Joseph Altonji, Prashant Bharadwaj, and Fabian Lange observe that, despite increasing economic incentives for people to obtain college degrees, the percentage of people graduating high school and college has been declining. They note several studies showing the high correlation between college attendance and parental educational attainment.
They conclude,
At this point we can only speculate as to why the response in skills to the increase in skill premia is so small. It is possible that for many young adults the economic incentives for acquiring skills are less important than the non-pecuniary costs of skill investments. For these young adults, a change in the economic incentives to invest into skills might therefore induce only a small supply response. Another plausible explanation is that young adults are liquidity constrained or myopic in their investment decisions for other reasons. If this is the case, they might forego valuable investment opportunities in order to protect their consumption while young. This explanation would, for instance, be consistent with a number of studies (e.g. Kane (1994), Dynarski (2003)) that find that schooling decisions are quite sensitive to direct costs of schooling and tuition subsidies. The importance of liquidity constraints is controversial, however. Cameron and Taber (2004) is one of a number of studies that finds that liquidity constraints are not important for explaining schooling decisions.
Research summarized in Cunha and Heckman (2007) suggests that part of the explanation might be that parental investment during early childhood shapes the potential to acquire additional skills later in life. Parents might not have responded to the increase in labour market returns, perhaps because they were not fully aware of the large increase in the returns to skills or because their children’s labour market success might not be the primary motivating factor in determining the time and resources they devote to their children.
Brad DeLong summarizes the research: “Altonji, Bharadwaj, and Lange do not know.”
Tyler Cowen quips, “I can only conclude that Altonji, Bharadwaj, and Lange have never taught Introduction to Composition to a large group of freshman in a public university in the United States. Anyone who has taught such a class — or for that matter talked to anyone who has — will have some inkling why more people are not going to college.”
What’s not covered in the research summary, are two rather obvious trends: immigration and rising tuition costs.
First, a new surge in immigration, especially from less developed countries, surely skews the calculations. If kids are more likely to go to college if their parents have, and we’re increasing the population of less educated parents, this seems quite plausible.
Second, the cost of college is skyrocketing. While the return on a college degree may be increasing, the initial investment is going up tremendously. The state teaching college where I obtained my undergraduate degree two decades ago now charges $5070 annually for tuition. That’s still a relative bargain. But it was a mere $800 a year when I graduated. Adjusting for inflation, it should now cost only $1442.13. So, the cost has jumped 350 percent in real dollars. My strong hunch is that the value of a college education has not similarly appreciated in the intervening years. Surely, the changes the calculus?
