What Kind of “Trade” Is Higher Education?

My baby at his high school graduation

I’ve always thought of higher education as an investment, whether one with a financial ROI or something more intangible for society.  But as the mother of two college-aged sons, the “mal-employment” trend for graduates, explained in this PBS NewsHour video, hits home.

• In the first eight months of 2010  fewer than 50 of every 100 B.A.-holders <25 years of age held a job that REQUIRED a college degree.
• For the college grads who are employed, 7 of the most prevalent 20 jobs they held did not require a degree.
• More grads <25 years old work as cashiers, retail clerks, and customer service representatives than computer professional professions and all types of engineers combined. 
  • Twice as many worked in bars and restaurants than as engineers
  • More worked in offices and as bank tellers than as computer professionals

Can you say double macchiato?

The Project on Student Debt organization’s report on 2009 college grads (devastating timing, kids) shows they have an average debt of $24,000 with rising default rates; it’s worse if they went to a for-profit college.

Long tail effects of youthful unemployment

The Economic Policy Institute reports (my emphasis added):

But this recession has specific qualities that reinforce this problem for young workers. Most important, the bursting of the housing bubble resulted in the loss of around $5 trillion in residential wealth. With plummeting home values and shrinking 401(k)s, many people lost a significant portion of their planned retirement. For example, the median household with a person between the ages of 55 and 64 saw their wealth fall by almost 38% between 2004 and 2009 (Baker 2009). In the face of such a loss, many older workers chose to delay retirement and either continue working or go back to work because they could not afford to retire. The size of the labor force declined by 6.3% for young workers, but it increased 8.5% for workers 55 and older. Not only are there fewer jobs in the economy, but also fewer workers retiring and opening up positions…

Moreover, a downturn in the youth labor market is particularly worrisome because it comes at a critical time for workers. Work during teen years is characterized as being highly path-dependent—work status in one period is very sensitive to work status in the time period before. Individuals with more work experience are more likely to work. Sum et al. (2008) have shown the importance of high school employment on post-high school employment and concluded that those who do not work in high school were more likely to be completely disconnected from the labor market. This is an intuitive conclusion, as those with work experience have both shown basic jobs skills and benefited from human capital investment, such as training, that make them more attractive for further work. With a dramatic downturn in the young adult labor market, fewer young workers are being incorporated into this path.

A momentum or swing trade?

We’ll know if negative ROI on higher ed is an actual trend in the future. Perhaps it’s a microtrend or just a blip. But it seems to me that we’re not being honest with ourselves when we say higher ed is THE path to economic prosperity.

Fed Chairman Ben Bernanke missed the point in this response to a 60-Minutes question about the gulf between rich and poor in this country. Ahem, Dr. Bernanke, you’re an economist, if every person in America had a Ph.D there still wouldn’t be enough jobs — even menial ones — to go around!

My co-author of Tradeoffs, Matt Davio, and I talked about this trend. He’s a professional trader and views an investment of time and money in an education as a swing trade. I also see a possible fit with momentum trading and so-called value investing.

What say ye? Is a college education an investment? Or is it just a pricey weigh station for young adults to wait out the meltdown? What kind of trade DID higher ed resemble and what kind DOES it now?