POMP AND CIRCUMSTANCES: Five decades after college

Cauliflower is nothing but cabbage with a college education. ~ Mark Twain

How could have it been this long, 50 years since I graduated from college? My how time really flies.

Now that I’ve reached my Baccalaureate’s golden anniversary I decided to explore how our economy and its college graduates can be compared during the 50 years since June 1967 when I received my B.A. degree in economics. I assess the current economic circumstances that the graduating Class of 2017 is about to inhabit with that of my graduation. I also have examined the economic landscape in June 1971, when I (finally) entered the full-time work force having completed my Ph.D. course work and much of my dissertation.

Here’s a minor insight I gained from this inquiry. In looking back at my college transcript – no, it wasn’t on papyrus – I re-discovered that my college senior thesis and five years later my doctoral dissertation both examined aspects of the economics of technological innovation, a topic that’s still of personal interest.
Can there be a golden reunion of sorts between my Class of 1967 and the Class of 2017? Let’s see…

First, here is some basic information regarding the impressive accomplishment of increasing our educational attainment. Chart 1 below shows the ever-growing percentage of adults who have received a B.A. or more during the past century. In 2015, the latest year available, 32.5% of adults had a 4-year college degree or more and 88.4% had a high-school diploma. In 1967, 10.5% of us had received a B.A. or higher degree. In 50 years we’ve tripled the share of adults who have college degrees.  

Chart 1: Percent of US adults who have a B.A. or higher degree

Source: NCES.ed.gov. Adults are defined as people between 25 and 64 years.

 An interesting perspective on the current level of degree-attainment is the percentage equivalence between the high-school graduation share in 1950 and college graduation in 2015. The percent of adults who have at least a B.A. in 2015 (32.5%) is in a way comparable (and up an educational notch) to 1950, when 34.3% of adults had a high-school diploma. In 1950, the bulge of American GIs who benefited from the federal government paying for much of their post-high school education had started completing college. People with a B.A. or more in 1950 represented 6.2% of adults. In 1971, about 11% of adults had a B.A. or more.

Table 1 shows the breakdown of college graduates by gender for the three years I have focused on.

 Table 1: Adults who have completed four years of college or more, by gender

Year	Men / Women with a B.A. or more(% of US population)
1967	12.8% / 7.6%
1971	14.6% / 8.5%
2015	32.3% /32.7%

Source: https://www.statista.com 

As shown, in 1967 almost twice as many men received degrees as women. Between 1967 and 2015 the percentage of adults with a B.A. or post-graduate degree more than doubled for men and more than quadrupled for women, a notable feat for improving the nation’s human capital and enormously benefiting America. Each year, women now account for more college degree-holders than men.

Table 2 summarizes macroeconomic conditions in the US for these three graduation years. 

Table 2: US Economy in three graduation years

Year	Real GDP (billions 2009$)	Real GDP Growth	Employment* (millions)	Unemployment Rate**	Inflation Rate (CPI)+	US Average Annual Earnings++
1967	$4,355.2	0.3%	65.89	4.0% ↑	2.8%	$5,907 ($43,246)
1971	$4,877.6	2.3%	71.25	5.6% ↓	4.3%	$7,530 ($44,780)
2017	$16,842.4	0.7%	146.06	4.4% ↓ (2.4%)	1.8%	($45,677)

*All employees: total nonfarm payrolls.  ** ↑ indicates increase in rate from previous month; ↓ indicates decrease from previous month; in parentheses, unemployment for people with a B.A. or higher.  + 2017 inflation based on CPI change from 2015Q4 to 2016Q4.  ++ Average annual real earnings in parentheses (2017$).

Source: BEA, BLS. If available, I used June data for each year. 
You can see that real GDP almost quadrupled from 1967 to 2017 and that that real GDP growth was lowest in 1967, an unimpressive 0.3%. The June 1967 unemployment rate also was the lowest. Even though the 4.0% unemployment rate had increased marginally from the month before, 790,000 more people were added in June 1967 to the employed, nonfarm labor force. Using today’s economic thinking a 4.0% unemployment rate would signal robust full employment with a solid likelihood of inflation around the GDP corner. Yet the annual inflation rate in 1967 was a relatively mild 2.8%. Real GDP growth was far stronger when I entered the full-time labor force in 1971, 2.3%, although the 5.6% unemployment rate was the highest of any of the three years. The 4.3% inflation rate also was the highest of these three years. What wasn’t high during the four year period between 1967 and 1971 was the increase in average annual real earnings that grew less than 1% per year. It increased even less during the 1971-2017 time period. Despite this miniscule income growth, the US was not in a recession during any of these three years.

The Class of 2017 faces an economy that’s expanding, at an all too modest rate (0.7%), with a declining unemployment rate and very modest inflation, 1.8%. The unemployment rate for all people with at least a B.A. is much lower than the overall rate, just 2.4%; although the unemployment rate for young adults (21-24 years) with a college degree was 5.6%. The income of young college graduates has recovered to about $40,000. These economic descriptors sound quite encouraging for the Class of 2017; certainly when compared to seniors who graduated in 2007 and soon thereafter during the lingering Great Recession. This year 21% of the class of 2017 accepted a job before graduation, up from 12% last year and 11% two years ago according to Accenture.

Nevertheless, there are qualifications to this year’s good news based on two factors. First, there are now more young adults with B.A.s seeking jobs than ever before. This steady increase in B.A.-holders first began in earnest in the 1980s, as shown in Chart 1. In 2017, 1.9 million college students are expected to graduate. Having a college degree has become much less exceptional than it was in the 1960s, 1970s or 1980s. Now, it’s increasingly seen as necessary, not optional, for securing a brighter economic future. This surge in college-educated labor in part has allowed employers to “up-credential” certain entry-level jobs, meaning employers have been able to specify that job applicants require a college degree, where before the job didn’t require a B.A. credential. Of the more than 11 million jobs were created since the last recession, almost 75% of those positions have been filled by people with at least a B.A. degree.

A second factor is persistent, historically-low economic (GDP) growth, shown in Table 2. As I’ve mentioned before, US macroeconomic growth remains rutted well below 3% since 2006. Lower growth produces fewer new jobs for everyone looking to be employed, lower labor-force participation and slackened wage increases.

Beyond up-credentialing, underemployment of recent college graduates has risen and includes 43.5% of college graduates ages 22 to 27 who are working at jobs that don’t even require a college degree. Employment of non-white college graduates remains even more problematic.

With the sizeable number of college grads working in “non-college” jobs, the employment prospects for recent high school graduates have become doubly-difficult. High school graduates’ unemployment climbed to 16.9%, one percent higher than in 2007; their average income is $22,600.

The properly-vaunted college wage premium has been one often-cited motivating factor for increased college attendance during the past decade. According to a recent NBER paper the college wage premium has levelled-off. The wage premium between the average annual income of B.A. holders and of high-school degree holders, remains large (about $27,000 per year), but its growth has dropped significantly since 2010. Between 2010 and 2015 the increase in this premium only grew 0.4%; between 2000 and 2010 it was a much larger 25.2% gain. I expect this wage premium will continue to decay as college attendance rises and low growth persists.

If this trend persists, it will be very challenging for new college graduates because these grads have taken on ever-larger student loans in order to cover their ever-increasing college costs. The most recent information states that 71% of students graduating from four-year colleges have student loan debt. College attendees and graduates now owe $1.4 trillion on their student loans. The average monthly student loan payment is $351 for 20 to 30 year old borrowers. Student loan debt has increased the most rapidly of any debt type (e.g., mortgages, car loans, credit cards) during the past decade. It doubled both as a share of total consumer debt and in dollar amount since 2007. Student loan debt now accounts for 10.6% of all consumer debt. To add fiscal salt to these debt wounds, students’ ability to pay has withered. The average income of B.A.-holders increased a meager $915 from 2010 to 2015, a paltry 0.3% per year.

The president’s more-detailed budget for the next fiscal year was submitted to Congress on May 23. In it he proposes to cut student loan funding and subsidies by $143 billion. That may save some cents, but it does not make sense.

Until more robust economic growth re-appears, the Class of 2017’s economic prospects will be far less buoyant than those of our Class of 1967 were. Despite the president’s pledges for higher growth, it’s unlikely to occur any time soon. His policies don’t support it. Many economists rightly believe his visions of sustained 3+% growth is a fantasy. Greater macroeconomic growth depends on two principal sources, higher productivity and higher work-force participation, neither of which has risen much if at all lately. None of the president’s hazily-stated policies will positively affect productivity or work-force participation.

In many economic respects it was relatively better for us 50 years ago as newly-minted graduates in the Class of 1967. QED, the Summer of Love, complete with embroidered bell-bottoms, and beyond. But it is worth remembering from a broader, life perspective that recent college grads very fortunately haven’t had to worry, as we did, about General Hershey and local Selective Service Boards (which, to this day, still require men to register at age 18) drafting us as young graduates, then donning a uniform and heading into the jungles of Viet Nam. As they fling their mortarboards in the air, the challenges facing the Class of 2017 thankfully have nothing to do with tropical war zones. Here’s to more pomp and less circumstances.