The Declining Economic Value of a Bachelor's Degree

Labor market economists have recently noted the soft labor market for recent college graduates. Because these data are only for the last few years what has been observed may be a temporary legacy of the economic recession of the early years of this decade. Or, the globalization around 2000 of the Human Capital Economy that began in the U.S. in the early 1970s may now be permanently affecting the labor market for college graduates in ways similar to the outsourcing of manufacturing jobs that has plagued less educated workers for decades.

What is clear is that colleges and universities have continued to aggressively increase the price of higher to students while the labor market for their product--graduates--has softened. A soft labor market for college graduates has not deterred higher education institutions from increasing the prices they charge for tuition, fees, room and board. This disjunture between benefits and costs of a college education has diminished the economic value of a bachelor's degree since 2000 for both men and women.

Our crude benefit/cost calculation is a ratio of the difference between the incomes of bachelor's degrees and high school graduates (ages 25 and over), divided by the price of higher education (tuition and fees, room and board).

• Men: At public universities this benefit/cost ratio has hovered around 3 since 1967. The range has been between 2.56 (1996) and 3.42 (2000). But in 2003 this ratio dropped to 2.58 and by 2004 it had dropped to an all-time low of 2.39.
• Women: At public universities this benefit/cost ratio rose from about 1.2 between 1967 and 1980, to a peak of 1.75 in 1993 and again in 2000. Thereafter this ratio has steadily declined to 1.32 in 2004, or about where it was in 1983.

We get similar results for private colleges and universities. Our crude benefit/cost ratio for men in 2004 is lower in 2004 than it has been for any other year than 1996. The ratio for women is lower in 2004 than it has been since 1982. The directions are all down since 2000.

Unless the income differential between college and high school graduates resumes its historic widening trend colleges and universities will have to curtail annual price increases to preserve enrollment demand for their higher education services. The outsourcing of college graduate jobs will clearly weaken the job market for recent college graduates. To preserve the benefit/cost ratio institutions will have to limit annual price increases to the annual change in the income differential between high school and college graduates.