President’s Letter

Dear Fellow NABE Members,

I’ve been under a lot of stress lately.

The main source of my recent anxiety is not confusion over the course of the economy, although that is a constant frustration.  Instead, the leading driver of hypertension for me has been my standing as the parent of a high school senior.

The past twelve months have included sweat over the outcome of standardized tests, mad dashes to finish college applications, and then daily vigils by the mailbox during the month of April wondering whether we’ll get a big envelope (elation) or a small one (utter dejection).

And if things go well in this process, the lucky parents have won the right to pay four or five years of skyrocketing costs and have someone they love leave the house.  Many times during this process, I found myself asking: what’s in it for me?

Parents of this year’s high school graduates have faced an especially difficult equation.  By many accounts, this was the largest pool of college applicants in history, and competition was keen.  Rejection rates were high, and waiting lists were long.  And the cost of education has risen by more than twice the rate of general inflation over the past 10 years.

Demographics played a part, as the children of baby boomers (many of whom delayed child bearing) form a large cohort of prospective freshman.  But another trend which must certainly be bearing on the admission equation is that the returns to education have been rising rapidly.

While parents may look at tuition as a cost, economists view it as an investment in human capital whose returns come in the form of higher expected earnings over time.  These returns seem to be increasing.  The most recent Federal Reserve Survey of Consumer Finances shows that education levels have a dramatic and growing impact on mean incomes:

While earnings for those with only a secondary education have stagnated, the rewards for those who earn a baccalaureate increased more than 40 percent during the decade ending in 2004.

These diverging fortunes reflect changes in the composition of the American labor force.  Fifty years ago, opting to enter the workforce immediately after high school was not a significant economic sacrifice.  Manufacturing jobs with good pay and good benefits were available to those with lower level schooling.
Today, those jobs have largely moved overseas or been automated away, replaced by service work and manufacturing positions that require higher skill levels.  A college degree is seen as an essential ticket into today’s “knowledge economy.”  For this reason, reinforcing educational opportunities has been identified as one remedy for the increasing level of income inequality in America.

Further, given the rapid pace of change in the American economy and the tendency of workers to change employers much more frequently than they did in the past, refreshing skill sets and acquiring new ones have become life-long commitments.  For those who use economics in their work, NABE endeavors to facilitate this process of renewal through our conferences, publications, and skills sessions (two of which will be running later this summer; details can be found on nabe.com).

I am happy to report that my daughter will be attending Northwestern University this fall.  She is thrilled, and her mother and father are very proud.  A certain level of senioritis has set in, which is understandable.

While not interrupting her reverie, I have begun to introduce some realism about what lies ahead.  (I am courteous enough to wait until she awakens at noon on the weekends.)  She should certainly celebrate her great achievement, but she needs to be aware that the next four years will be an even more meaningful determinant of who she will become, both vocationally and personally.

Of course, there is a set of mixed emotions in realizing that our role in building her human capital is going to diminish.  We’ve tried to raise her to be ready to leave the nest, and we’re excited about the next phase of her life.  But we’re going to miss her terribly, no matter how good the returns to higher education may be.

C. R. T.

Carl Tannenbaum
NABE President