It\’s The Guardian, of all places, who actually managed to get this story correct in its opening lines.
The value of holding a degree has been eroded as the share of the population with a university education has more than doubled over two decades, a study shows.
Glory be, that straight old supply and demand thing. Increase supply and price paid will fall so as to match up demand for that greater supply.
What troubles me though is that their education editor seems to have a greater command of economics than either their economics leader writer (Mr. Chakrabortty) or any of their columnists.
Incentives matter – if Guardian writers talked more sense they’d alienate Guardian readers.
Well, I’m not so sure it is quite so obviously a textbook case of market economics.
The textbook response would be that a rise in graduate labour supply reduces its price, allowing employers to take on more people in skilled jobs, and reduce the number of unskilled jobs. That is, substituting high skill for lowskill jobs.
(Because, as so much economics assumes, these things are substitutable at the margin)
But is that what is actually happening ?
Perhaps, instead, the increase in the number of graduates has meant that graduates are now doing jobs that in the past would have been done by non-graduates (with correspondingly lower wages). That is consistent with the report in the article that many graduates are now doing less skilled jobs.
In which case, it is not so much a classic example of market economics, but a reflection of the simple fact that given the choice between a graduate and a non graduate to do the office administration, they prefer the graduate.
To put this another way:
a rise in graduate numbers leading to a lower average wage is indeed consistent with a “neoclassical textbook” view of the labour market.
But it is also entirely consistent with a view of the labour market in which employers simply pick the best available candidates to fill posts in a more or less rigid job/wage structure.
If you want to work out which of these models is closer to the truth, I’m afraid you need to go beyond “supply is up and wages are down, so market economics triumphs once again!”
Or, one could argue that the value of a degree has been eroded not so much by the increase in the number of graduates, but by what those graduates studied. One could call this the ‘a gallon of ice cream plus a teaspoon of shit = a gallon of shit’ theory.