Credential Inflation
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In the discussion surrounding student loans and debt, forgiveness is often justified by claiming that a college degree no longer necessarily leads to better employment prospects or a higher-paying job. In fact, credential inflation, the twin sibling of tuition inflation, is a new paper ceiling that keeps many from fulfilling their potential.
A Ticket to Success
In the decades since 1960, more Americans began attending and completing college than ever before. In 1960, just 7.7 percent of Americans had a college degree. This proportion more than doubled to about 18 percent in 1980, and then more than doubled again by 2020, reaching some 37.5 percent.
Beginning in the early 1980s, a growing proportion of companies in the United States began requiring college degrees for employment or promotion. This trend accelerated in the wake of the Great Recession. Of the 11.6 million jobs created from 2010-2016, about 75 percent required at least a bachelor’s degree. A 2017 study found that 60 percent of employers rejected qualified individuals for lack of a diploma.
The key to success in the marketplace, it seemed, was a college diploma in hand. The question here, however, is one of causality. Was the market demanding diplomas for the specialized skills that they signaled, or was the market utilizing diplomas as a convenient sorting mechanism to toss out resumes and narrow the search for candidates?
The answer is likely both. It’s true that since 1960 the labor market has shifted in favor of higher-skilled jobs and away from manual labor. But it’s also true that many jobs now require degrees for no apparent reason. The New York Federal Reserve Bank estimates that 34 percent of college graduates are “underemployed,” meaning that they are “overqualified” for the job they have.
This seems to indicate that, indeed, the presence of a diploma is often merely a resume-screening device for employers, not necessarily a key metric of merit. One might surmise that the growing number of Americans with college degrees is both a cause and effect of “credential inflation.”
Not (As) Meaningful
This begs the question, does a diploma mean anything anymore? While admittedly IQ is not a perfect measure of intelligence, it can be a useful benchmark for comparing groups of individuals. When measuring the IQ of undergraduates, graduates, and high school-educated individuals, we find that the mean IQ of degree-holders has plunged in the last 50 years.
For example, while the mean IQ of a graduate student in the 1960s was 114, that fell to 105.8 by the 2000s. For undergraduates, the mean IQ dropped from 111.3 to 100.4 by the 2010s. Given that, by definition, an IQ of 100 is average, a college degree now merely signals average intelligence to potential employers. A college-educated person today scores barely a point higher than a High School educated person did in the 1960s.
Indeed, another study found that since the 1970s, the “vocabulary attainment” of Americans declined across all levels of educational attainment, with the biggest declines for undergraduate and graduate students. As a consequence, at least in terms of IQ and verbal skills, it can certainly be argued that a college degree has diminished meaning and significance for employers.
Dovetailing the above, college completion rates are also rising, a trend that appears to be partly driven by so-called “grade inflation.” One study found that between 1990 and 2000, the average GPA for Freshman students at a group of major public research universities increased from 2.68 to 2.79, while the average GPA for students at a group of public liberal arts colleges increased from 2.77 in 2001 to 3.02 in 2012.
Upon diving into individual courses and controlling for other factors, the researchers claim statistically significant effects of “grade inflation.” That is, students with the exact same final exam scores on the exact same tests were given higher grades over time. At least for public liberal arts colleges, it seems it is getting easier to receive a degree. This is not true of all degrees or universities, of course. But the above signals a growing problem with profound implications for higher education.
Implications
I have previously written about how government-subsidized student loans appear to be a major driver of tuition inflation. It isn’t a huge leap to think that these loans could also be driving grade and, by extension, credential inflation as well. The higher tuition gets, the harder it becomes for universities to fail deeply indebted students, the more diplomas printed, the more devalued they become.
On the other hand, for those who do not go onward to college, we have now built a paper ceiling that keeps otherwise qualified individuals out of certain jobs, limiting their employment and social mobility prospects. I have already explored the damaging effects of this phenomenon with Occupational Licensing; the concept and effect here are essentially the same.
Young people are increasingly faced with two choices: take on crushing levels of debt and significant opportunity costs, or accept that some jobs may be permanently off-limits to them, no matter their skills or experience. Such a choice is unnecessarily crushing for the human spirit.
Solutions
Some have suggested that, to solve the burden of student debt, we simply make college “free.” This is not an obvious solution for two reasons: 1) “Free” merely means redistribution of cost. The tuition must be paid, it’s just paid via higher taxes on someone else and 2) such a measure threatens to further devalue the degrees.
To their credit, many employers, now confronted with hindsight, are getting the message and are eliminating the requirement for a college degree for some positions. Governments are slowly, but surely, doing the same. This has not coincidentally come in a tight job market, which itself is a cure for many ills; just another reason we should adopt NGDP targeting and other pro-growth policies, as I discussed here.
Removing occupational licensing requirements, opening the door instead to greater certification opportunities, and giving employers greater leeway to test the skills of job applicants would go a long way toward addressing this issue as well, reducing our dependence on diplomas as a signal of merit.
Ideally, however, we would best adopt new methods of financing higher education that don’t obscure their signaling value. Using ISAs, for example, we could better align the incentives of employers, students, and universities, with a focus on cost-effective and rigorous programs. Fewer people would graduate from college, but that need not be a bad thing. Ultimately, this challenge is a cultural one. We need to accept that not everyone needs a college degree and reserve those diplomas for specialized skills obtained through academic rigor.
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