The College Board has recently published an interesting report entitled Education Pays 2010: The Benefits of Higher Education for the Individual and Society. As have similar reports in the past, this shows the enormous financial benefit to the individual of gaining a bachelor's degree (or higher) - as compared to someone who does not get a college degree. It also looks at a number non-financial benefits as a function of educational attainment - health, job satisfaction, unemployment rates, etc. All in all, a very interesting report that makes a good case for the benefits of post-secondary degrees.
A Chronicle of Higher Education article discusses some of the controversial elements of the report. However there is an additional aspect of the report that I have not seen mentioned that caught my attention. Without in any way challenging the report's conclusion that a college degree is highly desirable, comparing salary data from this report with similar data from the previous report in this series Education Pays 2007 leads to a somewhat less upbeat conclusion.
The salary data in the current report comes from 2008, that in the previous report, from 2005. Comparing the 2008 median earnings for bachelor's degree holders ($55700 in 2008 dollars) with similar numbers for 2005 ($50900 in 2005 dollars), we see a percentage increase in median earnings of 9.4%. Unfortunately, the Bureau of Labor Statistics data tells us that the CPI increased 10.2% over that period. That is, adjusting for inflation, one sees that the median real earnings for bachelors degree holders decreased over this three year period by about 0.7%.
Unfortunately, this trend in real income for bachelor's degree holders is not an artifact of the recent financial downturn. As I discussed in an earlier post Real income vs educational level - a problem for higher education(July 25, 2007), mean real income of bachelor's degree holders fell by almost 4% during the period 2000-2005, and lifetime expected real income for bachelor's holders has been essentially flat since 1979, declining by about 1%. Thus, for all intents and purposes, the median real income for a bachelor's degree holder has been flat for the last 30 years.
Figure 1.6 of Education Pays 2010 shows related data over the period 1971-2008 for workers 25-34 years of age by gender and educational level. From that figure, this long term stability of real median income for bachelor's holders is obvious- as is the reality that the real median income for everyone with less than a bachelor's degree has seen a large and steady drop over time. Thus median financial benefits to bachelor's degree holders have not increased in real terms over times, but only in comparison with those who do not hold at least a bachelor's degree.
It is interesting to compare these results regarding the essentially constant median financial benefits of a college degree with the rising costs of obtaining that degree. The College Board's Trends in College Pricing 2009, tells us that average published real tuition and fees at private colleges went up 7.7% and at public institutions, 9.8% during the period 2005-2008, the times between the two Trends reports.Thus, the cost of the degree was rising in the upper double digits, while the returns on the degree dropped by about .7%.
Over the longer term, using the data from Trends again, one finds that the average published real tuition and fees has increased over the 30 year period 1979-2009 for private institutions by 154%, and for public institutions, 186%. Of course, one can argue that actual tuition and fee increases were not really that large because of grants, etc, and that is certainly the case. However, I argued in Perspectives on the elephant of college pricing that the actual increase in price to the student is probably at least half of the published increase- still a very large number. It is a particularly large number given that the median real economic value of the degree has been flat. Overall, on average, people are having to invest more each year to get a return that is essentially constant in real dollars - a falling return on investment.
Of course, all this is about medians and averages. The Education Pays reports also give information on the distribution of incomes around the medians, and it is quite broad. At the upper end of the distribution, the 75th percentile for bachelor's holders lies above the median for master's degrees, very close to the median for Ph.D's; at the lower end, the 25th percentile of the distribution lies near the middle of the distribution for high school graduates. Thus many of the economic conclusions that one might reach looking just at median incomes become much less sharp and clear if one looks at the breadth of the distributions.
All of this taken together suggests that a dropping return on investment driven by continually rising tuitions is creating a situation in which it eventually will no longer make financial sense to get a college degree - except for graduates that manage to get jobs that pay above the median (we might call them the Lake Wobegon group).
For better or for worse, there are ways for a student to increase the probabilty of being in the Wobegon group. PayScale puts out an annual College Salary Report that demonstrates quite clearly that median starting salaries for college graduates vary greatly by subject of degree and by institution of degree. Thus, not surprisingly, the actual return on investment is likely to be be influenced greatly by the traditional variables of discipline and institution. Attention to these variables is likely to become increasingly important to students and their families as the median return on investment of a college education continues to decline
Thus when I read the College Board report, I was delighted to see all the good things that correlated with college degrees. I also was intrigued to see that for 35 years or more, employers have defined the real annual median financial worth of the bachelor's degree to be essentially constant - despite the enormous changes in number and demographics of bachelor's recipients over that time, and the growth of the knowledge economy. But I was troubled to see that the median real return on investment of a bachelor's degree continues to fall in a monotonic fashion due to continuing increases in the cost of attending college. This, coupled with the broad distribution of incomes around the mean for bachelor's recipients, suggests that a time will arrive when it clearly will make no financial sense to get a bachelor's degree unless one both studies a field that is likely to lead to a well paying job and attends an institution highly regarded in that field. That will certainly cause some changes in higher education as we know it!
Great post, thanks for sharing. It's really interesting to see how salary level can rise according to education level.
http://university-bound.com/programs
Posted by: Alli | March 02, 2011 at 01:17 PM
This is wonderful that you are helping people is a good idea to attract people to education
Posted by: Go To College | February 03, 2011 at 09:35 AM
its great job i really like this its very help full and i hope that you will share more just like this,
i am going to keep this in my favorites
Posted by: Education | January 27, 2011 at 11:11 PM
This was a really insightful and interesting perspective to read, providing a more clear financial picture of the change in the value of the bachelor's degree between 2005 and 2008, when looking at the CPI and the increased cost of a college education during that same period. While I am a firm believer in the importance and power of education for not just its financial benefits but for its benefits in terms of financial stability, social stability and its contribution to an individual's sense of autonomy and contribution to society and acheivement of that ever elusive sense of personal fulfillment or "happiiness", it is is always revealing to disect such reports in terms of a more reaistic and accurate picture within the economic context.
As we have clearly moved into a knowledge economy from a manufacturing economy, those with college degrees tend to have greater financial stability in jobs, particularly those that are in managerial, professional and technical occupations who are adept a the changes brought on by technology and globalization. However, the bachelor's or even master's educated, middle calss workers, who have careers/jobs primarily in sales, service or tehnical jobs, which can be done more inexpensively oversees are those that have experienced the biggest hit with unemployment and decreased pay.
While the national unemployment figures just reported stand at around 9.8%, the unemployment rate for college educated individuals is approx. 5.5% while the rate for those with a high school degree or lower is closer to 16%.
Posted by: Ana Abad-Jorge | December 05, 2010 at 09:16 AM
As Bachelor's degree (or higher education) cost moving upwards where employment pay out falling down, it's a really concern for most of us, which may decrease the people going for higher education studies & increase the unemployment rate.
Posted by: Drivers Ed Online Georgia | November 22, 2010 at 02:37 AM
I also concur with Coach B. I have seen professionals, for example MD and engineers, pursuing an MBA degree to succeed in their fields as entrepreneurs. I think that higher education must evolve to prepare more self-employed professionals, with strong bargain skills, and less employment-seeker individuals.
Posted by: Griselle | November 12, 2010 at 06:00 PM
How refreshing to read the positive benefits of education as opposed to bashing the benefits!!
Posted by: Skfluency.blogspot.com | November 08, 2010 at 05:57 PM
This is interesting. I also wonder the situation for master and doctorate degrees. It seems that getting higher level degrees is not in general financially paying off. Yet more people are getting higher level degrees. Degree inflation, coupled with tuition increases and the flattening economic return of higher education degrees, poses concrete dilemma for individuals, especially those who don't study the subjects that are likely to lead to well paying jobs and who don't attend institutions highly regarded in these subjects.
I'm more worried about the case for international students, especially those full-paying ones in undergraduate and master programs. For budget reasons, increasingly more full-paying international students are admitted. What is the economic return for their huge amount of investment in a U.S. degree? As a minority group who tends to be quiet on U.S.campuses, they have been largely overlooked and in my observations under served.
Lloyd responds: The situation is somewhat better for advanced degrees. Figure 1.5 in the Trends report mentioned above shows some data. Professional degrees pay the most, Ph.D. somewhat less. The missing info is "which professional degrees and Ph.D.'s" Obviously, business and law professional degrees pay much better than social work, etc. I don't have time trend data - but overall in the economy the higher income sectors have increased in real magnitude over time. So my guess is that the better paying professional degrees and Ph.D.'s are increasing in real value over time.
Posted by: Ji | November 08, 2010 at 10:34 AM
I find it interesting and almost embarrassing when it comes to obtaining post graduate degrees. It seems as if many individuals are having extremely difficult time earning medium incomes. When you think about the cost of college education and the time and energy spent obtaining higher learning degrees, it is almost ridiculous to find out that you won't be able to earn a suitable income. And yet, colleges and universities are always marketing themselves as suitable answers to living comfortably. Therefore, it makes sense to look dual professions and even entrepreneurships as a means in earning more money. Personally, I think our educational system would benefit if there were more entrepreneur programs. I think it would combat the high school and college dropout rates; and therefore, give these students more opportunities to gain financial independence.
Lloyd replies: I agree completely with your comment on the desirability of adding entrepreneur components to large sectors of our educational system!
Posted by: Coach B | November 06, 2010 at 12:57 PM
Robyn,
I agree that the cost of education can be pricey. There are many benefits to higher education. There are also many challenges of higher education. The cost of education is a challenge. Many adult professionals struggle with juggling a full-time job, family, home, and education. Upon graduation, there is no promises to finding a job. This topic is very frustrating for many people.
Shelly
Posted by: Shelly | October 29, 2010 at 05:26 PM
Education is an important aspect of promoting globalization. There are many challenges and opportunities involved with globalization and education. Higher education is an essential aspect of gaining income and career opportunities. Outsourcing goods has significantly effected our society. One of my concerns is that students are continuing their education and still having difficulty finding jobs. For example: there has been a nursing shortage cry for many years. I teach nursing and many of the graduates are having difficulties finding jobs because the hospitals are on hiring freezes because of the economy. Yes, the hospitals do need more nurses; but, they are not hiring at this time.
Posted by: Shelly | October 24, 2010 at 08:21 AM
In the age of globalization,workers have become obsolete in United States. Outsourcing and the use of new technologies are pushing people to part-time and temporary work, decreasing incomes and unemployment. What does this mean for higher education? This means that more and more people will consider higher education as the way to obtain the income opportunities to live a better life. I am not talking about making a fortune but, what other options people will have?
Posted by: Griselle | October 19, 2010 at 06:58 PM
This is intersting. As I look for more jobs to increase my career path and my wallet, I noticed that jobs aren't paying much more. Some even are paying less than my teacher's salary. It is interesting that these are bachelor and masters required jobs. I know in education you can't get rich, but with all this education I am paying for and will be paying for you would think we could get a job that would make enough to enjoy life and help pay my education loans. It does seem that people with bachelors or masters are just as normal as a high school diploma. Even though it will cost you an arm and a leg to get an education you better get one to get a job to live a life of a little comfort, that means to have some money!
Posted by: Robyn | October 17, 2010 at 05:25 PM