Human Capital: The Declining Value of a College Education

Written by: Bill Sherman on Saturday, 19 July 2008, 9:34 AM

You’ve probably heard that a college education provides a road to a bright future–challenging careers and financial wealth. That’s what the American education system has promised us for years upon years.

. . . “The average American with a college diploma still earns about 75% more than a worker with a high-school diploma and is less likely to be unemployed. Yet while that so-called college premium is up 40% since 1979, it is little changed according to Jared Bernstein of the Economic Policy Institute, a liberal policy thinktank.”  Ip, Greg. “The Declining Value of Your College Degree” Wall Street Journal July 17, 2008.  D1.

College degrees provide one way to enter the professional workplace. Yet, at the same time, there’s an increasing number of people who are earning similar degrees across the world. Therefore, any college degree faces the risk of becoming a commodity.

College degrees carry a high financial cost–whether in cash or student loans, and they must be looked just like any investment. What’s the rate of return?

Change in median weekly salary by education level, 2001-2007, adjusted for inflation (source: same WSJ article)

• Less than a high-school diploma (-4.3%)
• High school graduate, no college (-0.8%)
• Associate degree (-1.2%)
• Bachelor’s degree (-1.7%)
• Master’s degree (-1.0%)
• Professional degree (4.0%)
• Doctoral degree (3.6%)

Think of it this way. If you had invested in a stock, would you be excited about one that had fallen behind inflation over 7 years? Essentially, that’s what you’re doing when you purchase an education. You’re transforming money (financial capital) into human capital (developing skills and experience through education).

Human capital isn’t enough to guarantee that you will get ahead. If you want to be successful, then you need more than just human capital. You need social capital.

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