The College Admissions Wave: Will the Number of Students Keep Rising Forever?

We’ve written pages on the “College Admissions Wave” Today, we came across some new demographic data from the Pew Research Center.

It is no shock to anyone with college-aged children that college campuses are a lot more crowded these days. Much of the focus in the media has been that a higher percentage of American youths were attending college. We conceded that this was true, but we insisted that the primary diver of the increased demand was not the higher percentage of kids going to school but the shear number of kids in the Echo Boom. (It’s not a bigger piece of the pie, so to speak, but a much bigger pie itself.) We now have some numbers to test this.

Between 1967 and 2008, the number of 18-24-year old enrolled in college more than doubled from 5.1 million to 11.5 million. This is an increase of 6.4 million students, or 125%.

Taking a look at the numbers,

In 1967: 23.4M college aged * 21.7% attendance rate = 5.1M students
In 2008: 23.4M (assuming zero population growth) * 42.4% attendance rate = 9.9M students

So, as it would turn out, 4.8 million of the 6.4 million increase since 1967 was due to increased attendance rates, not demographics. That works out to 75%, with the remaining 25% of the increase due to demographics changes and foreign born students.

The facts speak for themselves; a higher percentage of Americans is going to college than ever before. But can we expect this trend to continue? Let’s consider the facts.Over 1967-2008 time period, the percentage of 18-24-year olds enrolled in college increased from 25.5% to 39.6%. So, roughly 4 in 10 Americans now goes to college. But at what point will this level off?  A quick look at the chart above indicates that it already is leveling off; the steepest section of the graph is from 1973 to 1992. Increases since 1992 have been much less impressive.

We will never have a country in which 100% of the population goes to college, or even 70-80% for that matter. That is unrealistic. But what is realistic? 50%? 60%?

It’s hard to say, but we cannot imagine the number rising to more than half in our lifetime. Many of the factors that led to the increase from 25.5% to 39.6% have already come and gone:

  • The process of “deindustrialization” has been in play since the 1970s. You cannot earn a comfortable wage as a factory worker anymore, so many young men who might have been content to follow their fathers to the GM plant have been forced to pursue other options, which generally involve college education.
  • Meanwhile, women long ago entered the workforce en masse and have become very highly represented in the educated professions. A majority of law school students are now women, for example. Much of the increase in the percentage of Americans who attend college from 1967 until the late 1980s was simply women “catching up” to men in this respect (See Pew’s Appendix, which breaks it down between men and women).

So, with the decline of the male blue collar career path and the mass entry of women into professions that require higher education already baked into the numbers…what would cause a significant increase in college admissions from this point forward?

The transformation of the United States from an industrial economy into a services and information based economy is largely done, and with this transformation complete we believe that demographic trends will become the most important determinant of future college admissions. The numbers point to roughly seven years of declining demand ahead. College administrators, take note.

The Economics of Japan’s Naughty Old Men

You have to love the Japanese language — they have a word for pretty much everything.

A fine example is choiwaru oyaji — defined as a middle-aged man who is “slightly bad,” in a recent article.

Everyone knows the type: the naughty old guy in the office who likes to flirt with the receptionist and tell the occasional off-color joke at the water cooler. He’s not a “dirty old man” per se, but more of a rascally little boy who never fully grew up. He’s in his 50s but still young at heart, and he takes care of himself — he usually has a good haircut and will generally not be seen in public without a sports jacket and a classy pair of shoes. He’s certainly no beaten-down, everyman slob like Al Bundy (or Al’s Japanese equivalent).

Give credit to the Japanese for inventing a phrase that encapsulates this mental image!

The existence of millions of these choiwaru oyaji in Japan is one of the reasons that, despite two decades of recession, the country has remained the largest market in the world for luxury goods. After all, in addition to buying himself the requisite Rolex watch and Montblanc pen, he likely has to buy a Louis Vuitton handbag for his wife, daughter, mother, and possibly a mistress or two. Yes, the “slightly bad middle-aged man” has quite a few women he feels obligated to impress.

Not surprisingly, Japan absorbs roughly 30% of the world’s luxury goods, compared to roughly 20% each for the United States and Europe.

The luxury market is also supported by the other end of the spectrum, which — in typical Japanese form — also has its own word. A makeinu is a single woman in her 30s without children (the literal translation is “loser dog” — see sociological explanation here). These are essentially the Japanese equivalents of the Sex and the City characters. You can imagine that Sarah Jessica Parker’s wildly popular TV show would have never gotten off the ground had it been invented in Japan; “Loser Dogs and the City” just doesn’t have the same marketable ring to it.

At any rate, Japan is full of makeinu in their 20s and 30s who, in lieu of getting married and raising children, have opted to continue living with their parents rent-free and to spend their disposable income on shoes and designer purses.

Between “slightly bad middle-aged men” and “loser dogs,” it’s easy to see where Japan gets its appetite for luxury goods.

That appetite has started to wane, however. In the wake of the 2007-2009 global recession, the New York Times tells us that “Once Slave to Luxury, Japan Catches Thrift Bug.”

It appears that the recession has accelerated a generational trend. The choiwaru oyaji are aging out of the prime luxury spending years; men in their mid-60s and 70s are far less likely to splurge on luxury goods than a man in his mid-50s, at the peak of his income and power. Meanwhile, younger girls appear less interested in brands than their older sisters.

So, could Japan’s long love affair with luxury goods finally be drawing to a close? It’s too early to say, but it does appear that, at the very least, Japan’s demand for these products will moderate due to changing demographic trends. The real growth for the sector will have to come from emerging markets with legions of nouveau riche — such as China, India, and Brazil.

Charles Lewis Sizemore, CFA

Related Post:  “Buy Our Bonds and Women will Love You

The Iran Protests and Demographics

By now, everyone should be aware of the anti-regime protests taking place in Iran.   The country is experiencing unrest not seen since the 1979 Islamic revolution that deposed the Shah and brought the current regime to power.  The “spark” that ignited this rebellion was the disputed presidential election, of course.  But the “tinder” that caused this fire to spread are Iran’s demographics.  As you can see from the charts below, Iran is primed for revolution.

We’ll start first with a flashback to the original 1979 revolution, the one in which young Islamic militants  shocked the world by holding 52 American diplomats hostage for over a year.  This is the event that most historians mark as the beginning of the global Islamist movement.   The reasons for the revolution are too complex to be discussed in a short blog post, but looking at Chart 1 it’s not hard to see why it was a success.

During the Islamic Revolution, 1979 American Baby Boomer student revolutionaries  in the 1960s used to say “Never trust anyone over 30,” and there is a reason for this.  A young person has nothing to lose and has the youthful audacity to believe in change (for better or worse).   But by the time a person reaches their 30s, they have a career, a spouse, a family, and a stake in the status quo.  As we age, we get more resistant to change because, at the end of the day, we have more to lose.  Why risk your livelihood for abstract ideals like “democracy” or “freedom”?

So, how do Iran’s demographics look today?  In a word, “revolutionary.”

Consider Chart 2: Iran’s population is absolutely dominated by the 15-34 age group.  This cohort includes everything from rebellious teenagers to idealistic college students to frustrated and unemployed 20- and 30-somethings — exactly the kind of people with the reckless abandon needed to launch a revolution. We have no real way to handicap the likelihood of success for Iran’s young revolutionaries today.  Their passion is impressive, but they are up against some truly nasty people who will do anything to stay in power.

The Tiananmen Square protests in China twenty years ago were inspirational to those watching, but in the end they accomplished very little.   The might of the Chinese state was too much for a ragtag band of students.   Still, given their sheer numbers today, the young Iranians have a fighting chance to un-do the Islamic revolution of their parents’ generation and replace it with a more liberal revolution of their own.

The Age of Aging

We recommend you grab a copy of George Magnus’s The Age of Aging. Mr. Magnus is a senior economic advisor at UBS, and his new book is probably the best “big picture” analysis on demographic trends that we have seen since Philip Longman’s The Empty Cradle.  Magnus’s work is a fine complement to our own research, and it deserves a place on your bookshelf.
In the pages that follow, we’re going to quote Magnus on various topics and compare his views to those of our own and of other commentators that we follow.

On the History (and Future) of Retirement:
In the preface to the book, Magnus writes,
Many of the premises on which modern welfare programs were established have changed or soon will.  Retirement pensions, for example, were designed to allow people to stop working and enjoy their last few years in relative comfort while making way for new, younger workers.  Today, although pensioner poverty is becoming a growing problem…retirement is for many an extended period of state-supported or company-financed leisure, which was never anticipated….

To address these challenges over the next decade or two, it is probable that the role and influence of the state, and what is demanded of it, will expand.
There is no question that the concept of retirement has fundamentally changed over the years.  Today, it is viewed as a true entitlement, something that is “owed” to retirees who have spent their lives working and paying Social Security taxes or union dues.  But as Magnus points out, it was not always this way. Continue reading “The Age of Aging”