A growing disconnect between the skyrocketing costs of getting a college education and the falling wage premiums for college graduates has set the stage for an economic bubble of sorts. But this bubble will not burst with the spectacular bang of a Wall Street crash. It will ooze across the years instead, its effects shackling millions.
The chart above shows the increase in the total nonrevolving consumer credit versus the consumer price index. The point of the chart is simple: college tuition has risen faster than inflation, revealing that the cost of a college degree has far outstripped its potential economic value (with the exception of certain degrees and brand schools) in the marketplace because the wage premiums of college degrees have fallen for most graduates.
A study by the Economic Policy Institute (and another one with findings to the same effect) reveals that wages of college graduates have been falling in the last decade: “The wage declines since 2000 stand in sharp contrast to the strong wage growth for these groups from 1995 to 2000.” But this study ignores the fact that as early as the 1990s, graduates from mediocre public colleges and universities were seeing such low wages, many of them were having to work menial jobs after graduation.
Why are wage premiums for college degrees falling for many graduates? The economy seems to be hollowing out, as proposed by David Autor: jobs are plentiful at the very high end of the spectrum and at the very bottom, with little left in the middle.
A graphic from the Wall Street Journal’s Only Advanced-Degree Holders See Wage Gains, shows this hollowing out that Autor theorizes at work: those with a high school diploma saw the smallest wage decline of all the groups, with the exception of those with Ph.D, J.D., MDs and M.B.As, who saw an increase in average earnings. In other words, if you have an MD, MBA or a PhD, you’re more likely to be doing well. But if you have some college, a college degree or even a master’s degree, you are more likely to see a wage decline—a decline bigger than those with only a high school education.