Earnings gap narrows, but higher education still pays

The earnings gap in the United States between young college graduates and their peers with only high school diplomas has narrowed slightly in recent years. But adults with bachelor degrees still make significantly more over their careers, according to a report released last Monday by the College Board.

[This is an article from The Chronicle of Higher Education, America’s leading higher education publication. It is presented here under an agreement with University World News.]

The expansive triennial report, Education Pays 2013: The benefits of higher education for individuals and society, examines the value of higher education in both financial and non-financial terms.

The goal is to "call attention to ways in which both individuals and society as a whole benefit from increased levels of education," the authors write.

Debate over the return on investment of higher education – and whether such a tally is the right way to determine its value – has intensified as tuition fees have risen faster than family income. And research on the extent to which graduates come out ahead is a complex, charged exercise.

The College Board has faced criticism in the past for overstating the benefits of a degree. But this report is about data, not advocacy, Professor Sandy Baum, one of its authors, has argued.

Crunching numbers

According to the new report, for college graduates entering the workforce, the immediate payoff has slipped a bit.

In 2008, males aged 25 to 34 years with bachelor degrees made 74% more in median earnings than did high school graduates in the same age range; the figure was 79% for women. In 2011, however, the difference was only 69% for men and 70% for women, the report says.

Still, that gap is significantly larger than it was a few decades ago, said Baum, a senior fellow at George Washington University's graduate school of education and human development.

"Putting it into the longer-term context is important," she said. In 1991, male and female bachelor degree holders aged 25 to 34 years made 56% more than their counterparts with only high school diplomas.

Beyond early adulthood, the report shows that in most cases it does pay to attend college or university.

Over the course of a 40-year career of full-time work, the median earnings of those whose highest academic credential is a bachelor degree are 65% higher than those of high school graduates. Associate-degree holders make 27% more, according to the report, while those with some college education but no degree earn 13% more.

Still, higher education is not a guaranteed ticket to higher earnings, said Baum. "There's no promise here." Other reports have looked recently at earnings and unemployment rates by institution, for instance, and field of study.

Conclusions about the value of education are much more complicated than they seem, said Baum. A supplemental report by the College Board this year, How College Shapes Lives: Understanding the issues, explores, for instance, the different approaches to defining earnings premiums and the numbers behind rates of degree completion.

"Because of the debates that are going on," Baum said, "it seems important to explain different definitions and methodologies that lead to conclusions."

Breaking even

In public discussions of the costs and benefits of higher education, stories of highly indebted, unemployed college graduates tend to draw the most attention. The report responds to the cost-benefit question by calculating how long it takes to ‘break even’ on an education.

Using the median earnings of a high school graduate for comparison, the student who enrols in college at 18 and completes a bachelor degree in four years can expect to make up for being out of the workforce as an undergraduate and for borrowing the full average cost of tuition and fees by age 36. Using the lower average tuition and fees at public colleges, the break-even age drops to 33.

Accounts of huge student loan debts are not representative of the broader picture, said Baum. Most students borrow reasonably, she said. Of students who first enrolled in college in 2003-04, more than four in 10 did not borrow at all, according to the supplemental report.

A quarter of students borrowed less than US$10,000, the report says, and only 1% took out more than US$75,000 in loans. Among those borrowing the most, 85% went on to finish a bachelor degree within six years. Of students who dropped out and did not come back, 57% had some debt, the report says, most less than $10,000.

The report also shows that the more education an individual attains, the less likely he or she is to be unemployed. The unemployment rate for bachelor degree holders was 4% in 2012, while 8.3% of high school graduates were unemployed.

Andrew Sum, director of the Center for Labor Market Studies and a professor of economics at Northeastern University, said the report should have focused on an important trend among today's new college graduates: mal-employment.

"A larger share of college grads are ending up in jobs that don't require college degrees,” Sum said. Those who are mal-employed are overqualified for their positions. More than 36% of recent college graduates are mal-employed, according to Sum's research.

In the supplemental report, the authors write that, for graduates who hold jobs that do not require degrees, their situation is "almost always temporary". The authors also cite the income gap between college graduates and holders of only high school diplomas, and how it widens with age thanks to a steeper earnings path for those with college degrees.

Beyond degrees

While the report examines earnings by education level, it does not break down employment outcomes by field of study. But degree attainment is not the deciding factor for income, said Anthony P Carnevale, director of the Georgetown University Center on Education and the Workforce. This report, he said, "seems to respect that hierarchy a bit too much".

Carnevale and the Georgetown center released a report in 2011 detailing the differences in earnings by college major, a question they have continued to explore, looking also at unemployment rates. A bachelor degree alone does not tell the whole story, he said.

One variation the College Board does examine is across levels of education within the same occupation.

In 2011 the median earnings of sales representatives in wholesale and manufacturing, for instance, were 76% higher for reps with bachelor degrees than for those with only a high school education. But among secretaries and administrative assistants, those with bachelor degrees earned just 15% more than those who held only a high school diploma.

Although future earnings may influence students' decisions about college, the authors say, making earnings the dominant factor "could lead to outcomes that are problematic for the future of both individuals and society".

Equity and health in education

Low-income students are overrepresented at for-profit and two-year colleges, according to the findings, while students from higher-income families dominate enrolment at four-year public and private institutions.

Forty-five percent of students at for-profit institutions in 2011-12 came from families making less than US$29,600 a year. At four-year private universities, 60% of the students came from families making more than US$65,461, while the share of those students at four-year public universities was 55%.

The American higher education system is very averse to risk and favours students who demonstrate the most ability to pay, said Carnevale. "We're now a country that produces intergenerational racial and class advantage."

Beyond higher earnings, there has also been debate over whether the healthier lifestyles that college graduates have been proved to uphold are a product of education or socio-economic background.

Many of those healthy behaviours can be attributed to education, according to the report.

Just 8% of people with at least a bachelor degree smoked in 2012, compared with 25% of those with a high school diploma or less, the report says. The authors also cite a study that found increased education causes declines in smoking.

The share of men and women who are obese is lower among college graduates. The amount of time spent exercising per week, meanwhile, increases across all age groups as the level of education goes up.

Nearly two-thirds of graduates of four-year colleges met the minimum federal guidelines for weekly physical activity last year, compared with 38% of people with no more than a high school diploma.