Value of Higher Education

Educational Attainment: Value of Higher Education

• American InterContinental University
  • MBA - International Business
• Grand Canyon University
  • MBA in Marketing
• Ashford University
  • MBA/Public Administration
• Benedictine University
  • Accelerated MBA
• Bethel University
  • Master of Business Administration (MBA)

Does going to school pay off? Most people think so. Currently, almost 90 percent of young adults graduate from high school and about 60 percent of high school seniors continue on to college the following year. People decide to go to college for many reasons. One of the most compelling is the expectation of future economic success based on educational attainment.

This report illustrates the economic value of an education, that is, the added value of a high school diploma or college degree. It explores the relationship between educational attainment and earnings and demonstrates how the relationship has changed over the last 25 years. Additionally, it provides, by level of education, synthetic estimates of the average total earnings adults are likely to accumulate over the course of their working lives.

These synthetic estimates of work-life earnings, which are based on data from the Current Population Survey (CPS), are illustrative and do not predict actual future earnings. The synthetic work-life earnings are “expected average amounts” based on cross-sectional earnings data for the preceding calendar year by age, sex, full- or part-time work experience, race, Hispanic origin, and educational attainment groupings, as collected in the March 1998, 1999, and 2000 Current Population Surveys (CPS). The synthetic work-life estimates are thus based on 1997-1999 earnings data and are shown in terms of “present value” (constant 1999 dollars). These synthetic estimates are shown in detail in three tables at the end of this report.

EDUCATION AND EARNINGS

In 2000, 84 percent of American adults ages 25 and over had at least completed high school; 26 percent had a bachelor’s degree or higher. Both figures were all-time highs. In 1975, 63 percent of adults had a high school diploma, and 14 percent had obtained a bachelor’s degree. Much of the increase in educational attainment levels of the adult population is due to a more educated younger population replacing an older, less educated population. As more and more people continue their schooling, this more highlyeducated population pursues opportunities to enter into occupations yielding higher returns in earnings.

Earning Increase With Education Level

Adults ages 25 to 64 who worked at any time during the study period5 earned an average of $34,700 per year. Average earnings ranged from $18,900 for high school dropouts to $25,900 for high school graduates, $45,400 for college graduates, and $99,300 for workers with professional degrees (M.D., J.D., D.D.S., or D.V.M.). As shown in Figure 1, with the exception of workers with professional degrees who have the highest average earnings, each successively higher education level is associated with an increase in earnings.

Work experience also influences earnings. Average earnings for people who worked full-time, yearround were somewhat higher than average earnings for all workers (which include people who work part-time or for part of the year). Most workers worked full-time and year-round (74 percent). However, the commitment to work full-time, year-round varies with demographic factors, such as educational attainment, sex, and age. For instance, high school dropouts (65 percent) are less likely than people with bachelor’s degrees (77 percent) to work full-time and year-round. Historically, women’s attachment to the labor force has been more irregular than men’s due mostly to competing family responsibilities. Earnings estimates based on all workers (which includes part-time workers) include some of this variability. Yet, regardless of work experience, the education advantage remains.

Earnings estimates based on fulltime, year-round workers provide more straight-forward view of potential earnings and remove some biases for demographic group comparisons. The resulting full-time, year-round workers without a high school diploma earned 0.9 times the earnings of workers with a high school diploma; by 1999, they were earning only 0.7 times the average earnings of high school graduates.

The historical change in relative earnings by educational attainment may be explained by both the supply of labor and the demand for skilled workers. In the 1970s, the premiums paid to college graduates dropped because of an increase in their numbers, which kept the relative earnings range among the educational attainment levels rather narrow. Recently, however, technological changes favoring more skilled (and educated) workers have tended to increase earnings among working adults with higher educational attainment, while, simultaneously, the decline of labor unions and a decline in the minimum wage in constant dollars have contributed to a relative drop in the wages of less educated workers.

Earnings differences by educational attainment compound over one’s lifetime.

Synthetic estimates of work-life earnings dramatically illustrate the differences that develop between workers of different educational levels over the course of their working lives.

For full-time, year-round workers, the 40-year synthetic earnings estimates are about $1.0 million (in 1999 dollars) for high school dropouts, while completing high school would increase earnings by another quarter-million dollars (to $1.2 million). People who attended some college (but did not earn a degree) might expect work-life earnings of about $1.5 million, and slightly more for people with associates degrees ($1.6 million). Over a work-life, individuals who have a bachelor’s degree would earn on average $2.1 million — about onethird more than workers who did not finish college, and nearly twice as much as workers with only a high school diploma. A master’s degree holder tops a bachelor’s degree holder at $2.5 million. Doctoral ($3.4 million) and professional degree holders ($4.4 million) do even better.

The large differences in average work-life earnings among the educational levels reflect both differential starting salaries and also disparate earnings trajectories — that is, the path of earnings over one’s life. As Figure 4 shows, the earnings paths of people with doctoral and professional degrees look very different from those of workers at other levels of education. At most ages, however, more education equates to higher earnings.11 Indeed, the educational payoff is most notable at the highest educational levels.