The financial crisis of 2007-2008 gave way to the mother of all hangovers, a recession that will likely be longer and deeper than any downturn since the Great Depression. The Great Recession of 2009 has had wide ranging consequences, not the least of which is increased student interest in economics—for this professor, a sparkly silver lining on what has been a big, black cloud.
For our students and our graduates, relief from a somber job market and bleak state budgets is probably at least a year away.
First, the good news: Many signs point to an economic recovery that has been under way since last summer. At the end of 2009, real Gross Domestic Product, the value of production in the United States, grew at a robust 6 percent annual rate. New home sales and durable goods orders are up relative to a year ago. The stocks have risen along with corporate profits. At the same time, inflation is staying relatively low.
Unfortunately, the bad news hits front. Even as production grows, the economy has shed additional jobs in the first part of 2010, although at a slower rate than in 2008-09. Also, unemployment remains high. The National Association of Colleges and Employers 2010 Job Outlook survey reports a 7 percent decline in the planned hiring of new college graduates over 2009. (Seniors don’t despair! Employers in the same survey report a 5.6 percent increase in planned hiring in the Northeast.)
Also slow to recover are state budget woes. Falling incomes mean increased demands on state services coupled with falling tax revenue. So while a scary job market haunts recent graduates, current students across the country are feeling the squeeze of tighter state budgets in the form of lower state funding for education and higher tuition to make up the difference. New York State is projecting a budget deficit of over $8 billion in the 2010-11 fiscal year and education at every level is poised to pay the price. While the state budget is not yet finalized, the SUNY system is expecting a funding cut of over $100 million. This is in additional to over $400 million in cuts in the prior two years.
With rising tuition and declining job prospects, it is only natural to question the value of a degree. On this point, economic research is clear: education pays. The returns to education, in terms of higher earnings, are estimated to be between 8 and 13 percent for every year of schooling. Certainly outcomes vary across individuals, and lifetime job security is no longer the expectation for most professionals.
However, consider the alternative, or rather the lack of one. Higher education may not be an automatic ticket to affluence, but a lack of skills in the modern information economy is a certain path to low wages. We also know that education generates a social return, something economists refer to as a "positive externality." Studies have shown the education leads to public health benefits, increased civic engagement, decreased probability of criminal behavior, and productivity "spillover" to those working with educated employees.
In an era where limited resources bring painful choices, education remains the engine that powers economic opportunity for the betterment of all society.