Economist examines pay off of elite educations

Author: Rachael Jennings

Middlebury students pay a hefty price - $46,910 a year, to be exact - for the privilege of their elite education. But does this initial investment actually appreciate in the long run?

Steven Woodbury '75 addressed this concern last Thursday, Nov. 8, before an eager crowd of students and faculty that spilled into the aisles of the Warner Hemicycle. A Professor of Economics who earned his Ph.D. at the University of Wisconsin, Woodbury utilized graphs, statistics and empirical evidence to answer the title question of his lecture: "Does it Pay to Attend an Elite College or University?"

The speech was structured around three main sections. In the first, Woodbury used specific data to analyze trends in earnings among college graduates. One particularly telling graph plotted earnings against age, and revealed that the age-earnings profiles of American men in 2001 were much steeper and higher for those who were educated at more prestigious institutions. This is by no means a recent trend: in 1969, there existed a fifteen to twenty percent difference in wages between alumni from schools ranking in the lower quintiles and those from schools in the top quintile.

Another major factor in wage earnings, Woodbury argued, is the degree of education that an individual's parents have received. Those who attend elite schools are often born to more educated parents than those who do not. Conclusively, the status and/or wealth of a person's parents can wield powerful influence over his or her ability to climb the rungs of elite institutions.??

Woodbury explored possible explanations for these statistics in the second part of his lecture. He illustrated two main theories ≠- the Human Capital Theory and Spence's Signaling or Screening Hypothesis. The former suggests that education and training are investments that directly improve a worker's productivity. While the latter explains how education and training increase a person's productive capacity, which in turn increases his or her earnings.

However, because it is almost impossible for a potential employer to evaluate the "productive capacity" of an applicant based solely on his or her academic credentials, the Signaling or Screening Hypothesis proposes that education actually adds nothing to productivity, but merely serves as a signal that a worker is innately more productive to a prospective boss.??

Spence's model assumes that there are two varieties of workers ≠- the more productive worker, and the less productive. If no indication of this disparity exists, the employer pays them both the same wage of 1.5, an average of one (the deserved rate of the less productive worker) and two (that of the more productive worker).

According to the model, the more "productive" worker (as determined by his or her elite college degree) might earn lifetime wages totaling two. However, one must subtract the cost (0.5) of his elitist education to determine his true wage of 1.5 - the same earnings he would have accumulated without his Ivy degree. The Spence model proves that he is no better off than his colleague.

During the final phase of Woodbury's presentation, he offered counterevidence to support that graduates of elite schools do, in fact, earn more than those of lower-tiered schools, presenting research conducted by a number of noted economists.

Dan Black and Jeffrey Kermit Danier have concluded that alumni from "competitive" schools earn about 15 percent more than those graduating from "less competitive" institutions, while those studying at the colleges deemed "most competitive" earn 22 percent more. Still, as researchers Dale and Krueger of Princeton University have deduced, there is little reward for attending an expensive and selective college.

"It's not the school that has the magic touch," Krueger wrote. "It's the students."??

Woodbury then referenced Carol Hymowitz of The Wall Street Journal who, in her article "Any College Will Do," reported that while 10 percent of the CEOs who lead the top 500 companies received undergraduate degrees from Ivy League colleges, more received their B.A.s from the University of Wisconsin than from Harvard.

In the end, Woodbury established that what matters most is the work a student produces while in college - not the particular insignia on his or her diploma. He noted that graduates of elite schools do earn more, but they would have most likely earned the same amount without attending such a costly school. Prestigious colleges may help a student grow, but, they cannot, in the words of Woodbury, "turn a slug into a rabbit."??

Furthermore, evidence actually shows that students matriculating to elite schools may have already developed a sufficiently high level of productivity to attain success in the working world. This data would suggest that a student's tuition would be put to equally good use if invested in a business venture, but Woodbury cautioned against chucking those bookbags just yet.

"Sounds like pretty dull stuff," Woodbury said. "I'll take four years of college. The social life is great!"??

Many student listeners may have found Woodbury's message to be depressing and not fully appreciative of the intellectual and cultural benefits offered by a school like Middlebury, and he did acknowledge that those upsides cannot be properly reflected by scientific evidence.

"Perhaps," he concluded, "we aren't asking the right questions."???????