Low Class Gains in Higher Education

A new economics study by Joseph Altonji, Prashant Bharadwaj, and Fabian Lange demonstrates that:

The earnings premium for skilled labour has increased dramatically in recent decades. Yet, as this column shows, Americans are not acquiring significantly greater skills in response to this change. The resulting gap will increase US income inequality in the coming decades.

The study goes on to demonstrate that despite the increased premium value of developing labor skills through higher education, the population in general has not sought these skills in relative proportion.  In other words, we aren’t seeing many gains in people improving their financial prospects by investing in their own education.

Economist Brad DeLong says that the study’s authors don’t know why this is happening (which is a fair complaint), but goes on to suggest that

This raises the possibility that the only easy way to reduce market inequality is to greatly increase the supply of the skilled and educated in the long run by making higher education free

This seems unlikely to be effective to me on two levels.  First of all, an economist ought to understand (and DeLong does) that there is no such thing as “free”; someone will have to pay for higher education to be free to its consumers.  Indeed, as he points out, “which is a very dubious policy on the inequality front, because it starts with a honking huge transfer from the average taxpayer today to the relatively rich well-educated of tomorrow.”

But the more important rebuttal to his point (more effective than his own) is that brought up by Tyler Cowen: that the skills required to succeed at even a low level in college are poorly taught to the population at large.

One of my close friends is completing her first year as a public school teacher in New York City (her third year as a professional teacher).  She studied at education city and she spent many years of her life working towards a degree so that she could become a teacher. Higher education was so important for her as it allowed her to have her dream career. Her class is a fourth grade class at a public school in Grand Concourse in the Bronx.  She has 28 students, only one of which reads at a fourth grade level.  For a wide variety of reasons, despite her significant efforts, it is unlikely that more than a couple of her students will be at a fifth grade level when the school year ends this month.  And no, this is not the most remedial class of fourth graders her school has.

It seems to me that DeLong obscures the real problem, that of students being unprepared and unlikely to succeed in higher education, with that of students being unable to afford higher education.  Many, if not most, college and graduate students debt finance their education; a rational choice considering the economic benefits that education will offer them.  However, rational actors will not pay for a premium education if they consider themselves unlikely to succeed at it and therefore unlikely to reap the future economic benefit.

I read this study as evidence of the continued failure of our primary and secondary education systems, not as a study of the failure of our society to make higher education affordable or making the information about the benefits of higher education widely available.  What say you?