IS A university degree a good investment? Many potential students are asking the question, especially in countries where the price of a degree is rising, as a result of falling government subsidies. Recent research suggests that the conventional wisdom remains true: a university degree pays handsomely. In America and the euro zone, for example, unemployment rates for graduates are far below average. Yet the benefit of university varies greatly among students, making an investment in higher education a risky bet in some circumstances.
The value of a degree, like so much else in economics, boils down to supply and demand. The gap between average pay for university graduates and those with secondary-school degrees is commonly called the “college wage premium”. When firms are hungry for skilled workers their demand for university graduates grows, and the premium tends to rise. When the supply of graduates grows faster than that of less-educated workers, in contrast, the premium will stabilise or fall.