Why Are College Degrees Becoming Less Valuable?

Credential inflation may have altered the signaling function of college degrees.

Inflation (the loss of buying power of a currency) is a term that refers to a variety of items other than money. The Law of Supply and Demand is linked to inflation. The value of a product drops as the supply grows. In contrast, as the good gets more rare, the commodity's value rises. The same approach may be applied to physical artifacts like old baseball cards and rare artwork. These are unique items that cannot be copied in the same way and so have a high market value. Mass-produced rookie cards and replicas of Monet's paintings, on the other hand, abound. As a result, they are of little commercial value.

Intangible products can be affected by inflation and its inverse, deflation. This is readily apparent when looking at the employment market. Jobs that need unusual or outstanding abilities tend to pay more. However, due of the dangerous or unappealing character of unwanted professions, there exist compensatory differentials. The higher earnings are attributed to a scarcity of employees ready to take the job rather than the presence of in-demand talents.

Over the past couple of decades, credentialing of intangible employment value has become more prevalent. Credentials can range from college degrees to professional certifications. One of the most common forms of credentialing has become a 4-year college degree. This category of human capital documentation has evolved to take on an alternate function.

A bachelor's degree, with a few noteworthy exceptions, functions as a signaling tool. According to Bryan Caplan, a George Mason economics professor, the primary purpose of a college degree is to advertise to potential employers that a job candidate possesses acceptable attributes. Earning a college diploma is more of a validation process than a process of skill development. Employers need employees that are not only smart, but also obedient and prompt. The fact that many graduates do not use their degrees appears to confirm the signaling model's assumption. In reality, just 27% of graduates had jobs linked to their major in 2013.

Because bachelor's degrees serve as a powerful signaling tool, the number of job searchers with a four-year degree has risen dramatically. In 2017, 4-year institution retention rates hit an all-time high of 81 percent. In 1940, 4.2 million Americans had completed a four-year college education. 99.5 million people in the United States now hold a bachelor's degree or above. These figures show the rapid rise in the number of Americans with a college diploma.

Nearly 40% of all Americans now have a four-year degree. Given the massive rise in college enrollment and completion, it's reasonable to wonder if a college diploma still has "purchasing power" on the labor market. Much evidence suggests that it hasn't happened.
 
Credential inflation may have altered the signaling function of college degrees. "An rise in the education certifications necessary for a job" is what credential inflation is all about.

Many jobs that formerly just needed a high school diploma are now only admitting bachelor's degree applicants. Because of this shift in company preferences, the 4-year degree has become the unofficial minimum benchmark for educational qualifications. The high incidence of underemployment among college graduates exemplifies this reality. Approximately 41% of recent graduates are employed in positions that do not need a college diploma. When you consider that just 17% of hotel clerks and 23.5 percent of amusement park employees have a four-year degree, it's no surprise. Traditionally, none of these vocations needed a college diploma. However, in a competitive job market where the majority of applicants have a college diploma, many fresh grads have no way of distinguishing themselves from other candidates. As a result, many fresh grads have little choice but to take low-paying positions.

Because of the large growth in the number of employees with college degrees, the value of a college diploma has decreased. The effect of this type of debasement is similar to that of printing additional money. The higher the quantity of a commodity, the lower the value, according to the Law of Supply and Demand. The swarms of guidance counselors and parents pleading with adolescents to go to college have undoubtedly exacerbated the situation. However, governmental policy has exacerbated the problem.

More students are pursuing college degrees as a result of various loan schemes, government scholarships, and other initiatives. Policies that make college more accessible, such as plans for "free college," devalue degrees as well. As more individuals attend college, degrees become increasingly prevalent and degrade even further.

Of course, this isn't to argue that talented kids who want to work in the STEM industries should skip college. A college degree, on the other hand, may prove to be a poor investment and a hindrance to a student's future.

It is not a sensible option to take on big sums of debt in order to work for minimum pay. Students should know that a college diploma isn't everything when confronted with regulations and societal pressure that have made college the norm. Students who concentrated on developing marketable talents rather than academic credentials might be able to stand out in a job market swamped with degrees.

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