot lower. But that was in the 80's and 90's and in Germany.
Higher education has a lot fewer dropouts in the USA. The "overall status dropout rate" for high-school dropouts has gone down from 14.1% in 1976 to 5.3% in 2022. For colleges, between 1996 and 2017, the share of first-time, full-time students not graduating within six years fell by about 9 percentage points, from 44.6% to 35.5%. On the other hand, in the US over the last five decades, tuition cost has gone up by a factor of 4 *after* adjusting for inflation, and student loan debts are now the second-largest category of consumer debt after mortgages.
If you add up all those numbers, you realize something: The higher education system in the US doesn't treat the young people coming there as students, but rather as clients. In exchange for a rising fee, they will do their utmost to make sure you get the degree you are paying for. Educational standards be damned. On paper, that makes the US highly educated: From 1940 to 2021 the percentage of population age 25+ without a high-school degree dropped from 75.9% to 8.9%, while the percentage of people with a bachelor's degree or more rose from 4.6% to 37.9%.
There are only two problems with that: The first one is that people who graduate from college in 2025 are a lot less educated than those who graduated 50 years ago. Especially over the last few years, AI has literally made students dumber. One in five employed American adults with a bachelor’s degree lacks important skills in literacy, with one in three falling below proficient levels in numeracy. A weird mix of economic incentives for teachers, and a belief that upholding academic standards was racist, have led to a widespread US grade inflation.
The second problem is that any economy only has so much use for highly educated people. If you would add a million Ph.D. level astrophysicists to an economy, that wouldn't be of much help, as most of them would end up serving fries at McDonalds.
Consider all that when you read about the jobocalypse. There are a lot of half-truths in that reporting. Have some jobs been lost to AI? Probably, but far fewer than you think. A lot of tech companies have simply hired too many people during the pandemic, and instead of admitting that, they explain their hiring freeze with AI, as that sounds better to investors. The growing unemployment numbers of college graduates have only a little to do with AI, and a lot to do with there being too many college graduates for the economy, and their actual education being of lower quality than it used to be. If you consider the US higher education system purely as a business, it is obvious that maximum throughput at maximum tuition fees produces the highest profits. The quality of the education isn't of much concern: You can identify the few actually brilliant people and encourage them to a career in academia, while any lack of education of the rest becomes a problem for other industries.
While higher education systems in other countries all have their own problems, they are mostly still retaining a higher percentage of meritocratic elements, and fewer business consideration. The result is on paper fewer graduates, but in reality higher education standards, and an output of people that aligns closer with the needs of industry.
- posted by Tobold @ 1:16 PM Permanent Link
: 1/10/25 14:43If we assume it's there to provide some sort of foundation to be able to take on wide range of jobs in specific domains (likely after some additional training), and generally to cultivate some sort of information-processing mindset, that's one thing. That doesn't guarantee anything, it's just you spending 4 to 6 years of your life to have more flexibility in the future. If the education is supposed to generate scientific and technological progress (and even bachelors are somehow viewed as researchers in some systems), then the output should be progress, while the jobs might crop up as a nice side effect of it I guess. If, on the other hand, the education is advertised as a means to get a job (which is only true for some countries), then people would naturally expect a job at the end. Especially if they spend not only time, but also money on that. If the scheme "pay now - get higher paid job later" didn't work out for some, they will feel scammed.
As a side note, I think the main beneficiaries of educated population are the society itself, and the specific companies who employ them, not the educated folks per se. Proper studying is hard work, it's not much of a reward in itself. Consequently, I think that government and business should be the ones paying for education, not the students. The only reason for students to want to invest are financial returns, in other words inequality of future pay, which arguably is not a good thing to have anyways.
For the root cause of increases in college tuition and when it started it said "College tuition costs began to rise significantly in the 1980s, driven by a combination of reduced public funding and increased institutional spending. These factors have created a cycle of rising costs that outpaces inflation and wage growth." (https://www.bankrate.com/loans/student-loans/college-tuition-inflation/#reasons)
It's almost like we have a playbook to fix things, just by employing the lessons that we've already learned in society. When we invested in education we got a boom in living standards. However, America has always had a love hate relationship with education. A lot of people in power just want education for a certain segment of the population and they'd be happy to keep the rest of us uneducated since the uneducated are easier to fool and to control. Different country, but isn't that a major reason Stalin decimated the Russian middle class?
In general, most students here are not getting any specific career training or pathways towards specific degrees in middle or high school. Then when they do arrive at College the first 2 years are general academic learning and its not until the final 2 years where you really specialize towards your chosen degree.
Obviously some programs/degrees differ so I'm generalizing here but I would guess that an average college educated American in a certain field likely has less years of education in a specific field then the equivalent European who I spent more years in specialized tracks.
But again I could totally wrong as my knowledge on how schooling works in Europe is probably outdated/wrong.
Yes, the cost to study is lower, but that doesn't mean that universities are churning out high quality academic researchers.
I think that companies saw highly educated thinkers producing more value than a regular trained workers and therefore created a demand for people with a higher education. Universities in turn then shifted to supply people with a higher education certificate.
But you can already see the mismatch: companies treat the certificate as a deciding criteria for a high quality thinker instead of their ability to think.
Universities then provide certificate holders by lowering standards for the people to pass.
I remember one of my courses that had to drop the passing grade by over 20% because the majority would have failed the exam otherwise. And the passing grade is 50% or so.
That is for a MINT course as well. When we did the extra courses from Humanities, I can't imagine what you would need to do to fail. People would not get below B's - and that wasn't because people studied hard.
So I agree with Random_Phobosis that universities stopped to push and filter out the smartest people to shift them into research but rather as a degree mill to fill corporate demands.
As for rising tuition costs in the US, what believe is missing in Janou's reply is that the loans can be state backed and state issued.
Which means that practically everyone can get one and the universities can squeeze the student who doesn't need to care as the state will grant the money either way.
So the university can inflate their faculty and work uneconomically because the state will funnel the money through the student as the middle man.
If the students had to apply for a regular loan at a bank, forced to put up collateral and pay it off, a lot more students would not get a chance to study as their loans would be declined.
That shrinking amount of students in turn would force universities to look at costs, reduce faculty staff and work economically.
It won't change from a research perspective but it would reduce the cost while of course also cutting back on the opportunities for people (but companies are likely forced to shift standards as well).
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