In a Washington Post opinion piece, billionaire Peter Thiel asserts that college is the final stage of a competitive tournament in which kids at the top enjoy prestige because they’ve defeated everybody else. He claims that college education is a bubble and doesn’t provide more value than an insurance policy; that the college admissions process is all that is important because it anoints an “already-proven hypercompetitive elite.”
Thiel is mistaken on all fronts.
If indeed the value came from the college admissions filter, employers would simply replicate this by requiring applicants to supply the same material required by admissions offices: SAT scores and high-school records. They would hire former college admissions officers to assist in hiring, or recruit freshmen who have been admitted to a selective college. After all, that is what professional sports leagues do: hire players as soon as league rules allow. Why wait for them to graduate if college education is just a waste of time and money?
In a paper titled Are Our Colleges and Universities Failing us, Stanford’s Provost, John Etchemendy, postulated that if employers were primarily using college as a signal of general intelligence, as well perhaps as the ambition to apply and get into a selective college, we would see much more hiring behavior like that of professional sports leagues. We would surely not see a premium for college education unless it provided real value.
The facts are that college graduates earn more than those who do not go to college and that the gap is increasing. A study by Daron Acemoglu and David Autor found that the earnings of the average college graduate in 2008 exceeded those of the average high-school graduate by 97 percent. Another study, by Carnevale, Rose and Cheah, estimated that the projected median lifetime earnings of those with a bachelor’s degree are 74 percent higher than the earnings of those with just a high-school diploma, and that there was a premium on tertiary education in almost every line of work, even those that do not require a college degree. For example, food-service managers and retail salespersons — occupations open even to those with no high-school diploma — benefit from a college education: in these roles, workers with a bachelor’s degree earn between 50 and 65 percent more than those with only a high-school diploma.
It isn’t that employers are being delusional in paying higher wages to workers with a higher education, Etchemendy explains. They are rewarding traits and skills that are acquired or honed during college, as well as intangibles such as general intelligence and persistence.
Four years ago, Thiel launched a fellowship to pay students $100,000 each to drop out of college. He claimed that, enabled to bypass college, gifted students would create “breakthrough technologies that will take civilization to the next level.” The Thiel Foundation has, to date, failed to produce even a single world-changing company, despite having funded nearly one hundred exceptional students who came up with their ideas while they were still in college — as did Steve Jobs, Mark Zuckerberg, and Bill Gates, the most famous dropouts of all. It is telling that an early-stage fund that Thiel later launched, Breakout Labs, invests in start-ups mostly led by teams of academics, including PhDs and research scientists — not by college dropouts.
College teaches basic skills such as management, finance, and communications. It also teaches students how to interact and work with others, make compromises, deal with rejection and failure, and learn. It inculcates ethics and social values. That is why Jobs, Zuckerberg and Gates extolled the virtues of higher education and encouraged children to finish college — and why their companies rarely hire college dropouts. As well, entrepreneurship is hard enough for people with experience, maturity, and connections. For the vast majority of young people, gambling their future on a high-risk entrepreneurial venture is ill-advised, because they will not have developed the basic skills and values necessary to success.
Thiel and others have raised the alarm about the growing student-debt burden. They play on stories of students borrowing more than $100,000 to finance their bachelor’s degree. These are true stories, but the examples are rare. In fact, in 2007–08, the median debt nation wide of graduating seniors at non-profit colleges and universities was roughly $10,000, and 36 percent graduated with no debt at all. At one of the most expensive universities in the country, Stanford, students graduated with less than $5,000 average debt, and 77 percent of the Class of 2013 graduated debt-free. Of the 23 percent who graduated with some debt, the median amount of debt was $13,000.
“If indeed investment in college is a bubble, it is the longest-lived bubble in economic history,” said Etchemendy in an e-mail to me. “College graduates have earned more than high-school graduates as long as comparative wage data has been available, and for the most part it has steadily widened as technology has become a more essential part of the workplace. And this is no accident, technology increases economic productivity, but its invention, operation, and maintenance requires high-level skills obtained through education,” he added.
The reality is that we are no longer preparing our children to work in factories; we are readying them for today’s knowledge-based economy. This requires mastery of a wide assortment of technical skills, ability to work in groups, and continual learning. With accelerating technology advances, careers no longer last a lifetime. Entire industries will be decimated and new ones created within years—not the centuries it took in previous generations. Constant reinvention is required, for which higher education provides the foundation.
There surely is a competitive tournament, but it takes place on a global scale: whichever country has the most highly educated workforce benefits. How much so? The Milken Institute documented that for each additional year of college education that the average worker in a region receives, the per-capita GDP of the region increases by a remarkable 17.4 percent and the region’s average worker’s wages are boosted by 17.8 percent. To put it starkly: Thiel’s prescriptions are a race to the bottom of the global economic ladder.