2014-05-22

Co.Exist

Go To College: The Earnings Gap Between College And High School Graduates Is Still Growing

Forget the hype about a college bubble: here's why it's still a lucrative investment to get a diploma.

Look at the skyrocketing costs of an undergraduate degree, and it makes sense that a growing chorus of experts and families alike have been questioning the value of going to college. But unless you happen to be among a very privileged minority, the instinct to forgo a diploma is probably more wrong than it’s ever been at any point in history.

That’s according to a new analysis in the journal Science, a part of this week’s special issue focusing on the “science of inequality,” in reference to the rapid rise in income inequality in the U.S. and around the world.

MIT economist David Autor zeroes in on the growing education gap as one major cause for income inequality. He compares two households, one where both earners have high school diplomas and one where both have four-year college degrees. In 1972, the earnings gap between the two would have averaged to be $30,000, and today, the gap between those households would be about $58,000. To put it another way, the economic payoff for a college degree has approximately doubled in the last 33 years.

For all the attention paid to the wealth of the nation’s richest residents, this education gap is four times as large as the “redistribution of wealth that has occurred from the bottom 99% to the top 1% within that same period.”

“Although popular accounts frequently assert that the United States is in the midst of a college bubble--too many students going to college at too high a cost--abundant economic evidence strongly suggests otherwise,” Autor writes. “The inevitable sticker shock that households feel when confronting the cost of college should not obscure the fact that the real lifetime earnings premium to college education has likely never been higher.”

The paper details why what Autor dubs the “skills premium” has been rising over the last three decades. One theory has to do with the simple economic principle of supply and demand. During the Vietnam War, there was a boom in college enrollment to avoid the draft, leading new grads to flood the job market and depress salaries. This made it less attractive in the 1970s to enroll in school. But since then, technology advances and globalization have led to greater demand for “cognitive” labor and less demand for physical work--salaries for college grads slowly rose and salaries for those without have been depressed. In 1981, an average college graduate earned 48% more per week than the average high school graduate. By 2005, that was 97% more.

Autor notes that inequality does not necessarily freeze economic mobility--the ability to raise one's lot in life. Education, after all, is the “great equalizer” as famed educator Horace Mann put it. The good news is that economic mobility does not appear to be getting worse in the U.S., according to Autor’s review of the evidence. The bad news it was never that great in the first place--the idea of America as a unique “land of opportunity” has always mostly been a myth, he writes.

What he fears is that, given the growing earnings premium on a college education and low economic mobility, inequality will become entrenched from generation to generation. After all, it’s well known that a student is much more likely to graduate college if his parents attended college and if he is from a high-income family.

“The rungs of the economic ladder have been pulled further apart but the chance of ascending the latter has not improved,” he writes.

[Image: Graduates via Jannis Tobias Werner / Shutterstock]

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2 Comments

  • Daniel Faith

    There is really a huge earning gap. As for me, it is not really fair. We have to admit that this world is full of talented and maybe genius people who do not even need to apply for continuing education in order to do their job successfully. And yes, the majority of people still need to apply to colleges, write tons of essays (take a look at this website http://essayonlinestore.com/ ) in order to get a good specialization in whatever they like to do. But this does not need to be the main criteria for the numbers on paychecks. Skills should matter, not the diploma

  • Byshuk Vladyslav

    Unfortunately, it is a reality of a modern world. I think it is fair that an educated person's income is higher than that of not so experienced person, but all the way, one should be able to earn a living right after school since not so many people can afford college nowadays... Anyway, this perfect service http://college-essay-help.org/ that i stumbled upon recently really helped me out during my second semester at college.