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What We Read Today 06 April 2015

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

This feature is published every day late afternoon New York time. For early morning review of headlines see "The Early Bird" published every day in the early am at GEI News (membership not required for access to "The Early Bird".).

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A flagging model (The Economist)  The U.S. colleges and universities are no longer turning out a quality product regarding numeracy skills, with scores about  4% below the OECD average.  The UK is doing even worse as Britain is about 6% below the average.  More on this in the members' section.


Articles about events, conflicts and disease around the world

Global

U.S.

  • Dudley: Rate-Rise Timing Data-Dependent, Uncertain in Nature (The Wall Street Journal)  As the Federal Reserve watches economic developments in considering when best to raise rates, how financial markets respond will be just as important in determining the policy path, according to the New York Fed president.

UK

Iran



A flagging model (The Economist)  Nowhere does "the rich get richer and the poor get poorer" find a better demonstration than it does in the data for higher education.  See the array of graphs below.  A college education definitely improves economic prospects:

An investment in a four-year degree offers a return of around 15% a year for somebody working until the age of 65, a figure that has been steady since 2000. But the returns have held up not because graduates have done so well but because those with only high-school degrees have done so badly.

This article points out that there is a wide range of income results for those with college degrees and this has an economic consequence in this day of high education costs:

According to Payscale, a pay consultancy, it [income for a college graduate] varies from +22% to -21%. Rising inequality increases the range of possible outcomes, and hence the risk of taking on student debt.

Econintersect:  Risk of taking on college debt?  That -21% lower puts a significant number (but probably a relatively small percentage) of college graduates below the average lifetime income level of a college graduate.

And things could get worse if current numbers continue into the future.  College debt is currently a constant principal against a depreciating asset.  College loan balances are what they are but the asset backing them (graduates' income) is now nearly 10% less than it was early in the century ($73 k vs. $66 k).  But the loan principal is not a constant value:  Adjusted for CPI inflation, four years of loans incurred 2000 - 2003 have real value increased by approximately 30%, using the CPI average for 2002 and for 2014.

So the value of a college degree being, on average, 15% more lifetime income than for a high school diploma, is offset by the time value of money burden of college loan debt.  The exact value of the offset will depend on assumptions and requires a careful analysis to be further evaluated.   

Note in the graph below that in 1982 the average income (inflation adjusted) for a college graduate vs. a high school diploma was about 36% ($56 k vs. $41 k).  In 2013 the difference is 74% ($66 k vs. $38 k).  So the economic advantage of a college degree is double in 2013 what it was in 1982.  The lifetime average earning advantage for the college graduate may actually be greater than 15% today, again depending on what assumptions are made about the future.  See also next article.

Click for large image.
education.us.the.econ.2015.apr.03.600x500
 


Is your degree worth it? It depends what you study, not where (The Economist, Twitter)  Econintersect note:  The correlation coefficient for the red data will clearly be better than that for the blue data, but there is no doubt that red and blue are two distinct populations with only a trivial amount of overlap.  We think the message here is to attend the Ivy League or equivalent to get an arts or humanities degree but go to the most convenient state university for the technical degree.  Of course, not distinguished in the blue data is home much nepotism may have influenced the data.  It is likely that impact could be significant, elevating the incomes of some of the elite university graduates who came from upper class families.

Click for large image at Twitter.income.college.majors.college.selectivity.the.econ.600x450


Other Economics and Business Items of Note and Miscellanea

U.S. workers falling short in healthy retirement savings (Employee Benefit News)  This is not really anthing new, but that doesn;t make it any less of a problem.

13 Simple Ways to Stop Wasting Food – and Money (Money Talks News)  Thirty-one percent of the food produced each year in the U.S. goes uneaten, according to the latest estimates from the USDA.  That translates to $161.6 billion per year – or about $522 per person, per year.

Home economics: Nutty and nasty (The Blade)  While Republicans in Washibngton do "nutty and nasty" things, members of the same party in some states are trying to move things forward.

How Rich and Poor Spend (and Earn) Their Money (The New York Times)

IRS eases automatic enrollment in 401(k) plans (Employee Benefit Advisor)  It has become easier for employers to implement automatic 401 (k) enrollment.

Q1 to be soft, if not negative. (Benzinga, YouTube)



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