Education Matters: Earnings and Employment Outcomes by Educational Attainment

Contents

• Earnings
• Employment

Summary

The amount of education in which individuals invest greatly influences their labor market outcomes. For example, highly educated workers on average are better paid than other workers. Four-year college graduates also are less at risk of unemployment; if they should lose their jobs, these displaced workers are more likely than others to find new jobs. The importance of educational attainment to earnings levels has grown over time as well. Concern about the extent of wage inequality in U.S. society arose in part because of the comparatively large increases in real (inflation-adjusted) earnings of workers with at least a bachelor's degree.

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Education Matters: Earnings and Employment Outcomes by Educational Attainment

The benefits of greater educational attainment that accrue to individuals are both monetary (e.g., higher earnings) and nonmonetary (e.g., better health). The benefits of additional years of schooling extend beyond individuals and their families. These societal benefits also are of a pecuniary (e.g., greater economic growth) and nonpecuniary (e.g., increased civic involvement) nature. Partly because of the spillover of benefits from individuals to society, Congress has enacted measures to encourage more of the nation's population to enroll in postsecondary educational institutions (e.g., Pell Grants, education tax provisions). This report focuses specifically on differences over time in selected labor market outcomes of individuals associated with their educational attainment.¹

Earnings

Workers with more education historically have had higher annual earnings on average than workers with less education. In 2007, the latest year for which data are available, a worker with a bachelor's degree earned 2.66 times the amount earned by a worker who had not graduated from high school ($57,181 and $21,484, respectively). As also can be seen from the columns labeled "current dollars" in Table 1, the importance of educational attainment to earnings has increased over the years. The wage premium of workers with a bachelor's degree compared to workers with some college courses or an associate degree grew by 13 percentage points from 51% on average in the first eight years of the 1980s to 64% on average in the first eight years of the 2000s. The payoff to graduating as opposed to not graduating from high school similarly increased by 14 percentage points from an average of 33% in the earlier period to 47% thus far in the current decade. The wage gap between workers with postsecondary education short of a four-year college degree and high school graduates also widened, but by 3 percentage points, from 10% on average in 1980-1987 to 13% in 2000-2007.

All workers generally have seen their standard of living increase over the years, but their wages have been more insulated from rising prices the greater their educational attainment. The growth in earnings of individuals who did not graduate from high school just slightly outpaced the rise in the Consumer Price Index between 1987 and 2007, which would have increased their purchasing power by $839. The real (inflation-adjusted) value of wages paid to workers with a high school diploma or some college or associate degree held up much better against price increases over the 20-year period. They could have bought an additional $4,224 and $4,486, respectively, in goods and services. Bachelor's degree holders fared the best: the purchasing power of their 2007 paychecks was $11,477 greater than their 1987 paychecks. (See columns labeled "2007 dollars" in Table 1.)

The real average annual earnings of four-year college graduates have grown fairly steadily and very substantially over the years, while those of workers with a high school degree or less have fluctuated and not risen to as great a degree. This disparate pattern has sparked still ongoing concern about the extent of wage inequality in U.S. society.²

The annual earnings differences by level of education presented in Table 1 can be expected to produce even larger disparities after years spent in the labor force. According to a 2002 Census Bureau study, high school dropouts employed full-time year-round (i.e., at least 35 hours a week at least 50 weeks a year) over a 40-year working life might earn a total of $1.0 million in 1999 dollars. Similarly employed high school graduates might earn $1.2 million, and those with some college courses or an associate degree might earn $1.5-$1.6 million. College graduates employed full-time year-round throughout their working lives were estimated to earn considerably more, $2.1 million on average.³

Employment

As educational attainment increases, the likelihood of unemployment decreases. In 2008, for example, the unemployment rate of workers age 25 and older was 9.0% if they lacked a high school diploma, 5.7% if they were high school graduates, 4.6% if they took some postsecondary courses or obtained an associate degree, and 2.6% if they had at least a bachelor's degree.⁴ Unlike the previously examined increase over time in the educational wage premium, relative unemployment rates by educational attainment generally have been stable since 1978.⁵

The risk of displacement is lower and the likelihood of reemployment is higher for long-tenured workers with at least a bachelor's degree compared to other workers.⁶ Workers with a four-year college degree or more were laid off from long-held jobs at a below-average rate from the late 1990s to the mid-2000s, while the displacement rate of workers with a high school diploma or less usually equaled the average rate. Workers with more years of schooling who were displaced from full-time jobs had a higher rate of reemployment in full-time jobs than displaced workers with fewer years of education. For example, 72% of workers with an advanced degree and 63% of workers with a bachelor's degree displaced from full-time jobs in the January 2003 to December 2005 period were reemployed in full-time jobs in January 2006; comparable reemployment rates were 57% among displaced high school graduates and 39% among displaced workers who did not enter or complete high school.

The U.S. Bureau of Labor Statistics (BLS) projects that employment in occupations typically requiring at least a bachelor's degree will increase by 15.3% between 2006 and 2016, well above the all-occupations average of 10.5%. The nearly five million new jobs estimated to be available to persons with at least a four-year college degree could account for almost one-third of all jobs projected to be added to the economy in the ten-year period. Many of the estimated five million new jobs are in professional occupations. Some professional specialties—computer software engineers (applications), computer systems analysts, and network systems and data communications analysts; elementary and postsecondary school teachers; and accountants and auditors—not only are projected to be among the fastest growing fields but also among those adding the largest number of positions through 2016. Occupations that usually require little or no postsecondary education are projected to grow at a comparatively slow rate, but these less skilled comparatively low-paying jobs (e.g., retail salespersons, food preparation and serving workers, general office clerks, home health aides) nonetheless rank among those estimated to experience the largest numerical increases in employment between 2006 and 2016.⁷

Footnotes

1.	For information on societal benefits, see CRS Report RL33238, The Benefits of Education, by [author name scrubbed].
2.	See CRS Report RL33835, Real Earnings, Health Insurance and Pension Coverage, and the Distribution of Earnings, 1979-2007, by [author name scrubbed] (pdf). See also Thomas Lemieux, "Postsecondary Education and Increasing Wage Inequality," American Economic Review, vol. 96, no. 2, May 2006; and for an explanation of changes in the educational wage premium over a longer period of time, see Claudia Goldin and Lawrence F. Katz, The Race Between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to 2005, National Bureau of Economic Research Working Paper 12984, March 2007.
3.	The estimates, expressed in constant 1999 dollars, are based on average earnings of 25- to 64-year-olds in the 1997-1999 period. The individuals are assumed to be employed throughout their 40-year working lives. U.S. Census Bureau, The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings, P23-210, July 2002.
4.	U.S. Bureau of Labor Statistics (BLS), Employment and Earnings, January 2009, Table 7.
5.	Mary C. Daly, Osborne Jackson and Robert G. Valletta, "Educational Attainment, Unemployment, and Wage Inflation," FRBSF Economic Review, 2007. Note: The unemployment rate of workers without a high school diploma compared to the overall unemployment rate worsened markedly between 1978 and 2000, but has since shown some improvement.
6.	BLS defines a displaced worker as someone who loses a job held for at least three years because of plant closings or moves, insufficient work, or abolition of positions or shifts. The information in the above paragraph is from unpublished BLS tabulations of the Displaced Worker Survey.
7.	Arlene Dohm and Lynn Shniper, "Occupational Employment Projections to 2016," Monthly Labor Review, November 2007.