Educational credentialing and household income: 1973-2013

Paul Campos:

It’s well known that having more educational credentials correlates strongly with higher income. This correlation has led lots of people to make the common sense assumption that increasing the educational credentials of the population as a whole will in turn produce higher incomes. Common sense assumes, as it so often does in a naive pre-theoretical way, that correlation equals causation.

At a more sophisticated theoretical level, the assumption at work here is that enhanced credentials signal enhanced human capital. In other words, more education (or in any case more educational credentials — a distinction which is usually ignored) creates or enhances abilities in its recipients they would not otherwise have, and these abilities allow them to perform work they would not otherwise be able to do.

If we then further assume that this work would not be performed, or at least not be performed as profitably, in the absence of the enhanced abilities signaled by the credentials, then enhanced human capital increases income by ameliorating structural un-and-underemployment.

That’s why almost all of Tom Friedman’s conversations with garrulous cab drivers invariably end with him concluding that everybody needs to get an advanced degree in bio-mechanical statistics, because in a globalized flat world we can no longer afford for the average person to be average.