How Much More Can You Earn With a College Degree?

We all know how expensive it’s getting to attend college, and that the question of whether or not it’s worth it to attend college has been debated for years as tuition and fees skyrocket. And the famous dropouts or people who decided to not attend college—Steve Jobs, Mark Zuckerberg, Adele, Julie Andrews (who dropped out of high school)—and go on to fame and fortune are rare. Also see: The editors of The Awl, or pal Alex Pareene, who dropped out of college to become an editor at Gawker Media. You don’t have to go to college to make something of yourself.

I was the sort of person who thrived in college, and if I could do it all over again, I would definitely go. College was reasonably-priced for me (I attended UC-Irvine as an undergrad), and gave me the opportunity to discover the career path I wanted to take, which I didn’t figure out until my senior year.

People who hold college degrees generally earn a lot more money than those who have only completed high school. Here’s some research by The Federal Reserve Bank of Cleveland that shows how much.

The premium is calculated as a “ratio of the median hourly wage for those holding a bachelor’s degree and the median hourly wage for those who have only completed high school.”

And here’s the premium by college major categories:

Teachers really are underpaid, aren’t they?

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19 Comments / Post A Comment

jfruh (#161)

An interesting question though would be whether you earn more because you go to college or because you’re the type of person who would normally go to college, even if you specifically don’t go, or don’t finish. Many of the famous college-dropouts-made-good were people from middle-class backgrounds who went to decent high schools and had cultural capital — like, even though Steve Jobs or Mark Zuckerberg never finished college, I don’t think anyone doubts that they would relate culturally (in terms of conversational topics or more or less shared background and worldview) to the broad meritocratic college-attending class that you have deal with in order to advance economically. This is also, I assume pretty much, true of Pareene and Choire, though I don’t know all the specifics of their family background etc. so who knows.

What I’m saying is, studies like this really ought to normalize for non-college attending factors, i.e., how do white men with middle-class upbringing and college-educated parents do, both with and without college degrees?

Mike Dang (#2)

@jfruh Can you please get a job at the research desk at The Federal Reserve?

jfruh (#161)

@Mike Dang I do have a bachelor’s from an Ivy League school, so I probably could! [rimshot]

readyornot (#816)

@jfruh Ha! Having been a research assistant for the Federal Reserve Board, I can tell you that I was never close to critiquing analysis that way until after I left. @jfruh is pointing to a potential omitted variable, something not included in the analysis which might lead both to getting a college degree AND getting a highly paid job. This is the kind of thing Becker started studying in the 70s, and Heckman all the way up until today. It’s a real sticky wicket, and they don’t have any answers yet! Which kind of allows people to still give non-causal, stylized facts all over the place.

@Mike Dang This exact topic is widely addressed in the academic literature on education (particularly higher education). Is college an investment in your “human capital” — in which case the degree is a signal to employers that you possess skills they want? Or does the difficulty and expense of getting a college degree simply screen out less “skilled” (or diligent, or well-connected) workers? Section 5.1 of this ungated article lays out some of the relevant issues and research findings.

Incidentally, the value of a degree when all other things are presumably equal is called “the sheepskin effect”. Another interesting (ungated) paper regarding dropouts can be found here.

readyornot (#816)

@stuffisthings Hesistant to hijack this comment thread into econojargon and semantics, but careful with your words! John Riley would be so upset.
The first explanation you cite, the human capital story, which implies individuals gain substantive knowledge from finishing college and getting a degree, is NOT a signal. Signaling is the exact opposite: college provides no actual skills, but getting in and/or making it through is a sign that doing the brain work is easier because of some underlying factor (your second explanation). They like to say that underlying factor is ability or motivation, but it could just as easily be “had wealthy white parents who provided a lot of love, attention, and social contacts.”
Note that BOTH of these explanations are consistent with college graduates earning more, and it’s difficult to get a clean empirical test of whether signaling occurs.

@readyornot Well I guess information asymmetry mechanisms (signaling/screening) tend to get lumped together against human capital as competing explanations. But the human capital model is completely consistent with signaling. Signaling is just a technique used to overcome information asymmetry. If the human capital model is accurate, then the degree is a credible and efficient signal that you’ve learned the skills that are part of that degree. In fact, this is exactly how higher education is “supposed to” work.

However, the screening explanation tends to conflict with this: if universities are primarily a screening mechanism, then a degree is still a signal, but it’s simply a signal that you have the innate characteristics that colleges screen for. This is particularly appealing as an explanation for why Ivy League degrees are so much more valuable, even though the quality of instruction is not dramatically better (“If you got into Harvard, you must be super smart!”).

Unless you don’t believe information asymmetry is important at all, it’s hard to imagine a mechanism linking college to higher wages where signaling didn’t occur (unless we are talking about self-employed people or founders of startups — exactly the place where we see highly-skilled, successful people without degrees!)

Of course there is a lot of confounding here and the reality is probably a blend of all three explanations.

tl;dr: I was trying to simplify and went too far!

@stuffisthings I guess screening and signaling are both considered “sorting” models? Which makes sense, though I still think signaling can be consistent with human capital.

(Needless to say, this is NOT my specialty area… I just think it’s fascinating.)

readyornot (#816)

@stuffisthings Let’s just continue to clarify, since I have had training in this, though it is not my specialty either.
“information asymmetry mechanisms (signaling/screening) tend to get lumped together against human capital as competing explanations.” < -this is correct.
“But the human capital model is completely consistent with signaling.”<- this is incorrect.
The reason why signaling is a competing explanation to human capital is the following: an educational credential (the signal) is assumed NOT to make workers any more productive. More productive=higher marginal productivity of labor=higher human capital. Education has no value added. In fact, the point of Spence’s original model was that the choice to get a credential was costly but privately beneficial to the worker.
The best empirical test I’ve ever seen is
Tyler, Murnane, and Willett, though it is about the value of a high school diploma, not a college degree. They use differences in GED score thresholds across states and find that getting diploma results in 20% higher wages for a white male worker.
The only difference between signaling and screening is who takes the action. In signaling, the informed agent takes the action to show she’s worth her stuff. In screening, the uninformed agent does something to weed out interactions with disagreeables (classic example is insurance markets).
Now I gotta get some work done, put my human capital to use.

sea ermine (#122)

@jfruh I think part of why you need a college degree to earn more nowadays is because people use that as a screen to weed people out, especially since so many people are out of work companies can really pick and choose who they want. I graduated from college in May and about half the jobs I’m applying to require a college degree and half only require a high school degree. Then I had an informational interview of sorts with someone from one of the places I was applying to and she said “I’m sure you’ve noticed that certain positions say they only require a high school diploma but really, nowadays they will not hire you without a college degree because there are so many qualified applicants”. So I think the fact that you need a college degree to get jobs that only require a high school diploma is part of why it’s so necessary, because a lot of places just wont hire high school graduates for anything beyond retail and fast food when they have so many other people to choose from.

jfruh (#161)

A possibly (?) contrary data point: my first boss, who got laid off with me in the dot-com bust, only attended a couple semesters of college (one at Michagin and one at Berkeley) before entering the workforce. She was a baby boomer and decided in the mid-60s that since the only white-collar job she’d be getting as a woman was secretarial and that didn’t require a college degree it was silly to waste her parents money. By the time I knew her she had a 30+ year editorial career behind her, and yet when we got laid off and she was looking for a new job, despite a long and storied resume several potential employers told her that they decided against her because she didn’t have a college degree, which kind of blew my mind. I wonder if it was just a sort of recession-era thing where you have so many more applicants than jobs that you can discriminate on anything even slightly out of the norm, which I assume would be amplified today.

ThatJenn (#916)

I wish there were more good info on associate’s degrees – my dude is working on one and trying to figure out if the bachelor’s is worth it in time/money/opportunity costs. The AA he’s getting will at least open a few doors to him (in my state, you need one in order to work as a teacher’s aide or lots of related education positions like substitute teaching), but his bachelor’s (in forestry) may or may not really pay off in a career or better pay.

@ThatJenn I think in these stats at least an AA is usually included under “some college.”

@ThatJenn What I’ve noticed in a lot of these studies is that people with an AA make slightly less than those with “some college”, but a lot of that has to do with the work that an AA prepares you for (assuming a technical degree), and the type of work “some college” gets you (white collar, although in this market, I think AA and “some college” will flip). I bet SES is a huge confounding variable as well.

As for your boyfriend’s case, it all depends on the field and the job market. No one will ever get rich in forestry, that’s true, but a really well-regarded undergrad program in forestry is (was, I was there in the 90s for a different program, so I can’t claim more recent knowledge) the University of Wisconsin-Stevens Point, which, if you have Wisconsin residency, is not expensive (by tuition standards, although we’re having a little Tea Party problem here, so.), and Stevens Point itself is boring, but cheap. As someone who is in education, I know that people in those paraprofessional jobs get hosed even worse than teachers when it comes to attacks on public education.

This is a long comment, but I hope this input is useful.

Weasley (#1,419)

I’m going to take this opportunity to brag about something awesome my former high school is doing.

They teamed up with a nearby community college so students at the high school can earn an associates along with their diploma. It’s awesome! It’ll help so many people out. To be clear, this is different from just taking classes at a college/university while in high school. I know that has been around forever.

http://www.twincities.com/localnews/ci_21243678/south-st-paul-high-schoolers-can-earn-associates

This is a really important topic to me, and I have a lot to say about it (ahem, Mike Dang). As college dropout in their late 20s, I’ve had to weigh my chances of becoming an outlier vs. the very degree-centric nature of my desired job market, and the fact that in order to finish my degree I’d have to take out large student loans is a huge factor. Pre-recession, I always had good job luck because degree or no, I’m smart and good at stuff. After being laid off and imploding healthwise for a year or so, returning to the workforce in this economy has proved almost impossible (see jfruh’s comment above).

BUT looking at my peer group, I’m not sure my degreelessness (and debtlessness) is that big a disadvantage. In my closest circle I count three master’s holders (and associated 10x of thousands of dollars of debt) currently unemployed, and two more just starting grad school. Granted, there may be a parabola of diminishing returns on secondary degrees (Penelope Trunk has written a lot about how second degrees are no longer worth it), but from my perspective I’m doing a lot better financially with no debt and a little income than my friends and family with no income and a lot of debt.

I really do want to finish my degree. But I don’t want to do it because trends of a time that is looking more and more over tell me to. And I want to know that it’s worth it. That’s the data I’m interested in seeing.

@beatricks@twitter Fellow dropout here! I’ve got a few years on you, but my experience has been much the same. Part of it is because I’m primarily in software development where there’s just a ton of jobs even now. And this is actually a very degree-centric industry as well – I interview candidates and I’ve never seen one with less than a masters degree.

One nagging question I’ve always had though is if I’m making a competitive salary or if employers see the lack of degree as an excuse to hire someone for lower pay. Have you ever thought that or seen evidence of it?

I’ve always said I wanted to finish my degree as well. At first I said I’d do it when a company offered tuition reimbursement as a benefit. That opportunity came a few times but now I realize I’d only go back to learn something for myself. Perhaps it’s part of my happy go lucky attitude but I’ve found I have no real need for a degree as a credential for my industry but there are definitely areas I’d want to study for pure self-enjoyment.

TARDIStime (#1,633)

One thing: most of the people listed here as having not gone to college, actually went to college.
The majority of them didn’t finish, but they didn’t need to – by being at college, they met other college-educated people and were able to leverage their entrepreneurial dreams together as a team (prime example: Mark Zuckerberg – he didn’t create Facebook on his own. Everyone in Coldplay was studying at the same Uni too – the guitarist was going to be an engineer!), because they still went to college in the first place.
This also worked for a brother-in-law; he did half his degree in IT and got headhunted because he was and is a programming superstar. He is a senior developer now and makes VERY decent money. Because he studied, impressed his lecturers, and named them as references (something I did when I studied at TAFE). His degree is still incomplete and it doesn’t affect his value in the slightest.
I think the secret here is to start at college, impress and network with the right people, maybe build a team and start something if the opportunity presents itself. Not necessary to follow study through to completion, though (depending on the industry you plan to enter – becoming a surgeon? Finish, obvs).

His subject is good, long while I find this topic and I think it is here, world population day

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