Bad advice

A four-year college degree, seen for generations as a ticket to a better life, is no longer enough to guarantee a steadily rising paycheck. For decades, the typical college graduate’s wage rose well above inflation. But no longer. In the economic expansion that began in 2001 and now appears to be ending, the inflation-adjusted wages of the majority of U.S. workers didn’t grow, even among those who went to college. The government’s statistical snapshots show the typical weekly salary of a worker with a bachelor’s degree, adjusted for inflation, didn’t rise last year from 2006 and was 1.7% below the 2001 level. College-educated workers are more plentiful, more commoditized and more subject to the downsizings that used to be the purview of blue-collar workers only.”
—The Wall Street Journal, July 17, 2008

I was listening to a this American Life program with a segment titled “Hey Mister DJ.” In it NPR financial reporter, Adam Davidson, attempts to convince his cousin, DJ, to go back to college.

The spoiler is the Georgetown economist that he enlists to convince DJ ends up taking DJ’s side of being a dropout.

I don’t object to the advice per se. But I do have three issues to pick with this idiot economist.

  1. The economist claims that because DJ’s job is non-tradeable it is more secure than a job after a college educator? Where is the economic data for that? The answer is, there is none.
  2. The economist says that the reason people want you to stay in college is “because [college educated people] have snotty biases” Where is the proof of that? The answer is, there is none because it’s a statement of belief. Dj admits that the members of the family who have been college educated are “very successful.” I guess very successful == snotty. I’d like to see that economic study.

I shouldn’t be surprised of such a fact-free advice from a a free-trade nut.

Why does that get me angry? Because here are the facts.

  1. A college graduate earns, on average $25,000/year more than a high school diploma. Adjusted for inflation and the cost of that education, that’s $300,000 ROI—pretty much the best deal around.
  2. You need a college education to get a higher degree which opens even larger pay and higher lifetime economics ROI. A college education doesn’t preclude you from any of the jobs that DJ has had.
  3. Here is a typical statistic against a college education, it comes from the Wall Street Journal and I quoted it at the top of this article. Read it very closely, what it is saying is that the wage gap between college and high-school is no longer increasing and that you have to get an even higher degree if you want guaranteed employment. The clever use of words omits the fact that from 2001-2006, all wages have been depressed—hence the economics term “jobless recovery.” It never disputes the basic premise that college-educated workers make more money, have more job security, and have more stable and healthier households. And how will you get that higher degree anyways without a college degree?

Let’s apply my overpriced, college-educated brain to this economics professors arguments, shall we? (All of which gives me my third issue with her if you’re counting at home):

  1. Her example of a “textile factory [worker] in Massachusetts, and the textile factory closed, then you’re kinda out of luck without a college degree” is bogus—a person of DJ’s age doesn’t have a job like that. Even in her own book, she notes that those jobs no longer exist, and haven’t in the United States for a long time. She needs to read her own research about where the jobs for a 25 year old are because I guarantee that textile factory or that auto plant aren’t hiring DJs.
  2. “[DJ] is putting up telecom equipment,” This is a creative way of referring to pole-digging on your resume. I know one person who actually does build out wireless telecom networks and he’s a Caltech graduate. One wireless communication testing company I interviewed at after the last downturn only hires college grads.
  3. “…he works on construction sites.” I seem to remember reading that this bright spot in the economy is quickly evaporating with the end of the housing bubble. While I’ll be the first to admit that I can’t do DJ’s job because I wasn’t a football jock in college and this is hard work, I’m sure there are a lot of people who aren’t college educated who can and want to—far more than the economy can support.
  4. “…these [jobs that DJ has had] are all careers or jobs that the technical term is ‘non-tradeable’…that job…isn’t moving China.” I believe the “technical term” for this statement is bullshit. Basically her point that the jobs DJ has had are “non-tradeable” applies just as much to the guy who served me the “Angry Whopper” I’m eating right now. “Non-tradeability” does not necessarily mean job security, as the professor implies—the fact that DJ has had so many different jobs seems to imply quite the opposite.
  5. Where do you think the mythical “textile factory worker (DJ’s age)” who loses his job is going to go? In other words, as time goes on the competition for these “(technical term is) non-tradeable” jobs is going to increase. If he’s kept himself relatively in-shape, the factory worker will have no trouble competing for DJ’s current job as a ditch digger. Whereas, that same factory worker would need to retrain to compete for a job requiring a college education: say a job as a PHP developer. (Ironically, you don’t need a college education to be a PHP developer, but you pretty much need one to get a job as a PHP developer—at least from what I see when I look up a typical req.).
  6. “and, in fact, the strippers inside, their job isn’t moving to China either.” Still, the job security of a stripper job isn’t that good. Let’s hope they’re using the money they get to pay for college!
  7. “There’s a lot of jobs [in DJ’s family history] that aren’t moving too.” What a non-sequitor! The only time I inherit the jobs and skills of my parents is in Virtual Villagers 2.
  8. By the way, do you know trait of your parents is statistically proven to be the strong determiner of income and job security of a child? (Answer: a college education.)
  9. “Do you know how many? I mean…I have thousands of lawyers [within miles of my house] and I don’t think I’d trust a single one of them with the wiring of my house to.” That’s why you hire an skilled electrician for that. If DJ is building those skills…great! but he isn’t.
  10. By the way, great logic! “Do you know how many times I’ve eaten at Burger King…and I don’t think I’d trust a single one of them with an operation on my body to.” WTF???
  11. “Somebody at that construction site that DJ is working is going to work their way up to supervisor…and foreman… and so forth.” No doubt. Somebody at my Burger King is going to work their way up to shift supervisor, assistant manager, and manager and so forth. Still, you don’t need to read Fast Food Nation to know the odds of that. That’s the whole point in using statistics instead of anecdotal evidence.
  12. And don’t think that the fact that DJ is a “social butterfly” will save him. There are a lot of non-exportable, high-school-educated, socially-savvy jobs that are disappearing rapidly. Don’t believe me? Talk to your real estate agent or the broker who just sold you that adjustable rate mortgage. Can’t find them because they no longer work there?
  13. “My brother quit high school…and he has a very nice life. He lives on a boat in Florida.” Anecdotal evidence. Exception that proves the rule. Besides, her brother entered the workforce in the 70’s. Did she forget to mention that?

No matter if you have a college education, or not, the salient point on a personal level is you should be parlaying your skills through diligent practice to build a position of security because of an accumulation of skills. If DJ is doing that—and you certainly can’t tell this from the program despite the professor’s claims—great! But if not, I’d say a college education, or more, is a good hedge.

I’m not saying that you automatically earn more if you finish college. Exceptions exist. There are a number of mortgage brokers who lived like ballers until recently—they earned many times more than me.

But just like those mortgage brokers, you might be the exception that proves the rule.

“…there’s one thing I’ve learned with absolute certainty, which is that the competitive advantage of the United States, and our citizens—the way we will succeed in this global economy going forward—is through skills, education, knowledge.”
—Adam Davidson

So true.

(Nobody is saying a college education is the only way to get those three things…but it sure seems like an obvious and cost-efficient way.)

7 thoughts on “Bad advice

  1. This is obviously a biased opinion since I didn’t have the luxury of college, but I tend to agree with the last part, and tend to think that a will for success has far more to do with financial windfall than the college education. It may be that a college indication is a strong indicator of this attribute, but I wouldn’t say exclusively so.

  2. I think you’re spot on for the vocational or skills-focused degrees (my own is in Electrical Engineering) but I think it’s off for the more general Liberal Arts degrees. With many of those degrees, the only thing a BA prepares you for is to apply to grad school for a Masters… which prepares you for your PhD.

    At that point, you have to consider the opportunity cost of getting a job now (and the accompanying 4-7 years of experience) vs getting the BA/Masters and then doing what? I’d like to see some analysis on that one. What does a Masters in [History, PoliSci, Anthropology, etc] get you?

    But let’s say you go further onto a PhD… there’s Katz’s article on that front – – noting that universities graduate 2x as many PhD scientists as there are jobs available. Which although it applies to scientists specifically, it would be interesting to know which other fields of study this applies to.

    With all of that being said, the job of electrician is an interesting one… it is ‘non-tradable’ as described but it also doesn’t require college. Instead, it has a multi-year apprenticeship process where it’s full time on the job training watching and assisting someone who is qualified to teach and then there are regular tests and a few formal classes. I used to work for an electrical contracting company that was ranked one of the best places to apprentice.

    My point?

    I think we’ve reached the point where costs for colleges (both direct and opportunity) are increasing so quickly that we’re going to see more of a movement towards the apprenticeship model. It may serve as a way to balance those costs against real life. My 0.02.

  3. (Ironically, you don’t need a college education to be a PHP developer, but you pretty much need one to get a job as a PHP developer—at least from what I see when I look up a typical req.).

    Anecdote: I started in the industry without a degree at a third of my current income. I’d done a few side projects for friends, though, so I had a small portfolio.

  4. @Marcel Esser: You are so very right, and I hope I was careful to point this out. It is why I don’t object to her advice by itself (per se), but to reasoning she uses to justify it.

    We cannot separate the self-selection bias in the critera. (By this I mean those who have more will for success are obviously, on average, able to finish college.) Still we know just as much anecdotally that a college degree opens doors. After all, it is a prerequisite for most PHP jobs even though you and I are aware that a college degree is orthogonal to PHP programming ability. The “technical term” is called “signalling.”

    @Keith Casey: Sadly the statistics doesn’t bear this out. Pretty much any degree is going to guarantee you a better average income. Though I suspect that an engineering degree even more so than a liberal arts degree.

    Ph.D.s (contrary to conventional wisdom) even have a higher expected average income. The Katz article you cite is ignorant to how an economist might see this. For instance, I have a higher degree in Theoretical Condensed Matter Physics in spite of the fact that I never applied for a job in that field. Half of my advisor’s graduates ended up as “quants” in finance simply because most people (even if they pursue a higher degree in finance) don’t have the mathematical chops to work with CDOs in a way that understands the limitations of the pricing algorithms—this lack of knowledge directly caused the ratings agents to label as AAA and thus inflated the housing bubble.

    I like the electrician example. I agree that it is a highly skilled job that doesn’t require more than a high school diploma. The difference is going to be the number of years of (learning) experience the person has. If you drop out of high school, it sounds like that is one of a number of good places to build the “accumulation of skills” that will protect you from job loss. (So will plumbing.) However, one must be careful that both jobs are heavily tied to the construction industry, which, in the short term, has a capacity greatly over the (short term) demand. In the near term, anyway, it’s going to be difficult going during a recession.

    @Anil: What’s your proof? For every Bill Gates out there, there’s a Larry and Sergey. I can go on and on, but one has only to read any hagiography of Bill Gates to know that that guy is exactly the exception that proves the rule—even in addition to the opportunities afforded at going to Harvard (meeting Steve Balmer for one), his schooling in junior high and high school afforded him an advanced education that was unique at the time.

    (If you dropped out of school to become an entrepreneur and are working diligently to build a set of skills that another entrepreneur who stayed in school cannot. Great!)

    Look at the Gates anecdote—an insane drive to “win”, unique educational opportunity, at a unique time in history is an environment that isn’t often repeated.

    The problem with these anecdotes is that they’re anecdotal. The statistics is undeniable. A fact you would be aware of if you stayed in school.

    (Nor am I denying that the same statistic doesn’t apply to me. I dropped out of graduate school and there is a large earnings loss (on average) for people like me.)

    @Braden: Not only that, but I find that a lot of companies bias toward degrees from top institutions. I won’t deny as a Caltech graduate, that this has benefited me unfairly. Many of the best PHP programmers I know have not graduated from such a prestigious school. Sadly, that is not how to world works. 🙁

  5. All that being said, I’m quite happy without a college degree. Sure, it’s likely too early to tell if it was the right decision, but I think if you have the right combination of those certain traits university can’t teach you, you’re probably better off [in terms of opportunity cost] without those degrees.

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