[They accept] "the doctrine that educational credentials... are required in order to improve labour-market chances. . [but] are not thinking that they should be acquiring knowledge or skills which will make them better at their jobs" -- Fevre, Rees, and Gorard (1999)
A recent article in the New York Times argues that the higher salaries of college grads make college a good investment, despite high tuition. David Autor, writing in Science, reproduces estimates from Avery and Turner that male college grads can expect a lifetime earnings boost of $590,000 (only $370,000 for women!), after subtracting public-university tuition and assuming a 3% interest rate. So if you can live at home, attend a state university, and get a 3% loan, this looks like a no-brainer.
But what if you aren't all that brainy yourself? Maybe smart or hard-working people make more money and are also more likely to complete college. In 1999, Cecilia Rouse compared earnings of identical twins differing in education and found a 10% income gain for each year of education. That would predict 40% higher income from completing 4 years of college, whereas the actual difference is 80%. So maybe half of the difference in income between college grads and high school grads is due to differences (not necessarily genetic) between people and half an effect of the education itself.
But is it really the education, or is it the diploma?
Hungerford and Solon (1987) reasoned that, if knowledge and skills are key to income, then 3 years of college would be 75% as good as 4 years of college. But if the diploma is what matters, the fourth year would give a much bigger income boost. The latter seems to be true, with interesting differences among races and genders.
As a professor, I am not happy about this, especially since we professors can't even claim credit for all of the non-diploma gains. After all, students are making useful contacts in years 1-3, polishing their social skills, etc.
One last question. If much of the income boost for college grads comes from the diploma, rather than anything they learned in or out of class, why do employers pay college grads more? Surely the knowledge and skills acquired in college must count for something, for some employers. Is graduation a reliable indication of a smart or hard-working individual? Is it a reliable indication of potentially profitable contacts? Are personnel responsible for hiring just taking the easiest approach? A review by Bills considers seven different hypotheses, and bemoans the lack of data. Here's a hint, from Dale and Krueger: correcting for differences among individuals, more-selective colleges don't boost income any more than less-selective ones.
If diplomas are used to determine who gets the better jobs, but education doesn't enhance worker productivity, then college would be a good investment for individuals but not necessarily for society.