A Solid Base for Making Sound Decisions

October 22, 2012

The United States has been rapidly developing the capacity to evaluate educational outcomes using earnings data. The State Council of Higher Education for Virginia recently published data linking majors and institutions to subsequent earnings. These are positive steps toward increased transparency in higher education, which will benefit students and colleges and will serve to ease state budget crises, rising student debt, and the skills gap in the labor market. However, as this information becomes public knowledge, we should also be aware of its limitations.

For some time, a debate has been raging over whether earnings data should be used to evaluate higher education. Critics argue that measuring education using labor-market metrics undermines its other values, such as promoting the public good. Education, they rightly argue, promotes broad cultural knowledge and critical-thinking skills that are fundamental to a well-functioning democracy.

What the critics miss is that this is not an either/or choice. In America, education serves multiple purposes. Measuring a particular benefit of education, such as earnings, should not crowd out or undermine its other purposes. Modern labor-market requirements—critical thinking, literacy, mathematical reasoning, statistical analysis—overlap substantially with skills that will help students become active citizens in a democratic society.

Nevertheless, work is undeniably important, and employment is usually the most important issue in the minds of voters. It comes as no surprise that 86 percent of incoming freshmen said their top reason to attend college was to get a better job, according to the Higher Education Research Institute, at the University of California at Los Angeles. The debate over which social goals are most valuable and what the purpose of education should be is important and necessary. But it should not obstruct efforts to achieve education's goal of providing Americans access to the good jobs.

Two realities confront American higher education today. First, colleges are our de facto system for work-force development. Unlike European countries, the United States does not have an expansive apprenticeship system that trains workers for high-skill careers. Occupational and professional preparation has become a key function of the education system.

Second, state budgets are shrinking, requiring state governments to make tough choices about how to allocate scarce higher-education dollars. Earnings are a sound metric to evaluate those decisions. Moreover, because the administrative infrastructure for those data is already in place, the additional cost of producing earnings reports is nominal.

Earnings data will yield some key benefits for students, colleges, state governments, and the U.S. economy. Information can decrease dropouts and improve completion rates. Recent research shows, for example, that students who enroll in a specific program of study early in their college careers are more likely to complete a degree and will take less time to graduate. Information can promote long-term planning by providing incoming students with a realistic picture of what their lives will look like after graduation. In other words, when you know where you're going, you're more likely to get there.

Everyone faces financial reality, even those who value the qualitative benefits of a college education. In a recent report, "Hard Times," the Georgetown University Center on Education and the Workforce demonstrated that new college graduates face substantial variation in unemployment rates. Students are free to pursue studies in low-paying academic fields that satisfy their passions and interests, but they should understand the financial risk involved.

For most students, enrolling in a postsecondary program of study is their first big investment decision. Using information to improve their financial understanding will also discourage the student-debt horror stories that have become commonplace.

Postsecondary institutions, whether four-year universities or community colleges, can use the data to identify underperforming programs for reform, as well as to recognize, replicate, and market programs with high returns. The data will also serve as an effective tool for state governments, which know that an educated work force is the key to economic growth in the 21st century—and that growing economies mean growing budgets and new jobs. But state governments are also interested in their return on investment, so they can weigh spending on higher education with other priorities.

When students, institutions, and state governments make well-informed decisions, economywide benefits are the result. Publishing earnings by program will probably lead students to enroll in majors that are in higher demand. The skills gap—a mismatch between workers' skills and those desired by employers—would shrink as individuals and institutions developed a stronger understanding of the skills demanded in the labor market. While advancements in data hold great promise to improve transparency in higher education, developments will be necessary to ensure that our standard for data quality is of the highest order. In short, we do not want to get ahead of our headlights.

Today these data raise several concerns about quality. For example, while a recent report shows that graduates of the University of Memphis earn $40,401 one year after graduation, on average, readers do not have the necessary context to understand and evaluate that outcome. For instance, how do those earnings compare with the pay of other workers in the state one year after graduation? We are missing information about where people are working; what occupations they are working in; whether they are working full or part time; and whether they are on a career pathway or working in a transitional job. Contextualizing the data is essential for transforming raw data access into information useful to students and colleges.

A second problem is the lag time between enrollment choices and employment. Students in four-year-degree programs—which now take six years on average—base their enrollment decisions on a market that will have changed by the time they graduate. Including projected growth rates of occupations would help high-school graduates balance earnings data with the projected growth and decline of particular job opportunities. More geographically specific wage data could also help students compare earnings stemming from programs in high-wage and low-wage areas. That is especially relevant to community colleges, whose graduates are more likely to find jobs in local markets.

If we intend to improve our ability to compete in the global economy, more Americans need to be prepared for tomorrow's jobs. Putting the right information in their hands is a cost-effective, nonintrusive way of getting there. As state legislators and the federal government are pinching pennies, it's the only way to improve outcomes without resorting to regulation. Nonetheless, this new information includes no magic formula—students, colleges, and legislatures should always be aware that the data have their limitations.

Jeff Strohl is director of research at the Center on Education and the Workforce at Georgetown University.