When The Education Bubble Bursts…

Posted on January 26, 2012 by


…and it will, there will need to be something in place so that employers can gauge the competency and qualifications of potential employees. It seems that ETS, which  administers the Scholastic Aptitude Test (SAT), has partnered with two other educational firms to create competence testing materials to serve as alternative certification in place of the increasingly prohibitively expensive bachelor’s degree. From The Chronicle of Higher Education:

In the first week of beginning economics courses, professors usually make this fundamental point: If the price of something rises a lot, people look for substitutes. Resources (dollars) are scarce, and individuals want to make the best use of them. They “maximize their utility” by shifting away from high-priced good or service A to lower-priced good B.

With regards to colleges, consumers typically have believed that there are no good substitutes–the only way a person can certify to potential employers that she/he is pretty bright, well educated, good at communicating, disciplined, etc., is by presenting a bachelor’s degree diploma. College graduates typically have these positive attributes more than others, so degrees serve as an important signaling device to employers, lowering the costs of learning about the traits of the applicant. Because of the lack of good substitutes, colleges face little outside competition and can raise prices more, given their quasi-monopoly status.

As college costs rise, however, people are asking: Aren’t there cheaper ways of certifying competence and skills to employers? Employers like the current system, because the huge (often over $100,000) cost of demonstrating competency is borne by the student, not by them. Employers seemingly have little incentive to look for alternative certification. That is why reformers like me cannot get employer organizations like the U.S. Chamber of Commerce to take alternative certification seriously. But if companies can find good employees with high-school diplomas who have demonstrated necessary skills and competency via some cheaper (to society) means, they might be able to hire workers more cheaply than before–paying wages that are high by high-school-graduate standards, but low relative to college-graduate norms. Employers can capture the huge savings of reduced certification costs. And students avoid huge debt, get four years more time in the labor force, and do not face the risks of not getting through college. Since millions of college grads have jobs which really do not use skills developed in college anyhow, alternative certification is more attractive than ever.

(h/t: Sheila)

Posted in: Education