Monday, June 27, 2011

Returns to college education

In an interesting Times article, David Leonhardt (also here) points to several studies which appears to prove that in today's job market college education commands a significant premium, even in jobs where a degree is not critical. This importance of college degrees mirrors the pattern of early 20th century when blue- and white-collar workers alike benefited from having a high-school diploma. He writes,

"Construction workers, police officers, plumbers, retail salespeople and secretaries, among others, make significantly more with a degree than without one. Why? Education helps people do higher-skilled work, get jobs with better-paying companies or open their own businesses."

A recent study by Hamilton Project has found that college tuition in recent decades has delivered an inflation-adjusted annual return of more than 15%, much more than stocks, with a historical return of 7% and real estate with 1 %. Though, the value of the two-year associate’s degree stands out, it mostly reflects its much lower cost of acquiring it relative to a four-year degree, rather than a boost to long-run earnings.

Comparing the total dollar benefit (cumulative lifetime earnings) of various degrees reveals the superiority of a four year college degree. Over a lifetime, the average college graduate earns roughly $570,000 more than the average person with a high school diploma only — a tremendous return to the average upfront investment of $102,000 investment.

In fact, there is a large body of research which suggests that while different people are differentially enabled and their inherent abilities can impact earnings, it has been found that increased earning power of college graduates is determined mostly by their educational attainments.

Statistics on earnings by education levels is available here. See also this excellent study by Georgetown University researchers which analyzes 171 majors in 15 catgories and finds considerable variations in returns to acquiring them.

1 comment:

sai prasad said...

When are we going to see research of this quality in India ?

Does it explain why we are always in the process of catching up ?

There is some issues which are inhibiting creative thought in this country . Do we need to study this in order to remove them ?