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Home Publications Blogs Beat the Press College Wage Premium Has Been Almost Flat for Two Decades

College Wage Premium Has Been Almost Flat for Two Decades

Wednesday, 05 December 2012 06:00

The NYT had an interesting blog post on the increase in the number of jobs that require college degrees told readers that, "the wage gap between the typical college graduate and those who have completed no more than high school has been growing for the last few decades."

This is somewhat misleading, as shown in the charts in the source linked to in the piece. The premium for people with just a college degree, compared to those without a college degree, has been almost flat for two decades. Almost all of the increase in the gap during this period has been due to wage growth for those with advanced degrees.

Comments (10)Add Comment
Few problems:
written by LSTB, December 05, 2012 8:54
(1) Characterizing the wage premium as a ratio conceals when the wages of high school graduates are dropping while college graduates' wages are flat (or dropping less quickly), as well as when both are growing but college graduates' wages are growing faster. Same goes for advanced degree holders, mutatis mutandis.

(2) The percent of Americans with only a high school education (or less) has declined since the 1970s, while the percent (and number) of Americans with college degrees has grown, as has the percentage of Americans with advanced degrees.

(3) It's strange Rampell says that college degrees are becoming more "valuable" while describing the phenomenon as credential inflation. The American workforce is a lot better educated than it was 40 years ago, but if the primary benefit of education is signalling value to employers, then money spent on education is just graft. That's not creating value, it's redistributing it.
The original Fed article should also mention the degree acquisition cost.
written by John Wright, December 05, 2012 9:45
The Fed article should also have a graph of the increasing outstanding student loan debt of new graduates over time.

The cost of paying back the increased debt of recent graduates should be amortized against the college wage premium as student loans cannot be easily discharged in bankruptcy.

This could have the effect of showing the effective wage premium was actually decreasing and is not flat.

But cost of acquiring the degree was not mentioned in the Cleveland Fed article, to me this is an amazing omission.

The Fed article is also somewhat disingenuous when it suggests: "The college major choice has a potentially large effect on the value of a four-year degree. Comparing engineering majors, who have the highest four-year premium at 125 percent, to psychology and social work majors, who have the lowest premium at 40 percent"

Does this imply these students should choose engineering when they may have no interest in or aptitude for it?

I've suggested to people that perhaps families will allocate their education resources differently as putting a significant part of their wealth into their children's expensive education might not be the best investment.

And as Bill Gates, Steve Jobs, Steve Wozniak, Larry Ellison and Michael Dell have shown, sometimes a great opportunity presents itself and finishing a college degree may have a large opportunity cost.
college also creates valuable networks...
written by pete, December 05, 2012 10:12
tho sometimes it just seems like 4 more years of babysitting...certainly there is no real value added for many, other than learning to follow a schedule....the good ones learn some skills, communication, etc....and certainly programming video games or aps does not require a college education..this is better started at younger ages. Have to convince the NEA that 4 years of high school with no skill training is not the right model for everyone. Fort Worth is deeply into trade high schools now...example nursing...medical high schools....these folks will likely out-earn a 4 year anthropology degree.
written by Brett, December 05, 2012 10:38
The 4-Year Degree premium does appear to have gone up slightly since 1994 in overall terms, rising about 5-10%. That's not huge, but it's still a value increase.

The fact that the premium took a 5-10% dip in the late 1990s boom makes me inclined to agree with LSTB: the change in median wages for high-school-only workers may be screwing with the size of the premium.
jobs & america
written by mel in oregon, December 05, 2012 12:15
john wright makes good sense. the fact is when you look at the department of labor statistics, most american jobs being created are dead-enders, cnas, clerks, gas jockeys, motel maids, janitors, car wash attendants etc. pete also makes an important point. so much of college is just rote memorization for a test, which proves nothing except an ability to accept drudgery as a fact of life much like an employee on an assembly line. as far as making contacts & networking, hasn't that always been the quintessential american way to become a success, second only to having a rich father to lay a pathway for your success?
written by charlie, December 05, 2012 12:19
Interesting. I would like to know if the "advanced degree premium" is something widely shared or if it all goes to just a handful of super rich MBAs.
written by PeonInChief, December 05, 2012 5:23
It's a class thing, in more than one way. Few children of the top 25% don't go to college, but a lot of working class students don't go to elite universities, and probably don't make the kind of wages those who go to elite universities make.
written by Jay, December 05, 2012 5:33
The article was kind of misleading. If you just read the headline, you would think that college wage premium has been increasing significantly. Those without college degrees have gotten hammered, increasingly placed into low wage jobs, and in some instances displaced by college grads. The fact that college grads aren't making minimum wage relative to high school grads isn't something to rave about. The real issue is the flat wages and in some instances zero job growth in some places.
Salaries of MDs and some JDs are elevated by government policy
written by Rachel, December 05, 2012 11:10

Remember that we already import 30% of our MDs, and we still don't have enough. Our tax system is also arranged to promote careless medical spending.

And when health costs too much, and the legal system is also a burden, etc., etc, the money has to come from--where else but the people without high-paid lobbyists?
I'm guessing you were a phys-ed major?
written by AndrewS, December 06, 2012 7:57
Pete - "certainly programming video games or aps does not require a college education..this is better started at younger ages."

So they teach the advanced trig and calculus required to model a 3-D world with ray-tracing of light and shadows in grade school now do they? Some of the most sophisticated simulation software used by the military is based on the development of game programmers. You may want to dismiss the gaming culture but the programming behind it would blow your mind. Why make a point to comment on something about which you are so obviously clueless?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.