The value of a PhD

How many times have you heard someone say, "The solution is education," in response to an endless list of social problems. Or, "Society needs educated people in order to thrive," or "The best thing we can do for the youth of America is give them a proper education"? Education is often regarded as the modern day panacea for societal ills. Pick a problem, any problem, watch some TV, and a talking head will propose education as the solution.

So why is it that some of the most educated people in the US and Britain are having trouble finding work? From the Guardian [via Junius]:

A question for you. What's the biggest scandal currently afflicting higher education in Britain? The lecherous lecturer? The glass ceiling for women academics? Underpayment of the teaching force? Overcharging of the student body? Prejudice against non-state school entrants by Oxbridge? Racism on campus? Erosion of the staff-student ratio? The feather-bedding of medieval historians? The price of beer in the union bar?
No. The biggest scandal, in Britain and America, is the unconscionable over-production of doctoral students. One says unconscionable, but "unconscious" might be the more appropriate term. [...]

My college multivariable calculus instructor was a PhD post-doctorate fellow who ended up taking a teaching position in Yemen because he could not find a job in the US. Similarly, the job opportunities for PhDs of English is not much better:

Unlucky them. The estimate is that only 8% of graduates in this mainline subject will get tenured or tenure-track posts equivalent in status and earning power to those of the professors who taught them. The lucky ones among the rest will get something in second-rate colleges. Many will be stuck in dead end, treadmill, "adjunct teaching" positions - hired help. No security, no prospects, no encouragement to prosecute the research that earned them this wretched toehold in academia. Up to half will drop out of the academic rat-race altogether. Not to worry, though. The institution that trained them will have kept its statistics buffed up.

The article goes on to place the blame on academic departments, who the author states are producing too many graduates. Although this is true, I believe that there is a much deeper problem here, and it extends to the degree seekers. The problem is the notion of education as an objective economic value.

One of the aspects of the Austrian school that distinguishes it from others schools of economics is the way it defines value. Value is completely subjective. There is no intrinsic economic value to any good. Although the common belief is that the price of a good is its value, i.e., the value of a super burrito is equal to $5, nothing could be farther from the truth. If that was the case, mutually beneficial exchange could not happen.

Voluntary exchange only occurs if both parties expect to gain. When I exchange my $5 for a super burrito, I value the super burrito more than my $5, not equal to. Conversely, the owner of Anna's Taqueria values my $5 more than his super burrito. We only carry out the exchange if we both want what each other has more than what we have. If I valued the super burrito exactly as much as my $5, or if the owner of Anna's Taqueria valued his super burrito exactly as much as my $5, neither one of us would have any reason to carry out the exchange. Or if by whim we did carry out the exchange, there would be no reason not to exchange back. And back again. And again an infinite number of times. Only with unequal value appraisals does the exchange occur.

The value I place on the super burrito changes with time and circumstance. If one evening, having eaten a big lunch earlier in the day, I feel like eating a small dinner, I will value the super burrito less due to its large portion size. I might even value it less than the $5 in my wallet, and thus, Anna's Taqueria will lose my business.

How is this related to PhDs having a tough time finding jobs? A job is simply a voluntary exchange. The employer exchanges his money for the labor of the his employee. The employer values the employee's labor more than the wages he has to give up to pay him. Conversely, the employee values the wages he obtains more than the labor he gives up. One purpose of education is to increase the value of the employee's labor. The employer is likely more inclined to exchange wages for an educated, well-trained worker than a non-educated one.

And the key point is this - what the employer values in an employee is completely subjective. As circumstances change, what the employer seeks in an employee changes. Just ask any computer programmer who was raking it in three years ago but cannot find a job today. The mistake that the PhD degree seekers often make is believing that by getting a PhD, they are getting objective economic value. They believe that after 4 years of college, 5 or more years spent pursuing a PhD, being published in journals, and writing and defending a thesis in front of scholars of their chosen field, they have something that is intrinsically valuable.

But as the Austrian school reveals, nothing is intrinsically valuable. Nothing has objective economic value. Job training, specialization, postgraduate degrees, certification, etc are only valuable if others value them enough to exchange wages for the labor of those who obtain them.

And of course, the larger question is - if education is to be the cure all for society's ills, how can a top-down structure ensure by design that employers value the skills and training obtained by graduates?

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