Educational Attainment: Value of Higher Education
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.
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