Yes, a college degree still pays off. Photographer: Daniel Acker/Bloomberg

Is a College Education Worth a Skinned Eel?

Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to the Bloomberg View.
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A study published last week by Massachusetts Institute of Technology economist David Autor found that even as high school graduates saw their inflation-adjusted income drop a cumulative 11 percent from 1980 to 2012, college graduates experienced a jump of 20 percent to 56 percent, depending on whether they went on to graduate school. That amounts to more than $500,000 in additional income over a college graduate’s lifetime.

These findings have revived the debate over the cost and benefits of college. Entrepreneurs such as Peter Thiel have argued that college is a waste of time and money, saddling young people with enormous debt and giving them limited practical skills. Many of the world’s wealthiest people never went to college, he claims (never mind that Thiel himself attended Stanford University and Stanford Law School).

But overlooked in all the claims and counterclaims is an obvious question: Why are Americans so obsessed with putting a price tag on the value of a college education?

A century and a half ago, it wouldn't have occurred to most prospective students to ask whether college was a worthwhile investment. People went to college as preparation for the ministry, law and other professions; they also attended as an entree into the ruling elite.

The idea of attending college in the hopes of boosting your earnings would have appeared uncouth. The few educators who even contemplated this notion tended to apologize for raising it. “Education, the true and large development of manhood,” wrote one contributor to the New Englander and Yale Review in 1888, “is so clearly of supreme worth in itself, that there is incongruity in estimating it … by a pecuniary standard.”

Indeed, most people viewed college as antithetical to business. “It is the noble service of the college," the contributor added, "to counteract the overweening mercantilism of the time and to lift society out of the mire of interests and gains.”

A critic of college writing in the same era put it more baldly: “Except a skinned eel or a boiled lobster, few things are worse prepared for the struggle of life than the average graduate.”

Reformers eager to expand higher education naturally disagreed, and in the 1880s and 1890s, they began fiercely advocating the idea that a college education would pay dividends to men -- and most were men -- contemplating careers as salaried managers. These men needed to see the big picture, educator Stephen Fellows argued in 1886. They needed “trained minds" and "disciplined intellects.”

Many business leaders scoffed at the idea, particularly those of an entrepreneurial background. From their perspective, a college degree wasn't just useless, but also downright harmful. Chicago industrialist Richard Teller Crane declared in 1903 that for “young men who have to make their own way in the business world,” colleges “are the cause of most serious error, if not of positive injury to this class of young men.”

Neither side was well positioned to prove its point, though the skeptics had the edge: College, they liked to point out, cost a good deal of money, and it wasn’t clear how dissecting Latin texts could translate into success in the business world. Moreover, every year spent in college was a year without earnings.

In response, educators tried to show that certain measures of success were overwhelmingly correlated with college education. One estimate argued that college-educated men were 800 times more likely than their uneducated peers to appear in “Who’s Who,” for example.

In the 1910s, however, educators set us on the path to the present by putting a monetary value on college.

Northwestern University was one of the first to do so, in 1913, pegging the lifetime value of a college education at $25,000. Twelve years later, a dean at Boston University compiled statistics purporting to show that the average undergraduate would earn $72,000 more than his uneducated counterpart over the course of a lifetime.

Other estimates followed, most of them corroborating these figures. But skeptics remained unconvinced. The turning point came in 1928, when Walter Gifford, the president of American Telephone & Telegraph Co., decided to look into the question of whether college pays off, and he did so in a most unusual way.

Rather than simply comparing college graduates to high school graduates, he decided to test the conventional wisdom “that no matter how high a boy stands in college he will not have much, if any knowledge, immediately useful in business.”

Gifford directed subordinates to compile data on the salaries of college graduates in his workforce. Then he obtained information on their class rank in college. When he put the two data sets together, he found that class rank was overwhelmingly correlated with future earnings.

For example, someone graduating in the top 10th of their class had a 1 in 5 chance of earning a salary in the top 10 percent at AT&T. Someone in the bottom third of their class, by contrast, had less than a 1 in 20 chance of achieving similar success.

Gifford published his findings in Harper’s in 1928 under the title “Does Business Need Scholars?” The article spawned a host of subsequent studies. As one historian has observed, Gifford effectively paved the way for the idea that “the more education you have, the more money you make.”

The following year, Harold Clark, an economist at Teachers College, made the mistake of asserting that a college education would actually serve as a detriment to future earnings. This idea, which only a few years before was fairly widespread, was now deemed heresy.

The attacks came from colleges and universities, and from business. “Industrialists Defend Collegiate Education,” the New York Times announced in a headline for an article taking down Clark’s claims.

Since the late 1920s, the idea that a college education has a significant monetary value has become conventional wisdom. We occasionally question that idea in recessionary times (it’s easy to find skeptics during the 1930s, 1970s and the most recent recession).

But invariably, the economy begins to improve, and someone like Autor comes along to reassure us that, yes, college really does pay off.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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