Overinvestment in College Training?

Abstract

The college job market underwent an unprecedented downturn in the 1 970s when the earnings of graduates relative to other workers, the rate of return to investing in higher education, and employment opportunities dropped sharply, especially for graduates. This paper examines the quantitative dimensions, causes, and consequences of the new depression in the market. It explains the downturn by slackened demand due to changes in the industrial structure and continued growth of supply. A major finding is that the fraction of young men choosing college fell in the seventies, apparently the result of responsive supply behavior to the depressed market. One of the major labor market developments of the 1960s, and to a lesser extent of the 1950s as well, was the enormous expansion of individual and social investments in higher education. The proportion of GNP allocated to colleges and universities jumped from 0.8 percent to 2.2 percent between 1950 and 1970; college enrollments more than tripled; the number of BA graduates rose by 91 percent; master's and doctorate production more than tripled. These increases in the supply of college-trained specialists notwithstanding, the ratio of the earnings of the college-trained to the educated workers was quite stable [14], and the rate of return to investment in higher education remained high [2, 15]. Toward the end of the 1960s and the outset of the 1970s, however, the market for college graduates began to change, with the boom of previous decades coming to an end. What are the dimensions of this turnaround in the college labor market? Has the rate of return to investing in higher education fallen? What has been the enrollment response of students to changes in rates of The author is Associate Professor of Economics, Harvard University. * The author wishes to thank the National Institute of Education for their support under Grant No. G-00-0202. [Manuscript received September 1974; accepted January 1975.j The Journal of Human Resources * X * 3 This content downloaded from 157.55.39.104 on Mon, 20 Jun 2016 05:57:09 UTC All use subject to http://about.jstor.org/terms