The Real Value of Education in 2019


What is the real value of education? This may seem like a silly question with an obvious answer; however, the United States is in the middle of a crisis that calls these “obvious” answers into question.

Americans have been burdened with $1.5 trillion in student debt and the educational system nor the workforce have delivered the promised income benefits. Democratic presidential candidates are debating about overhauling the entire educational system.

Human Capital Theory vs. Signaling Theory

This educational debate is a duel between the “human capital” theory and the “signaling” theory.

The “human capital” theory is dominate in American politics: Education grants skills, social habits and the knowledge that makes them more valuable to employers, thus enabling them to generate higher wages. Education is supposed to be the key that unlocks upward mobility. This creates the desire for the center-right and the center-left to push as many Americans through some sort of higher educational system.

According to the “signaling” theory, education encourages employers to hire people and pay them more than someone with less education. If job applicants were lined up by the most coveted people in the front, the more education one has, the closer to the front they will be.

Obtaining a college degree gives a person more clout than someone who is finishing three years of undergrad with no degree. Additionally, a college degree means more money. This behavior suggests a college degree is a credential employees are in search of, as opposed to real abilities, which people gain in those first three years of college.

Job postings that did not require a college degree, now often do. Honestly, it is difficult to imagine being a secretary requires more human capital than it did 40 years ago. The wage premium has not grown since 2000. The wage premium is the additional money people gain with a college degree over those without. This is the opposite behavior to expect in an economy that claims to be hungry for more skilled workers.

In fact, for the bottom two-thirds of earners with college degrees, wages are actually lower now than they were in 2000.

These two explanations are not necessarily mutually exclusive. Reality is most likely a mix of the two. However, if the signaling theory is the dominate explanation, it makes a difference. The human capital theory is a positive-sum: The more education everyone gains, the more income is garnered, supposedly.

The signaling theory is zero-sum: Everyone cannot be the first in line, so if everyone gains more education, it does not actually increase real economic incomes.

There is a significant amount of evidence that favors the signaling theory, which comes from left-wing analysts and think tanks. However, the champions of the signaling theory tend to be Conservatives.

The left wants to make college as close to free as possible for everyone. People on the right recommend the government invest less in higher education. They want to stop providing grants to universities and stop supporting student loans. Conservatives argue that the policies, which have been created, only encourage “a never-ending arms race over education credentials and pump even more money into inflating the cost of a college degree.”

There is one more confounding variable to consider: The relative power of employers and employees in the labor market.

A Sellers’ Market vs. a Buyers’ Market

In a sellers’ market, there are more jobs than there are unemployed. Workers have the advantage. Employers are forced to hire anyone who applies, because they are desperate. Employers hire unqualified employees and then eat the cost of training and teaching them how to do the job. Sometimes, this requires formal education.

On the flip side, if it is a buyers’ market, employers can afford to be more cautious of who they hire and often use educational degrees to sort applicants. Job seekers are left scrambling for more educational credentials to fulfill the requirements of obtaining the job, due to the insufficient number of jobs available.

Research shows that the demand for education from employers increased after the Great Recession. The demand for education drops when the economy recovers. Additionally, it is evident that the job market in the U.S. has been in the hands of employers since before 2008.

The power in the signaling story is in the hands of the employers. This is why signaling matters so much. This significance undermines the support of both the signaling and the human capital theory.

In the human capital story, on an individual basis, how much capital an employee has, cannot be untangled from their bargaining power – both are measured in the same way, according to how much the employee is paid by the employer. Human capital is only a concept at the national level, “in how much know-how we all have together as a cooperative society.”

The signal theory does not offer much hope either. This means that neither making higher education free, nor removing government aid for higher education will end the battle. What is ultimately driving the education race in the imbalance of power between employers and employees. This fact remains unchanged.

Fixing the Education Crisis

It is possible the fix for the education crisis may not have anything to do with education policy, but in macroeconomic and labor market policies. This would mean reforming monetary and fiscal policies that will prioritize full employment and rebuild unions. Additionally, shortening the work week, strengthening the law concerning overtime, providing paid leave, and expanding the social safety net, therefore, making it more comfortable for Americans to remain out of the labor force and shrink the number of workers relative to their demand may be a great start in improving the crisis. These are the things that will turn the buyers’ market around and make the labor market a sellers’ market.

There is still the question: Should college be free? Absolutely! It will increase anyone’s human capital and prepare them for today’s workforce.

Student Loan Forgiveness Is Not a New Concept

Recently, Bernie Sanders proposed a $1.6 trillion plan to forgive all student loans. He said:

You are not truly free when you cannot pursue your dream of becoming a teacher, environmentalist, journalist or nurse, because you cannot make enough money to cover your monthly student loan payments.

Similarly, Elizabeth Warren proposed a $640 billion loan forgiveness plan because “student loan debt hit America’s teachers particularly hard.” Additionally, Beto O’Rourke opted to cancel all loans for schoolteachers.

What is interesting about these proposals is that the Department of Education has a public service loan forgiveness program. It is called P.S.L.F. and was signed into law by George W. Bush in 2007.

“A nation’s brilliance and ability to prosper is directly dependent upon its people’s edification.” It is imperative to continue to open one’s mind and that of others so that people can be teachable.

People recognize the value of education during times of economic turmoil, which creates an atmosphere of job insecurity.

Each of the 12 districts within the Federal Reserve banking system is obligated to assess the requirements for its community in preparation for its meetings with the Board of Governors under the Federal Reserve, where members meet to discuss the state of the economy. It is through these surveys that the Board of Governors have become more aware that typical cultural behavior during times of economic turmoil results in displaced workers returning to college after becoming unemployed. More education helps workers to become retrained or skilled in a new trade. so they may effectively re-enter the workforce.

According to an article published in the Economic Review, published in 2010, the people in the 10th district who were enrolled in colleges were observed by the Federal Reserve Bank in Kansas City. The article stated, “The recent recession and now the recovery have caused enrollment at many community colleges to soar as unemployed workers retrain for new occupations…”

“In the Tenth District, the importance of community colleges is likely to rise even further as the economy continues to evolve and industries demand workers with new skills.” Even with the extra education, workers may find it difficult to re-enter the workforce due to the alterations to the job market and survival in this competitive era.

It is not always about having education, it can be about having the right education and the right amount of education. In times of economic hardships, employees can choose to go with the applicant who has a master’s degree over the one who just obtained his bachelor’s degree, even if the master’s is not in the right field of work. For example, this author has an MBA and works as a journalist/editor/educator. Even though the job does not entail much business administration in the traditional sense, having the degree helped this author obtain this job. Education is as important as it is to be teachable. For those who are teachable, getting a foot in the door is easier. Even if the education level is not where it should be at the time. Some businesses are willing to send teachable workers to school to improve their skills.

By Jeanette Smith

The Week: The value of education is not what you think The Value of Education in Today’s American Society: A Glimpse into the Current Way America Supports the Educational System
The New York Times: Emails Show DeVos Aides Pulled Strings for Failing For-Profit Colleges

Featured Image Courtesy of Richard Lee’s Flickr Page – Creative Commons License
Top Image Courtesy of GotCredit’s Flickr Page – Creative Commons License

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