higher education and income: cause or effect?

It is well-known that the very wealthy are more likely to have attended university — especially an elite university — compared to those less privileged. Is this evidence that university attendance produces higher incomes? A recent BBC News article argues that it does.

According to a global census of dollar billionaires, almost two-thirds have a university degree. That means that even for countries with a high level of graduates, billionaires are disproportionately likely to have gone to university. …. As well as being much more likely to be graduates, a quarter have postgraduate degrees and more than one in 10 has a doctorate. …. [T]he findings undermine the image of the wealthy as being self-taught self-starters trained on the market stall.

[T]hese dollar billionaires … are likely to have attended some of the traditionally most prestigious universities. The top 20 for universities producing billionaires is dominated by blue-chip, elite US institutions, which take 16 of the places. ….

But the dominance of the US universities is not simply about the US producing more billionaires. More than a quarter of the billionaires who attended US universities to take undergraduate degrees were from other countries. …  [F]or postgraduate courses in the US, … 39% came from overseas. ….

There have been repeated international studies from organisations such as the Organisation for Economic Co-operation and Development showing that going to university remains a strong investment in terms of improving the chance of a higher-income job.

Such studies have rejected the idea that not going to university could be a smarter move or that the value of a degree will fall below the cost of tuition.

Sean Coughlan, “Where do billionaires go to university?“, BBC News, 29 October 2014.

To my surprise, 10th-place LSE is the only British university on the top 20 list of list of ‘universities producing billionaires’. Neither Oxford nor Cambridge made the cut! Equally surprising, 11th place went to Lomonosov Moscow State University. Also, the BBC report notes “Nigeria has become the country with the most number of children without access to any education – while … Nigeria is on course to have the most billionaires in Africa.”

I seriously doubt that formal education is an important source of high incomes. It is far more likely, in my opinion, that higher education attracts a disproportionate number of students from wealthy families, students who would enjoy comfortable lifestyles regardless of whether they attend university.

A July 2014 BBC report on unemployment and underemployment of university graduates in China and India supports this conjecture.

Rising joblessness among new university graduates in China and India is creating an army of educated unemployed that some fear could destabilise these huge economies. ….

Dramatic expansion of university education should have provided new graduates with opportunities unheard of in their parents’ generation. Instead, … a large group of educated young people are becoming alienated, unable to become part of the growing middle class.

The numbers are staggering. In India one in three graduates up to the age of 29 is unemployed, according to a Labour Ministry report released last November. …. Universities and colleges turn out five million new graduates each year.

Unemployment among new graduates six months after leaving university is officially around 15%. Even that conservative estimate means over a million new Chinese graduates will be jobless.

The real unemployment rate could be closer to 30% – some 2.3 million unemployed from this year’s graduating cohort alone, according to Joseph Cheng, professor of political science at City University of Hong Kong.

“These are big numbers. You can easily imagine this could certainly be a very important source of unrest in China,” said Prof Cheng.

Those without degrees are more willing to take blue-collar jobs, with China’s non-graduate unemployment as low as 4%, says Yukon Huang, senior associate at the Carnegie Endowment for International Peace in Washington DC.

Yojana Sharma, “What do you do with millions of extra graduates?“, 1 July 2014

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