Thinking About Academia Like An Economist

Until I began attending IHS events about two and a half years ago, I had never had the pleasure of knowing a single economist. As tends to happen, the events put me in touch with a large number of these "dismal" - yet surprisingly delightful - scientists, and this philosopher soon picked up enough economics to be dangerous. 

My economist friends, their professors, and the economist bloggers I subsequently began to read showed me that economics consists a way of thinking more than a fixed set of research questions. They use the tools of economics to study such diverse topics as pirates, voting, and culture, and everything you could imagine in between. In that spirit, I'd like to put a few economics concepts to work in explaining some of my opinions regarding attending graduate school these days.

1. Opportunity costs:

What will (or would) you be doing if you weren't starting (or continuing) grad school? Doctoring, lawyering, trading stocks? Selling keychains on Etsy? Living in your parents' basement, playing video games and watching the best years of your life speed by? 

You need to consider the costs you'll incur by attending grad school. Importantly, these costs include not only the tuition and living expenses you'll pay and the money you'll borrow (plus interest!), but also the value of any wages and opportunities you forego in the time you'll spend still in school. 

Given my B.A. in philosophy, my job opportunities coming out of college were limited, even though it was before the recession. If I had found office type work, I wouldn't have earned much, probably wouldn't have even received benefits, and wouldn’t have been well positioned to climb a career ladder with that company. As such, my subsequent fully-funded (i.e., tuition-free plus modest stipend) years of grad school were less costly to me than they would have been to someone poised to make a very successful entrance into the workforce. 

2. Asymmetric information & perverse incentives

Acceptance into a graduate program constitutes no indicator whatsoever that a graduate program thinks you are likely to succeed in academia. They (especially in middle- to bottom-of-the-heap quality programs) may very well be hoping that you don't fully realize the bleak job prospects that their degree will afford you. This possible asymmetry of information between the university and the potential graduate student can work to the advantage of the former, because there are perverse incentives for universities to accept graduate students who are unlikely to ultimately succeed professionally; the university often receives tuition dollars from these students, or extracts value from them in the form of cheap teaching assistant labor. So, do your homework before you attend! Don't become a victim of these features of institutional structure. 

3. Human capital & investment vs. consumption

People like to talk about higher education as if it is an investment in human capital that students should expect to pay off financially in the future. This assumption is only sometimes, and even then differentially, true. In some fields, PhDs actually often earn less than MAs (the former end up taking academic jobs, while the latter take more lucrative jobs in private industry). Even more importantly, some types of graduate and professional degrees are more likely to pay off in monetary terms than others (think medical doctors vs. PhDs in underwater basket weaving).

Also, notice that not all of the value of higher education is investment value - rather, a considerable portion of its value appears to generate in its consumption. This is what people seem to mean when they talk about completing a graduate degree for its own sake, fully expecting to have to find jobs outside of academia. For those individuals, the graduate school experience holds value worth paying directly or indirectly for, in addition to any investment value (or lack thereof).

Bottom line:  The blanket encouragement you may receive from well-meaning family members, friends, etc. (who don't even really understand your field of study!) to continue your education and "secure your future" is misguided. Figure out the costs (remember, including opportunity costs) of your specific potential graduate program and its realistic payoffs. If the payoff is negative then decide whether the experience is worth that much to you (especially if you don't even like school, then just say no to more of it!)

4. Sunk costs

Economists are very forward-looking. Let's say you're five years into grad school. It was a perfectly good decision for you to attend at the time, but you've burned out and lost steam. Finishing will take you a couple more years--if you can finish at all--and in any case they will be miserable ones. But you've put so much time and money in already - shouldn't you stick it out? 

Not necessarily. That money and time represent a sunk cost: it's gone in any case, so don't let it hijack your decision-making faculties now. You may feel like you have something to prove to yourself and others, and that's natural. But your real goal was to be successful in academia, not merely to receive a silly piece of diploma paper, and you're now quite unlikely to reach that goal. Consider cutting your losses and getting out. Having done so can only benefit you, whether you end up staying with a renewed sense of purpose, or leaving with one. 

5. Subjectivity of value

All of that being said: for those of you whose hearts  are really in it, don't let people talk you out of giving academia an honest try, despite the ugly statistics and horror stories. The value that each of us would find in academia is subjective, and no one else can decide for you whether the risk is worth the reward. Someone is going to get those academic jobs, after all! And, even if things don't work out the way you had hoped, the experience and sense of accomplishment may very well be worth it for you, if you can minimize your total costs (money, time, etc). Just be smart about it, and let an economic mode of thinking be your guide.