Falling college enrollment since the start of the pandemic has raised alarm bells in some quarters. The doomsayers say declining enrollment implies a bleak future for America, one marked by rising inequality, falling life expectancies, and a loss of international competitiveness.

But the reality is much more complicated and nuanced. Actors in the higher education sector tend to exaggerate the economic importance of obtaining a university degree. Not all college graduates can expect successful, high-paying careers, and the widely reported average income gap often fails to account for the huge range and variance in income that results from factors such as field of study, occupation, age, gender, race and ethnicity, and location.

The choice of major at the college level is particularly important in affecting lifetime earnings. In an era of widespread grade inflation, undertaking challenging courses and selecting rigorous majors can provide a clear signal to potential employers and generate a higher return on investment. There is evidence that college completion rates in recent years have increased alongside a spike in grade inflation, suggesting a diminishing strength of the signal effect of college degrees.

Many students naturally tend to seek out the most forgiving teachers and the least demanding class schedules. Poor preparation in secondary schools often discourages students from undertaking challenging courses at the college level. Others may struggle to balance work and study and not have the luxury of having enough time or energy to undertake a rigorous major. This has resulted in a glut of university graduates with less sought-after degrees who are, therefore, underemployed.

Additionally, from a psychological standpoint, being burdened with massive student loans while being underemployed and with low incomes is likely to increase stress for many graduates. Recent research even suggests that financial returns can be low or even negative for those with below-average ability, who attend expensive colleges, and major in lower-paying fields.

How to get out of this mess? First and foremost, there is a need to provide high school graduates with multiple pathways to a well-paying career. Given that the U.S. economy suffers from a significant, long-term skills mismatch and faces a massive shortage of truck drivers, welders, electricians, construction workers and a host of other skilled trades, there is a need to encourage more entrants into these fields.

Second, for those attending college, providing clear and transparent information on income data would facilitate the selection of fields of study. Tightening admissions requirements and increasing overall rigor can help improve the overall value of a college education. In an idealized world, in which higher education was more affordable and college was not treated as a commodity, well-motivated students might well be able to pursue their true passion without the involvement of pecuniary considerations. The real world, unfortunately, is far from ideal.

Third, from a macro perspective, we need to better understand the process by which human capital (the skills, education and experience level of the workforce) can be increased at both individual and societal levels. . Decades of research have highlighted the importance of human capital for long-term economic growth.

The influential work of Claudia Goldin and Lawrence Katz has suggested that the great economic developments of the last century could be captured by taking into account the race between technology and education. The basic idea is that technological change generally stimulates the demand for skilled/trained workers, and that an increase in the supply of skilled/trained workers is necessary to limit inequalities.

Goldin and Katz noted that the skill-driven technical changes of the past four decades have created a much larger gap between supply and demand for skilled workers and, therefore, have led to much higher returns for highly skilled workers. qualified. This initially seemed to suggest that the appropriate solution was to increase college enrollment levels. The high college earnings premium (the earnings gap between those with a bachelor’s degree and those with a high school education or less) observed between 1980 and 2000 seems to confirm the idea that the insufficient supply of college graduates was a key feature of the American economic landscape.

But updated research (by Autor, Goldin and Katz) found that “most of the increase in wage variance in the 21st century comes from growing inequality among college graduates, with almost no change in the wage inequality since 2000 for non-academic workers”.

There seems to be a growing skills mismatch between the degrees students pursue and those actually sought by employers. Moreover, productivity growth in the United States has remained subdued even though the share of workers with college degrees has increased. Various structural factors have also affected the returns to college education in recent decades.

Sustained high demand for a college education resulting from misaligned incentives, misguided policies, and societal pressures has led to an American higher education sector characterized by rampant spending, administrative burden, and less than average admissions policies. ideal. It may be time to burst the higher education bubble.

A recent report by the Federal Reserve Bank of Richmond succinctly summarizes the argument for encouraging alternatives to a college education as follows: “If a four-year college degree signals today for many jobs what a high school education meant – maturity, skill, and driving, among other desirable traits – alternative routes could, at least in theory, signal these same traits at lower individual and societal cost while potentially allowing skilled, but non-college educated, access to well-paying jobs for which they are otherwise qualified.”

Vivekanand Jayakumar is an associate professor of economics at the University of Tampa.