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greyenlightenment  investments: META/FBL, TSLA, TQQQ, TECL, MSFT ...  1yr ago (greyenlightenment.com)   2803 thread views

Why the college bubble won’t pop

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In this post I argue that the main driver of higher tuition and demand is the ever-widening college wage premium. It holds for almost all degrees and schools, even low-ranked schools and 'useless' degree. Additionally, college grads have much lower unemployment rates, about half the national average.

An MBA grad today out of college can expect to earn $70-100k/year, compared to $50k in 1975 (in 2021 dollars). This is a huge increase even after adjusting for student loan debt.

Part of this is wage inflation/premium, in my opinion, is attributable to growing size, profits, and influence of multinationals, even adjusted for GDP and since the '80s and especially since 2009, when the financial crisis ended. The past decade has seen the explosion of giant, hugely-profitable firms--companies that were worth $10 billion a decade ago being being worth $100+ billion today (like Broadcom, Salesforce, Visa/Mastercard, Google, Facebook, etc.); start-ups going from $0 valuation to $10+ billion (like Uber, Doordash) or Figma (founded in 2012, acquired by Adobe for $20 billion!) Bigger companies means higher stakes and hence much higher salaries for white collar talent.

Credentialism is still possibly an effective , unbiased (and hence disparate-impact safe), semi-automated filtering/screening method. College, despite supposedly dumbed-down courses, has better-resisted the trend towards grade inflation seen elsewhere (high school 90-100% of high school students graduate).

Covid and remote learning , as well as the 'anti-college movement' online, has not put a dent in the wage premium or demand. Or put a debt in the prestige of top 20 institutions. Admissions for top colleges is more competitive than ever, and I don't see any reason for this to change.

Finally, I'm not a fan of college alternatives (assuming you are capable of graduating), such as coding bootcamps, online learning (like Khan Academy), tutorials (like on YouTube) ,etc. Often, these alternatives are not rigorous enough to confer mastery, or have poor job prospects, or are also as expensive as college (like for bootcamps). Same for various 'hustles' as alternatives or shortcuts to the standard college-to-career route. Crypto is down 70-90% over the past year, stocks down 30+%, etc. ..these was so much hype I remember a year or two ago about those things...people were hoping to retire from crypto or stock speculation, and it all went up in smoke. This sort of stuff happens all the time....some overhyped surefire path to riches suddenly implodes or stops working. There are not enough new people entering to pay off the earlier people for these various hustles or wealth-creation schemes...investments and markets get saturated fast. Society is too competitive and difficult for there to be enough seats on the shortcut lifeboat. If someone figures out that they can arbitrage with Amazon and Alibaba, this may work if only a few people do it, but as soon as word gets out, it stops working as well or at all. College has resisted this unsustainability or saturation seen elsewhere.

It seems like there is a growing opportunity for some bright entrepreneur who can figure out a legal way to sort employees cheaply, and hire good people directly from high school (splitting the college premium with them). I wonder how big it would have to get before someone decides to try to exploit it.

Part of the problem is that employers don't want to spend money training employees. They want work-ready people right now, who can fit in to the job with the shortest amount of bedding-in time.

Get a good employee from high school, and the first question will be "Can you use this machine/piece of equipment?" The answer will be no, and in the old days, that was expected: you took on apprentices, or you trained up people. Maybe you waited until the high school graduate then did a year or two in a vocational school learning how to do the basic tasks.

Now, employers want "six years of experience with this, that and the other, must be able to do accounts and plumbing, work from home and fly off to Tunisia week-on/week-off basis as required". College is a short-cut to "yes, X has been trained in to do the job". Maybe X can't do it first thing, but the assumption is that at least X has heard of, or knows about, triple phasic blancmange back-end coding die assembly, rather than taking on Y out of high school and training them how to do that.

Maybe X can't do it first thing, but the assumption is that at least X has heard of, or knows about, triple phasic blancmange back-end coding die assembly, rather than taking on Y out of high school and training them how to do that.

Training someone takes time and and money. Having a degree confers higher IQ, which is correlated with trainability.

Yeah, I agree but I am surprised there isn't some space for pay between entry level and starting plus training would be cheaper than the premium for an already trained employee. Maybe the gap isn't quite wide enough yet, but I have to imagine the rising cost of college isn't purely the college capturing more of the wage premium they bestow.

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