Value of Higher Education
Will obtaining a formal education pay off in the years to come? The majority of people say yes. Presently, nearly 90 percent of young people graduate from high school, and approximately 60 percent of graduating high school seniors start college the following year. Students choose to attend college for a variety of reasons. One major motivating factor for college attendance is an expectation of future financial success as a result of obtaining a higher education.
This report points out the economic value of an education, or acquisition of a high school diploma or college degree, by examining the relationship between level of education and earnings over the last 25 years. A simulated estimate of the average total income adults are likely to accrue throughout the duration of their working lives is also provided.
Simulated estimates of working-life earnings are based on information from the Current Population Survey (CPS), and are used to demonstrate possible earnings, not to predict actual future wages. These simulated working-life estimates represent "expected average amounts" which are founded on cross-sectional earnings data for the previous calendar year by age, race, sex, Hispanic origin education level, and full-time or part-time work experience (compiled in the March 1998, 1999, and 2000 Current Population Surveys (CPS)). The simulated working-life estimates are built upon 1997-1999 earnings data and are represented in terms of "present value" (unvarying 1999 dollars). These simulated estimates are illustrated in detail at the end of this report in three distinct tables.
Education and Earnings
In the year 2000, approximately 84 percent of American adults ages 25 and over had earned a minimum of a high school diploma, and 26 percent had gone on to complete a bachelor's or higher degree program. Both of these figures reflect record highs for this nation. In comparison, in the year 1975, only 63 percent of American adults completed high school, and just 14 percent went on to obtain a bachelor's degree. Much of the educational increase seen in today's world can be attributed to a more educated younger population taking the place of an older, less educated population. As the trend continues, and more and more people seek to continue their education, an advancing highly educated population will arise, taking advantage of open opportunities to enter into occupations generating higher income returns.
Earning Increase With Education Level
Adults ages 25 to 64 who worked at any point throughout duration of the study period received average annual earnings of $34, 700. Average earnings varied in amount by level of education; $18,900 for high school dropouts, $25,900 for high school graduates, $45,400 for college graduates, and $99,300 for persons with professional degrees (J.D, M.D., D.V.M., or D.D.S). As illustrated in figure 1, with the exclusion of persons who have achieved professional degrees, and who yield the highest average earnings, each consecutive higher education level is related to an increase in earnings.
Average earning amounts are also influenced by work experience. For persons working full-time, year-round, average earnings were slightly higher than those representing all workers, including persons who work part-time for only a fraction of the year. About 74 percent of American workers worked full-time, and year-round. Yet, the devotion to work full-time, year-round fluctuates in response to demographic factors such as age, sex, and educational attainment. For example, 65 percent of high school dropouts are less likely to work full-time, year- round than are 77 percent of persons possessing a bachelor's degree. Traditionally, the connection of women to the labor force has been more intermittent than men's, do, in large part, to competing family responsibilities. Estimated earnings based on all working personnel, including those who work part-time, contains some of this inconsistency and variability. However, in spite of of work experience, the advantage of education remains unchanged.
Estimated earnings based on full-time, and year-round workers present a more clear-cut observation of potential earnings and eliminate some of the partiality found in demographic group comparisons. The resulting full-time, year-round employees who lack a high school diploma earned 0.9 times the earnings of workers who had a high school diploma; and by 1999, they were earning only 0.7 times the average earnings common amongst high school graduates.
The historical change in relative earnings brought about by educational achievement may be accounted for as a result of the supply of labor and the demand for skilled workers. In the 1970's the premiums previously paid to college graduates dropped as the number of graduates increased, which in turn kept the relative earnings range among higher education levels more limited. However, recent changes in technology have favored a more educated and skilled working population. Because of this, earnings among working adults with higher educational achievement have increased. Meanwhile, labor unions and the minimum wage in constant dollars have simultaneously declined, leading to a relative drop in the earnings of less educated workers.
Earnings differences by educational attainment compound over one's lifetime.
Simulated estimates of working-life earnings vividly point out the differences that develop between workers of diverse educational levels during the course of their working lives.
For full-time, year-round workers, the 40-year simulated earnings estimates for high school dropouts comes to about $1.0 million (in 1999 dollars), whereas workers who complete high school would have an increase in their earnings by approximately a quarter-million dollars, brining their total to $1.2 million. For individuals who did attend some college, but failed to obtain a degree, working-life earnings may be expected to reach about $1.5 million, with slightly more earning potential being awarded to those who received an associate's degree, approximately $1.6 million. On average, persons possessing a bachelor's degree would earn $2.1 million, which is approximately one third more earnings than can be made by workers who did not complete their college education, and nearly twice as much as workers who have only a high school diploma. Individuals who have earned a master's degree have earnings estimates of $2.5 million, and a Doctoral or other professional degree holder is expected to reach $4.4 million or higher.
The sizable distinction in average working-life earnings among the various educational levels reflects both a gap in starting salaries as well as a difference in the amount of total earnings generated throughout one's life. As can be seen, the simulated earnings estimates of individuals who have attained professional and doctoral degrees look very different from those of workers who have arrived at other educational levels. At most ages, further education correlates with higher earnings. Without a doubt, education payoff is most obvious at the uppermost levels of education.
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