Morning Must-Read: Daniel Kuehn: Bryan Caplan on the College Premium

Daniel Kuehn: Facts & other stubborn things: Caplan on the college premium: “The earnings advantage of college students has been substantial, but graduation rates have barely moved. Why?

Bryan offers evidence that these earnings are highly conditional on graduation, and that since expected graduation rates vary many students with low expected graduation rates are not going to be enticed by the premium. I think this is a great example of differentiating between marginal behavior properly understood and naive assumptions about what the outcomes of marginal behavior should be.

We have really great evidence that students respond to price signals when it comes to making educational investments…. If all you needed to do to succeed in the STEM labor market was walk into and out of a brick building covered with ivy and filled with microscopes for four consecutive years, then there would be no problem…. But that’s not the world we live in…. It is harder to bring a STEM worker online than it is to bring a cashier online.

So you observe two things in the data: 1. Occupational labor markets that are responsive to price signals, and 2. Potentially big wage differentials, particularly after demand shocks. We can of course change the shape of these supply curves by changing institutions that produce skill…