What College Wage Premium?

You may recall that for years I have maintained that the so-called “college wage premium”, the increase in lifetime earning potential that results from having a college education, is illusory. Here’s some empirical evidence that I’m right:

The much discussed college wage premium is quite clear, as the median worker with a bachelor’s degree earns well above the median worker with only a high school diploma, a trend that has held throughout the past four decades. Measured at the medians, the wage premium for a bachelor’s degree has generally hovered between 60 and 70 percent since the 1990s. As we have cautioned before, this earnings gap may arise at least in part from differences in the skills and abilities of those who earn a college degree compared with those who don’t, rather than from the knowledge and skills acquired while in college.

However, when we look at wages for the 25th percentile of college graduates, the picture is not quite so rosy. In fact, there is almost no difference in the wages for this percentile ranking of college graduates and the median wage for high school graduates throughout the entire period. This means that the wages for a sizable share of college graduates below the 25th percentile are actually less than the wages earned by a typical worker with a high school diploma. While we can’t be sure that the wages of this group wouldn’t have been lower if they had never gone to college, this pattern strongly suggests that the economic benefit of a college education is relatively small for at least a quarter of those graduating with a bachelor’s degree.

I think the result is mathematically obvious. If some significant percentage of college graduates, e.g. those who go on to MDs, MBAs, or JDs, earn three, five, or ten times median wage, that necessarily means that there’s another significant percentage who are earning median wage or lower.

3 comments… add one
  • ... Link

    But! But! But higher education is going to save the economy! Which is why we need to import tens of miliobs of illiterate peasants from the Third World!

  • Guarneri Link

    Its an age old argument. Not likely many will play the PGA Tour, become a rock star or movie star and make riches. Yet they keep coming for the try at the brass ring.

  • Andy Link

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