How much extra do college grads earn?

Facts from the New York Fed

Quick: how much more does the typical Bachelor’s degree holder earn in a year than the typical high school grad?  Make a guess if needed.  We’ll boldly suggest that everyone involved in the business of higher ed should roughly know what that difference is – not the exact number but within a few thousand bucks – right off the top of their head, just as everyone in oil & gas roughly knows the current price of a barrel of oil.

The answer is: roughly $20,000.  That’s the gap between the median annual wages of a high school graduate and a college graduate in recent years.  There are many ways to measure this gap and it changes all the time with new economic data, so knowing the approximate number is more important than tracking its precise twists and turns.

Initial career outcomes for the class of ‘19

In our last installment, we looked at the most recent National Association of Colleges and Employers (NACE) First Destinations report covering the college class of ‘19 right after graduation. NACE highlighted inflated numbers, both for income and for employment rates, and presented a rosier picture of the pre-COVID employment market for college grads than was warranted.  Our conclusion was that in their first year after college, roughly 1/3 of the Class of ’19 graduated neither held full-time jobs nor were enrolled in graduate education (that 1/3 may be an underestimate).  Such a professional situation would probably not be widely viewed as a terrific step forward after college. But these graduates are early in their lives and careers; many do get on a professional career track later on, with their undergrad degree supporting them as they make their way.  So how do degree holders fare economically over their entire careers?

The New York Fed’s income information

To look at the longer-term picture, let’s turn to data from the New York Federal Reserve Bank, which sponsors a longstanding research project tracking income differentials between groups with different educational levels, done in collaboration with the Bureau of Labor Statistics and the US Census.  The Fed is:

  • Objective – It has no special interest in promoting the value of college.
  • Sophisticated – Its research data is based on large samples of people tracked through US Census surveys and other sophisticated tools.
  • Comprehensive – It tracks graduates of all ages, not just the first year or two after graduation.

Some factlets drawn from the Fed’s research:

  • The difference between the median incomes of high school and college graduates surged to $20,000 in 2020 amid the large-scale service-industry unemployment caused by the COVID Recession.
  • In 2019, before COVID, that differential had between high school and college degrees stood at $15,188. For 2010-2020, the average difference was $16,714 (inflation-adjusted).
  • 25% of recent college grads earned less than $32,400 in 2019, basically the same income as a typical high school graduate.
  • The Fed found that the typical recent college graduate earned slightly less in 2019 than they did in 1990 after adjusting for inflation (both years round to $46,000).
  • Workers with a high school degree had essentially the same median wage in 1992 as they did in 2019 after adjusting for inflation (both years round to $30,000).

A few comments:

  • A $20k income differential is not enormous. Students and families need to control college costs carefully.  In an upcoming post, we will be looking at an interesting Strada Network survey on degreeholder outcomes and drawing an inference about how the value of a Bachelor’s works.  Both the Fed and Strada research points to a Bachelor’s having a limited economic value.  This will help us in a later post clarify and set some boundaries around how to look at college Return on Investment (ROI) and the value/cost equation.
  • The groups in the Fed data do not remain static over time.  Some college graduates in the 25% who earn less than $32,400 will have made more in income in other years and vice versa.
  • The Fed wisely emphasizes medians and not averages.  (Refresher: the median income is the level where half of people are above the number and half below.) The average is actually quite a bit higher than the median for both high school and college graduates, which indicates that there are quite a few members of both groups earning much more than the average. That includes those with no degrees beyond high school – a small portion of this group are making quite decent middle class incomes, more than the typical college grad.  The Fed correctly focusses on medians because it is more helpful in assessing how a typical member of a group is doing, as we are now.  The success of a few high-earners does not fundamentally change how the large majority are doing.
  • None of this data implies that the $20k income difference is solely the result of a degree.  College grads and high school grads as groups are different in many ways aside from level of education.  The operative statistical word here is “confounders” – when causal drivers interact with both other drivers and the final result (the income).  Take family educational background: the more education parents have, the higher their income is, the more stable the family tends to be, the more education a child pursues, the more income the child has on average later in life.  What drives what?  The $15-20k difference is driven by a host of factors, with educational level being only one, though an important one.

What about career risk?

Higher income is only one of the rewards from a more remunerative career, though.  A college degree also reduces career risk; grads hold more secure, less dangerous positions.  They enjoy unemployment rates lower than high school grads and tend to work in white-collar roles where physical injuries don’t curtail careers.

How many graduates benefit from the risk reduction?  What are the odds of college grads not holding jobs typically occupied by degreeholders?   To help assess the risk of getting a college degree without it leading to a “college” job, the New York Fed tracks “underemployment” with an index trailing back thirty years. We will cover this measure in our next post.

See this post and more at the CTAS Higher Ed Business Substack.

The Federal Reserve Bank in New York

The Federal Reserve Bank in New York