Students in the United States pay about four times more than their peers in the rest of world. So it’s no wonder there are endless conversations about whether earning a college degree is worth the expense. Dozens of entrepreneurs will tell you to forget about college — although they were lucky to be born into highly educated environments and often trained in the best universities, and dozens of dropouts who made it through backbreaking work do insist that their kids experience college.
Peter Cappelli's book, Will College Pay Off?: A Guide to the Most Important Financial Decision You'll Ever Make, takes the heat out of the debate and ultimately answers this question "it depends." This non-dogmatic stand is actually courageous when everybody wants certitudes and validations. Peter's mission is to tender pointers and landmarks in maze of research data, assumptions, biases and even misinformation: "What prompted me to write this book was the unqualified statements about the big payoff to a college degree," Peter says. “While there are lots of guides to tell us whether a particular school suits the temperament of our child, there is almost nothing that helps us decide whether a college experience will lead to financial ruin. That is what I try to offer here: a guide to the factors that determine whether a particular program will pay off."
This book is complex. Here are some of the critical topics debated in the book.
Is there some shortfall of science, technology, engineering, and math or STEM graduates?
There may be more jobs in STEM, but are all students good or interested in them? On top of this, "the argument that the history major would be better off learning practical material that is useful in a first job is highly debatable, especially if we are concerned about the experience of that individual after his or her first job." Think of it this way: would Peter Thiel have been more successful had he not graduated with a B.A. in Philosophy from Stanford and not met his inspiring professor, René Girard?
Do college students major in the fields where jobs are?
The job market makes prior work experience rather than education a key factor and, as a result, a number of colleges shape the degrees they offer after industries' needs. Yet how reasonable is it to lock students into narrow practical degrees, especially when market needs change? How effective have economists and employers been at anticipating demand? What happens if too many people graduate in petroleum engineering just because it's hot at a given time? "Employers who say that right now they want students with degrees in [a given] field aren’t promising to hire students who go into those fields when they graduate." The reality is simple: It is " basic supply and demand. Education pays off when it is in demand and doesn’t when it isn’t in demand. It pays off when it is scarce and doesn’t when it is common."
How important is a College student's first job?
It is for students who have to pay off a debt. However, does a first job define a career? What happens if people are laid off? How easy will it be for them to find a new position? While it's true that, today "hiring for skills is what is changing the relationship between college and the workplace," students with a vocational degrees that is no more in demand don't have a leg up in the job market. Instead, they may be at a disadvantage. "Getting a good job right out of college is very important, but if those jobs don’t last, the degree may not have bought you much."
Do jobs today require more education than in the past?
Nothing is less certain. According to the Bureau of Labor Statistics, the majority of jobs created between 2012 and 2022 will require a high school degree or less, not a bachelor’s degree. As a result, already today "about one-third of U.S. workers are overeducated for their jobs or, put another way, underemployed, and they earn about half what their peers are paid for jobs that require the degree they have." So by expecting too much, employers may create a costly volatility risk in their own workforce as a recent Deloitte report stated: "regardless of gender or geography, only 28 percent of Millennials feel that their current organizations are making ‘full use’ of the skills they currently have to offer." Do the math... 72 percent of them are ready to see if the grass is greener elsewhere! That's even more pathetic when "both the human capital and the screening advocates have difficulty in explaining why college educations seem to matter so much after the first job," and when the overall correlation between grades and job performance is virtually nonexistent.
Is it easier to find a job as a college grad? How big is the college wage premium?
Outside of a few specific fields, college degrees don't guarantee a good career any longer. College grads have difficulties in finding jobs of any kind, not just good jobs. For example, in China, the unemployment rate of recent college graduates is very high. As a rule however, the US employment market has "by far the best outcomes for college graduates as compared to their high graduate peers come in finding a job. The unemployment rate for the average college graduate with a bachelor’s degree has been about half the rate for the average worker with only a high school diploma in recent decades." College students have also had a wage premium at least since the 1981 recession — the third section of the book shows that in the sixties the gap very small. So the reason to go to college may not be because college attendance intrinsically pays off, but because of what is in store if you do not go.
Does the current gap mean that the investment in college education pays off?
If the premium is up and stays up, maybe... But it seems that raw financial analysis shows that the return from attending many colleges is negative. Pinning down what determines that payoff is a complex task with no definitive response if the value is only defined in financial terms. Also, results vary depending of the colleges. who, themselves struggle to provide prospective students with real data or base their marketing pitch on limited statistics. So who will end up defining this value? Maybe employers. "One company that takes sorting out the value of different colleges seriously is India-based Tata," notes Peter Cappelli. "It has turned this analytic approach into an art form by assessing all its new college hires on the basis of the school where they graduated, considering their job performance, how long they stay with Tata, and also how much the company had to pay to hire them. As a result, the company targets its recruiting at schools that provide the biggest bang for the buck. Some of the elite U.S. business schools didn’t make the cut, even though their graduates were great employees, because those graduates didn’t stay very long and were quite expensive to hire."
What's the takeaway?
No matter what, getting a good job out of college is a challenge because of the changes in our society and employment landscape, which Peter Cappelli also addressed in a fascinating previous book from 2012, Why Good People Can't Get Jobs: The Skills Gap and What Companies Can Do About It. The problem starts with the fact that most employers have dropped training programs and "what they want from college graduates now is the same thing they want from applicants who have been out of school for years."
— Does it mean that our education system is a problem? No— except for the costs, actual data do not support such blame: "We’ve been in roughly the same place for some time. Our students are not doing worse, and there is no evidence from the comparative data that U.S. schools are failing." Could the US government do better helping public colleges? Definitely yes.
— Does it mean that colleges should only focus on practical education? No — vocational education can be a terrible dead end. Parents and students have a complex due diligence to perform in a tough supply and demand market and should try to delay choosing a major until the last minute.
This book is by no means an indictment of college education: it simply implores parents and students carefully to analyze their rationale before getting into heavy debt and to take with a pinch of salt the sometimes deceptive claims of some of the for-profit colleges.
The book only focuses on an alleged equation between college education and a better job. It doesn't question the value of receiving a college education and its long-term human and existential meaning. If anything, the underlying message is that it's not efficient for colleges to try to replicate the workplace on their own campus... and that they should instead focus on what they do best. The ultimate message of Peter Cappelli is clear: "Maybe the appropriate alternative is to let college do what it is good at, which is educating rather than training, focusing on knowledge and life skills rather than job skills, and to find connections into the job market through other paths."
The book invites employers and colleges to think more carefully about their strategy:
— Employers: Has their strategy of hiring for skills just after college actually paid off? So far, it hasn't. The cost of failed hires and bad hires hasn’t dropped. Employers' processes have been the same for almost three decades. So maybe it's time for them to look into these processes, and the burden may not be on colleges in this area.
— Colleges: Colleges are hard-pressed to provide cogs in the corporate machinery with uncertain guarantee of return for students. With employers not showing better results in their human capital build-up, why should colleges cave in? Why don't colleges try to educate the market and affirm the power of education? Maybe colleges should do a better job at promoting students and alumni, which means radically revising antiquated campus recruiting products and procedures, beefing up their career services offices in order to offer a modern access to their gigantic talent pools to employers (instead of letting their students spends up to 20 to 30 hours a week looking for employers...).