T HE economic rewards of college training, which have been substantial for decades, began to fall at the outset of the 1970s. The once sizeable premium to the college graduate diminished; attainment of professional and managerial job status became less frequent; and the rate of return to the college investment dropped after having risen in the 1960s (Freeman, 1975, 1976a). In this paper I use information on individuals from the Current Population Survey (CPS) March consumer income tapes for 1969 and 1974 to examine the dimensions and routes of the decline in the economic value of college training. The 1969 tape contains income from 1968, when the college market was still strong; the 1974 tape contains income for 1973 when the market was weakening. The CPS tape data are supplemented with other statistics, which permit some evaluation of developments through 1975. The paper focuses on white men and women, as the market for college-educated blacks has been dealt with in detail elsewhere (Freeman, 1977). Particular attention is given to young persons on the hypothesis that, for reasons to be elucidated later, the market for their services is likely to be especially active, and thus that declines in the relative position of graduates will be concentrated among them. The paper is divided into three sections. The first presents reasons for expecting a decline in the economic rewards to college in the 1970s and for expecting the decline to be most severe among the young. Section II contains an analysis of the CPS data regarding change in the early 1970s and supplementary evidence through 1975. Section III examines the possibility that the developments under study represent normal cyclic changes and then investigates the impact of the changes on potential future income streams and rates of return to the college investment. There are four principal findings: (1) The economic return to college measured by the income or occupational differences between college and high school graduates fell markedly for young men in the 1970s, a sharp break with past stability that is not readily explained by cyclic developments. (2) Among women there was a noticeable fall in the occupational position of graduates but an unclear pattern of change in relative incomes. (3) Because of the concentration of the drop in relative incomes among young men, the cross-section age-earnings profiles for college graduates twisted in favor of older workers in the 1970s. (4) As a result of the decline in relative incomes and continued increases in the direct cost of college, rates of return to the investment dropped noticeably in the early 1970s.

This paper shows a widening in black-white earnings and employment gaps among young men from the mid-1970s through the 1980s. Earnings gaps increased most among college graduates and in the Midwest, while gaps in employment-population rates grew most among dropouts. We attribute the differential widening to shifts in demand for subgroups due to shifting industry and regional employment, the falling real minimum wage and deunionization, the growing supply of black to white workers that was marked among college graduates, and to increased crime among dropouts. The different factors affecting subgroups highlight the economic diversity of black Americans.