The rewards of schooling...

(So this topic will likely be the combination of multiple posts across months.  I have so much to say on the topic of education and the rewards (or lack thereof of them).  I also have a lot of say of the problems having been exposed to the darker underbelly of the education system.  Anyway on with this post.)

So what is this post about?  Well let me pose it like this: I was once asked by a friend who was getting their Master's why they wouldn't make enough money to pay for it.  Well I have finally found a great article to cite to discuss the answer.  My original answer (while true) was hard to articulate when someone doesn't understand economics (or worse doesn't 'believe' in it).

Anyway the article was from the reason.com.  The article doesn't really talk about education but the text is directly applicable to education.  So basically the article discusses something really important, the market DOES NOT reward merit, it rewards value.  Let me say that again, NOT merit, but value.  (Merit would be like trying hard, paying a lot for an education, or some other entitlement.)

What is value in an economic sense?  Basically anything people will pay money for.  I think what is really interesting is there has been a discussion on a private distribution list I am member of about the value of a college education in the wake of significant government intervention in the loans market (which only increase the cost of the education which I will discuss in another post).  An interesting anecdote was provided about a plumber who make $100 an hour and lived way better than the rest of the people in the neighborhood (who were all engineers).  He also worked less hours and was in general, 'happier'.  Why did he make so much?  Well barriers to entry was one, but also he was doing a job a lot of people can't or don't want to do, and people are willing to pay for it.  That is value.

Where does this leave merit?  The market will only reward merit as much as it creates value.  So what about people who work really hard but never make a lot of money?  Or what about people with $100k computer science degrees who are replaced by a person overseas who didn't pay anything for their education?  Out of luck mostly.  If someone can do your job (add the same value/cost or greater than you) then why should the company pay for you?  Why should the public pay for your technology over someone else's to repair a bridge if another 'less innovative' approach works as well?  (It is amazing to me how many people make truck loads of money doing stuff others don't want to do because it is not glamourous or is boring).

This article really made me think because too often we would like the market (or companies) to reward merit more because it seems like the right thing to do.  ('Wow that is a neat idea they should make money.')  But in reality it can't work that way, do you go to the expensive salon and pay 2x the cost of the low cost provider when they produce a equal amount of value?  Of course not.  So why should I or anyone else expect to get pay or awards all because I 'deserve' it?  The market doesn't pay you more for an education unless you provide value.  (It you do add value and are not paid for it you should find a new job which will pay for that value.)  The flip side of this is how do you know if you are adding value?  I'll attempt that topic more in future posts as I have some thoughts about that.

So back to the answer to my friend.  The reason is that your Master's degree doesn't add enough value to warrant having gotten it.  While they said it was 'what they wanted to do' and 'without it wouldn't get paid much or get any jobs in their chosen area'.  Well the problem is the area is overcrowded and has a low bar of entry for new talent.  In places like this value is everything and it is very hard to find value from just a degree.  Also stay out of the public sector as they rarely reward value (what does value mean in a government context) nor merit (when the state is giving out money everyone 'deserves it') but usually time (how long you worked there which is not correlated with value) and who you know (which is inefficient).