According to a research by the renowned Massachusetts Institute of Technology (MIT), findings show that earnings of the average US worker with undergraduate degree have not kept up with gains in productivity in recent decades, challenging traditional explanations of rising income inequality.
Conventional economic explanation of income inequality state that the rise in the Gini coefficient is largely due to technology trends that disproportionately benefit skilled workers. So if you are skilled, usually proven through education qualifications, your college diplomas will get you bigger bucks than non-skilled workers.
However, this research by MIT seem to suggest a change in definition of what constitutes a skilled worker. As the economy booms, the average graduates in recent decades seem to fail to keep up with the gains in economy-wide productivity, once those productivity gains are adjusted for the composition of the workforce. The premiums one used to get armed with a diploma seems to have diminished. A basic degree had been relegated to the same spectrum as high school qualification. The law of diminishing returns was witnessed in this scenario.
But is this situation viable? Even so in Singapore? Microeconomics taught us that education qualifications allow employers to discern out the productivity of each worker. However, the 3 prong fork of grade inflation, increased supply of degree holders and increased supply of diploma holders, have seeped off the perceived value of a basic degree.
Let me illustrate this clearer. As the economy booms, the number of degree holders has increased dramatically. Pull back to the context in Singapore. 30 years ago, an undergraduate degree is more than enough to qualify one into the exclusive club of degree holders in the country--a figure that do not surpass 5%. This year, in 2007, an estimated 23% of the cohort gains admission into the local 3 universities. Add in the figures for those that embark on degree programmes from overseas universities and those that took up Distance Learning degree programmes, the total figure of those that possess a degree easily surpass 30-40%. With such a large supply of degree holders, the demand for graduates with bachelor degrees could not catch up resulting in a drop in premium for an undergraduate education.
To make things worse, new technological advances demand people who are more skilled than what an undergraduate education can give. Masters and PhD holders are now actively sought out in the working society. Flip to the Saturday classified of Straits Times. More often than not, a bachelor degree seems to be the bare minimum in recent times. To add salt to wound, the boom in diploma holders had blurred the line between the value of a polytechnic diploma and a basic bachelor degree. I should know. Very well in fact. I had a couple of jobs that paid me what is now equivalent to the pay of a fresh graduate with a basic degree when I had only a diploma. I have also seen friends getting well paid jobs with their diplomas and also seen a fair share of friends struggling to get better jobs with their basic degrees. Still, the perception that a degree is the minimum one should get in this competitive society prevails in many JC and polytechnic graduates' minds. This includes myself, thus prompting me to forgo a nice company with a relatively nice pay package and go down the road of a university education.
So what will this vicious cycle leads to? 20 years down the road, bachelor degrees may no longer be the bare minimum. People may have to strive for Masters, Phds or more prestigious universities. I call it a vicious cycle because this situation has no bright future. People want their economy to boom. In doing so, more people will be educated. As the economy grows, more people possess bachelor degrees. Demand for bachelor degree holders could not catch up with the increased supply. Premium for bachelor degree drop. Demand for masters and phds increase. Masters and above constitute the new skilled workers. People start to go for masters. Economy grows further. Demand for masters degree holders could not catch up with the increased supply. PhDs constitute the new skilled workers. People start to go for PhDs. Economy grows further. What next??
The above scenario is anticipated by many of the new generation (including mine), reflecting the bleak outlook for fresh graduates. However, rationally, most economists and academics will deem this scenario as absurd. After all, universities do impose a cap on the number of degrees it issue out. And not anyone can gain an admission (or gifted enough, at least intellectually, to gain a place) to a good Masters or Doctorate programme. In place is an outpour of new universities to cater to the increased demand for undergraduate education. Professional certifications to the likes of CPA, CFA, ACCA, CFP et cetra gains popularity. In some industries, such certifications are almost a pre-requisite in addition to the degree. Degrees from prestigious universities and/or a good honors is of utmost importance if one is to secure a bright future with big MNCs or government boards. Even a second lower rarely gives one a competitive edge (a side note: no matter what some universities claim to be, a UK classification of honors do correspond closely to the US classification of honors like 'magna/summa cum laude').
But a more sinister truth beneath this trend is: as the economy grows, in reference to the above illustration, we can see that the gap between the skilled and the unskilled workers will shift, and most probably widen. The income inequality gap will worsen. The pyramid of social stratification will then stack up further resulting in a larger hierarchy gap. No doubt, the inevitable corollary of social conflicts will arise. A quintessential outcome from growing capitalism.
This is a major problem faced by many countries including Singapore. To combat the problem, the Singapore Government had announced an increased budget to help lagging citizens and implement more 'social welfare' programmes (the words 'social welfare' are still considered an extremely dirty phrase to the Singapore Government) by introducing a 2% hike in GST--A concept endorsed and encouraged even by Greg Mankiw, a renowned Economics professor at Harvard University. How many people support this policy I do not know. Personally, I do not support this very much as it may give rise (or rather, it had) to further inflation, compounded by the multiplier effect of the tax. I will list my reasoning in another entry in the near future. For now, let's hope that I am wrong and the government is correct in adopting this approach.
Conventional economic explanation of income inequality state that the rise in the Gini coefficient is largely due to technology trends that disproportionately benefit skilled workers. So if you are skilled, usually proven through education qualifications, your college diplomas will get you bigger bucks than non-skilled workers.
However, this research by MIT seem to suggest a change in definition of what constitutes a skilled worker. As the economy booms, the average graduates in recent decades seem to fail to keep up with the gains in economy-wide productivity, once those productivity gains are adjusted for the composition of the workforce. The premiums one used to get armed with a diploma seems to have diminished. A basic degree had been relegated to the same spectrum as high school qualification. The law of diminishing returns was witnessed in this scenario.
But is this situation viable? Even so in Singapore? Microeconomics taught us that education qualifications allow employers to discern out the productivity of each worker. However, the 3 prong fork of grade inflation, increased supply of degree holders and increased supply of diploma holders, have seeped off the perceived value of a basic degree.
Let me illustrate this clearer. As the economy booms, the number of degree holders has increased dramatically. Pull back to the context in Singapore. 30 years ago, an undergraduate degree is more than enough to qualify one into the exclusive club of degree holders in the country--a figure that do not surpass 5%. This year, in 2007, an estimated 23% of the cohort gains admission into the local 3 universities. Add in the figures for those that embark on degree programmes from overseas universities and those that took up Distance Learning degree programmes, the total figure of those that possess a degree easily surpass 30-40%. With such a large supply of degree holders, the demand for graduates with bachelor degrees could not catch up resulting in a drop in premium for an undergraduate education.
To make things worse, new technological advances demand people who are more skilled than what an undergraduate education can give. Masters and PhD holders are now actively sought out in the working society. Flip to the Saturday classified of Straits Times. More often than not, a bachelor degree seems to be the bare minimum in recent times. To add salt to wound, the boom in diploma holders had blurred the line between the value of a polytechnic diploma and a basic bachelor degree. I should know. Very well in fact. I had a couple of jobs that paid me what is now equivalent to the pay of a fresh graduate with a basic degree when I had only a diploma. I have also seen friends getting well paid jobs with their diplomas and also seen a fair share of friends struggling to get better jobs with their basic degrees. Still, the perception that a degree is the minimum one should get in this competitive society prevails in many JC and polytechnic graduates' minds. This includes myself, thus prompting me to forgo a nice company with a relatively nice pay package and go down the road of a university education.
So what will this vicious cycle leads to? 20 years down the road, bachelor degrees may no longer be the bare minimum. People may have to strive for Masters, Phds or more prestigious universities. I call it a vicious cycle because this situation has no bright future. People want their economy to boom. In doing so, more people will be educated. As the economy grows, more people possess bachelor degrees. Demand for bachelor degree holders could not catch up with the increased supply. Premium for bachelor degree drop. Demand for masters and phds increase. Masters and above constitute the new skilled workers. People start to go for masters. Economy grows further. Demand for masters degree holders could not catch up with the increased supply. PhDs constitute the new skilled workers. People start to go for PhDs. Economy grows further. What next??
The above scenario is anticipated by many of the new generation (including mine), reflecting the bleak outlook for fresh graduates. However, rationally, most economists and academics will deem this scenario as absurd. After all, universities do impose a cap on the number of degrees it issue out. And not anyone can gain an admission (or gifted enough, at least intellectually, to gain a place) to a good Masters or Doctorate programme. In place is an outpour of new universities to cater to the increased demand for undergraduate education. Professional certifications to the likes of CPA, CFA, ACCA, CFP et cetra gains popularity. In some industries, such certifications are almost a pre-requisite in addition to the degree. Degrees from prestigious universities and/or a good honors is of utmost importance if one is to secure a bright future with big MNCs or government boards. Even a second lower rarely gives one a competitive edge (a side note: no matter what some universities claim to be, a UK classification of honors do correspond closely to the US classification of honors like 'magna/summa cum laude').
But a more sinister truth beneath this trend is: as the economy grows, in reference to the above illustration, we can see that the gap between the skilled and the unskilled workers will shift, and most probably widen. The income inequality gap will worsen. The pyramid of social stratification will then stack up further resulting in a larger hierarchy gap. No doubt, the inevitable corollary of social conflicts will arise. A quintessential outcome from growing capitalism.
This is a major problem faced by many countries including Singapore. To combat the problem, the Singapore Government had announced an increased budget to help lagging citizens and implement more 'social welfare' programmes (the words 'social welfare' are still considered an extremely dirty phrase to the Singapore Government) by introducing a 2% hike in GST--A concept endorsed and encouraged even by Greg Mankiw, a renowned Economics professor at Harvard University. How many people support this policy I do not know. Personally, I do not support this very much as it may give rise (or rather, it had) to further inflation, compounded by the multiplier effect of the tax. I will list my reasoning in another entry in the near future. For now, let's hope that I am wrong and the government is correct in adopting this approach.
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