Monday, September 22, 2008

College is Still the Best Pay-off   posted by Jason Malloy @ 9/22/2008 08:59:00 AM

Recently Charles Murray has promoted the idea that too many people are seeking 4 year degrees: "Let's stop this business of the B.A., this meaningless credential". Last year he wrote in the Wall Street Journal:

If you want to do well [in college], you should have an IQ of 115 or higher. Put another way, it makes sense for only about 15% of the population, 25% if one stretches it, to get a college education. And yet more than ... 40% of all persons in their late teens are trying to go to a four-year college--enough people to absorb everyone down through an IQ of 104.

Several months ago, the Inductivist found this to be a canny estimate: in the 1960s the average college graduate had an IQ very close to 115, and today the average college graduate has an IQ of 105.

But what does this mean for the individual? Murray suggests that college debt, lack of relevant job training, and years of lost workforce wages and experience await those below the 85th percentile:

They are in college to improve their chances of making a good living ... and would do better in vocational training ... two-year colleges ... [are] about right for learning many technical specialties, while four years is unnecessarily long ... Finding a good lawyer or physician is easy. Finding a good carpenter, painter, electrician, plumber, glazier, mason--the list goes on and on--is difficult, and it is a seller's market. Journeymen craftsmen routinely make incomes in the top half of the income distribution while master craftsmen can make six figures.

I find the thinking here plausible, and these seem like testable enough ideas. Luckily, all the relevant variables are included in the General Social Survey.

It's graph day on gnxp. The x axis in the figure below represents the number of correct answers on the 10 question WORDSUM mini IQ test included in the GSS. The y axis represents the respondent's income in constant dollars. The colored lines represent five educational categories, and one occupational category. Moving left to right we see the average income of people in each category as their IQ score increases from 0-10 correct answers. 'Junior college' represents the two-year vocational degree Murray references. And 'Craft and Trade Workers' covers over 50 skilled trade categories like electrician, mason, plumber, carpenter, and mechanic, coded by the survey.

The first observation here is that educational degrees, whether they confer skills or credentials, are more important to income than IQ when minimum thresholds are met. Trade workers, and 2 and 4-year college graduates are not significantly represented in the lowest three IQ categories. Graduate holders have an even higher minimum IQ. Second, income rises within 5 of the 6 categories as IQ increases. Higher IQ generates the biggest pay-off differences between those with advanced degrees, which is consistent with IQ increasing in importance as jobs become more complex. Third, merely earning a Bachelor's degree is a golden ticket. People with average and below average IQs are getting just as much of a financial return out of their 4-year degree as those above the 85th percentile. This suggests many more people of marginal ability should be seeking a Bachelor's degree, not less. Fourth, the two lines for junior college and trade occupations overlap substantially, as we would expect if most people in trade occupations went to trade school. Fifth, and most directly related to Murray's argument, people with 4-year degrees earn much more than people with 2-year degrees and trade jobs at every level of IQ. Average IQ people will get a much, much larger monetary reward from completing a 4 year school than a 2 year school. So the BA is far from being a "meaningless credential" when it comes to "chances of making a good living".

It's possible people with average IQs who complete college are exceptional in other ways. But there is no other empirical evidence that vocational school is better at generating income for those <85th percentile.

Also, secular trends could distort data in the first graph, which combines all survey data from 1972-2006. So the second graph below represents only people who were 35 and older and surveyed between 2000-2006. Fortunately, the results are not too different from the first graph. The IQ categories are condensed and transformed, and we see that 96 is about the minimum to complete 2 and 4 year college, and 111 the minimum for graduate degrees. Again we find that IQ shows no relationship to income for those with a BA, and, in fact, those with lower IQs might profit the most. For those without advanced degrees, people who are moderately above and moderately below average intelligence might earn the most (this balance might be because other socially valued personality traits, like masculinity, are inversely associated with IQ).

So, while I have yet to read Real Education -- which may address these issues -- it would appear that Murray is mistaken in some of his crucial premises.

Still undetermined is if people with 4 year degrees earn a lot more money because they actually acquire important skills, or if inefficient laws/taboos against employee IQ testing, sustain a comically messy and tragically expensive employment screening method. If the latter was true Murray could still be partially correct: 4 year college could be worthless for the <85th percentile, if employers began to use 20 minutes of psychometric testing, instead of 4 year degrees, as their screening filter.

But, ceteris paribus, college is still the best pay-off.

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