It Really Pays to Stay in School-A Really Long Time

There was a column in yesterday’s Wall Street Journal that every college student should read. The article is entitled “Why It Takes a Doctorate to Beat Inflation”. Only a small percentage of workers in our economy have seen their real incomes rise in the past five years. Who are they? Let me share some pithy quotes from the thought provoking piece by David Wessel.

“The typical American worker with a four-year college degree earns a lot more money than a similar worker who didn't go beyond high school -- 45% more. Education does pay. But in today's economy, getting a bachelor's degree is no longer a guarantee of raises big enough to beat inflation.

Although the best-paid college grads are doing well, wages of college grads have fallen on average, after adjusting for inflation, in the past five years. The only group that enjoyed rising wages between 2000 ... and 2005 ... were the small slice with graduate degrees….

Think about that: Even though the economy and productivity have been growing smartly, lots of workers who played by the rules and went the distance to get a four-year college degree aren't getting ahead. ... The very best-paid workers are getting the bulk of the raises. ...

[I]n the middle -- where many four-year college graduates work -- ... imports, overseas outsourcing and technology seem ... to be reducing U.S. employer demand ... significantly, and thus restraining wages. That is the kind of shift in the tectonic plates of the economy that produces political earthquakes.”

Professor MacroMind knows a lot of PhDs (he has one himself). I’ve never noticed that my friends with PhDs were richer monetarily than the folks that I know who don’t hold their doctorate. But it looks like the revenge of the geeks took place in the first five years of the millennium. (See the accompanying chart.) PhDs make $93,593 on average, compared to $68,302 for people with a Master's degree and $56,740 for garden variety college grads. M.B.A.s, lawyers, and medical doctors do even better averaging 120 k. You can check the numbers at the source. You can listen to an interview with the author of the article concerning the growing pay disparity here.

Have a good weekend, studying!?

Inflation or Deflation for Consumers?

This morning the Bureau of Labor Statistics released the most important point inflation number: the Consumer Price Index (CPI). Falling energy prices brought the overall “headline” CPI down about one half of 1% for the month of September. However the core CPI, which is watched more closely by the Federal Reserve, actually increased by 2/10 of 1% during September.

The core CPI strips out food and energy prices out of an inflation number. (See yesterday’s MacroMind.) The core CPI didn't plunge at all, but actually increased, spurred on by increases in housing and clothing. In fact if you look at the core CPI rate of inflation over the past year it's coming in just under 3%, which is the highest increase in ten years, and a rate of change which tends to make the Federal Reserve feel uncomfortable. The Fed (actually the Federal Open Market Committee) has a meeting next week, and they are widely expected to hold short term interest rates steady.

Meanwhile, in Southern California local consumer prices rose 0.5%, and 3.4% in the past year as reported in the Orange County Register. We’re running way over the national average here, as we do in most things. If your boss didn’t give you at least a 3.4% raise in the past year, your purchasing power has fallen, and your real income is down.

Midterm Questions:
Let me share with you a few questions concerning the consumer price index and inflation that you might see on your midterm.
-Why is inflation undesirable?
-According to the Bureau of Labor Statistics CPI survey which category of spending represents the largest part of consumer spending?
-Price indices like the CPI are calculated using a base year. What is the value of a price index during the base year?

Extra Credit:
Go to the Bureau of Labour statistics inflation calculator. Find how much buying power a dollar would have in the year that you were born as compared to 2006? Explain. If you are the first student to send me an e-mail with the answer, you will be rewarded with two extra credit Discussion Board points. Only two points extra credit per student can be earned in any given week from the blog questions, so if you have already earned extra credit, please no e-mails. You can also post directly to the blog.

Today instead of typing the blog I'm using a voice recognition program. I suppose I shouldn't tell you the name of the software program, but it works pretty well. The accuracy rate is far higher than voice recognition programs that I've tried to use in the past. Maybe soon we'll finally be freed from the drudgery of typing, which will be really neat. Technology marches on. Whatever happened to secretaries?