Despite its boosterism, NACE’s 2019 ‘First Destinations’ is a worrisome read
In our prior post, we considered how the idea of Return on Investment applies to college education and how it needs to be used very carefully to hold any validity. At the same time, there clearly need to be guardrails around the amount a family spends on college, to avoid massive overspending relative to post-graduation income, and to avoid ensuing debt and personal problems. One solution would be to establish a benchmark ratio of college cost to income to at least give consumers an idea of when they are deviating significantly from US norms. To set the cost portion, we used the average cost of a Bachelor’s degree (current forecast for the incoming Class of ‘25: $102,284) and now will look at actual earnings after graduation.
The National Association of Colleges and Employers (NACE) represents higher ed’s career services function, giving it the focus and membership to evaluate and quantify college graduates’ career outcomes and help us answer our question. Those immediate right-out-of-college outcomes are presented in its “First Destinations” report. Per its authors, First Destinations is probably the most comprehensive industry report on graduates’ earnings after college. The most recent issue uses survey results of 2019 graduates with information collected up to April 2020, when COVID arrived, to generate income and employment statistics for various degrees, schools, degree types, geography and other categories.
Let’s come right out and say it: the First Destinations results are not credible. That comment is based both on the methodology and the income numbers. But reading the report and, getting beyond its data problems, parsing the details paints a poor picture of college graduates’ career prospects.
Some of you will not be interested in parsing First Destinations. If so, please skip the next section and go to “Rose-colored viewpoint”, where we get into how the Class of ’19 did in its initial foray into the labor marketplace.
‘First Destinations’ is marketing, not research
First Destinations’ headline results show the class of 2019 awarded Bachelors made an average of $58,298, with $52,714 coming in the form of salary.* This is certainly a significant overestimate, something NACE admits in the text, away from headlines or the press release. The too-high income level suggests that the employment rates are also too sunny.
The overestimates flow from the methodology.
- NACE assembles its data from surveys collected by colleges, not disinterested parties.
- Surveys of sensitive information like income are flawed because graduates inflate their earnings when asked.
- The 2019 college surveys received responses from 65.6% of their graduates. So 1/3 of the class didn’t respond. Who is more likely not to respond, a lower earning graduate or a higher earning one? The latter one, creating another driver of upward bias.
- NACE received surveys conducted by 349 undergrad schools, roughly 10% of US colleges. NACE highlights the fact that these 349 schools account for 28% of all Bachelor’s graduates. Spot the problem here? NACE’s sample is skewed towards larger schools; the report itself details how the larger the school, the more its graduates earn on average. So the colleges included in the dataset bias results upwards.
All these steps inflate reported income and presumably make the report’s employment rates look better. Impartial researchers, such as the Federal Reserve Bank of New York and research from Harvard’s Raj Chetty and his collaborators, come to significantly different and lower income numbers. As mentioned, First Destinations admits the average salary is $38,661 with all graduates included, but puts that in the text, far away from headers, charts and press releases. This is more credible when compared with other sources but NACE’s lower number is still subject to the upward bias caused by the surveys.
*NACE reports a median bonus of $5,584 for recent Bachelor’s holders with standard full-time jobs. The figure likely includes signing bonuses and other one-time compensation, but even so it looks oddly large as early-career workers typically don’t receive end-of-year bonuses.
Even with NACE’s rose-colored viewpoint, the 2019 report’s results are worrisome
OK, so a professional organization engages in puffery. So what? News at 11. Keeping in mind that 2019 was a year of exceptionally strong employment with a robust labor market, the NACE report shows:
- Only 55% of grads had a standard full-time job.
- A further 19% were enrolled in continuing education. Many of these people had intended to pursue grad degrees all along but there will be a subset doing so because they couldn’t find a satisfactory job.
- Adding the two together along with some small categories that would generally be regarded as successful outcomes (armed forces, services, full-time entrepreneurship): 76% of students were in a place in their career that would generally be considered a successful step forward after college.
The chart below shows NACE’s different response categories, with “satisfactory” ones marked in blue.
NACE Class of 2019 Bachelor’s degree post-graduation employment, by size
Grouping all the items in our satisfactory and less satisfactory buckets:
The grouping of the 76% takes the reasonable position that a successful transition from college into the post-college world involves either starting a full-time job or grad school. There will be a subset of students doing part-time or freelance work or not working that are very happy with the outcome – good for them! – but many students and their parents will be disappointed by a spell of unemployment or part-time work. And some of those working full-time will be in jobs not requiring a college degree. Floor walking at Walmart doesn’t require one, but it certainly counts as a full-time job.
Because NACE’s numbers are biased upwards, the 76% ratio of “satisfactory transitions” is likely too high. If so, what is the real ratio of graduates starting a full-time job or a graduate program in the year after college? The data does not exist to answer this question, so we broadly estimate 2/3 of 2019 graduates are in reality holding full-time jobs or in an educational program. This figures looks like a reasonable reduction from the overoptimistic NACE number; it may in fact be too high. That 2/3 leaves 1/3 of recent graduates in a suboptimal career situation right after college.
Readers may have a different reaction to this statistic but — keeping in mind that 2019 was a year of exceptional economic strength, with unemployment at a multiyear low and personal income surging across the US economy – it is alarming that approximately 1/3 of recent grads were unemployed and working part-time or at a part-time gig-like job. Not all of this 1/3rd were unhappy with their career or college degree, but many will be. And that 1/3rd does not include those in dead-end full-time jobs. All this is in the very strong economy right before COVID’s arrival.
Precarity: a state of persistent insecurity with regard to employment or income
Higher ed marketing is full of references to economic opportunity, career success and social mobility amid a drive to enroll all potential candidates and better their lives. NACE, the professional association of higher ed career services, supports that message by showing a 2019 graduating class with high incomes, a bright positive “Career Outcomes Percentage” of 86%, and the vague claim that their survey covers 66% of graduates with its “Knowledge Rate” (based on the sample sizes, the report actually surveys a skewed 18% of the 2019 class).
Digging into the numbers instead reveals a situation where approximately 1/3 of graduates emerge from their graduation ceremony into a state of economic precarity: unemployed or doing gig or part-time work or waiting for an opportunity. All this in the context of a booming economy prior to the COVID-19 recession. The next time you hear a student or parent wondering about the value of a college degree, treat the concern with respect – it is a sensible viewpoint for many.
First destinations aren’t final destinations
Readers will rightly object that graduate’s job status immediately after they receive their degree doesn’t determine their fate. Many will later climb on to a career track paved with their college credentials. That climb will depend on extra effort, extra education and some luck so it makes the undergraduate degree less important and less valuable than in the period around college graduation. Nevertheless, the objection is valid. To understand the long-term situation better, we next look at Federal Reserve measures of underemployment and pay gaps among college grads, to see a more thorough measure of post-graduation incomes. What proportion of college grads work at mediocre-paying jobs that don’t require a degree? And returning to our benchmarking, what is a realistic estimate of average starting income for recent graduates?
Please find this post and more at CTAS Higher Ed Business site.