Mary C. Daly , senior vice president at the San Francisco Fed, and Leila Bengali , research associate, weigh in on the value of higher education in a new Economic Letter . And like others who take a research driven approach, as opposed to the anecdotal approach that some in the media seem to prefer, they find that there is still clear value in going to college. In fact, they say the value "remains high." A common way to track the value of going to college is to estimate a college earnings premium, which is the amount college graduates earn relative to high school graduates. We measure earnings for each year as the annual labor income for the prior year, adjusted for inflation using the consumer price index (CPI-U), reported in 2011 dollars. The earnings premium refers to the difference between average annual labor income for high school and college graduates. We use data on household heads and partners from the Panel Study of Income Dynamics (PSID). The PSID is a longitudinal study that follows individuals living in the United States over a long time span. The survey began in 1968 and now has more than 40 years of data including educational attainment and labor market income. To focus on the value of a college degree relative to less education, we exclude people with more than a four-year degree. Figure 1 shows the earnings premium relative to high school graduates for individuals with a four-year college degree and for those with some college but no four-year degree. The payoff from a degree is apparent. Although the premium has fluctuated over time, at its lowest in 1980 it was about $15,750, meaning that individuals with a four-year college degree earned about 43% more on average than those with only a high school degree. In 2011, the latest data available in our sample, college graduates earned on average about $20,050 (61%) more per year than high school graduates. Over the entire sample period the college earnings premium has averaged about $20,300 (57%) per year. The premium is much smaller, although not zero, for workers with some college but no four-year degree. A potential shortcoming of the results in Figure 1 is that they combine the earnings outcomes for all college graduates, regardless of when they earned a degree. This can be misleading if the value from a college education has varied across groups from different graduation decades, called “cohorts.” To examine whether the college earnings premium has changed from one generation to the next, we take advantage of the fact that the PSID follows people over a long period of time, which allows us to track college graduation dates and subsequent earnings. Using these data we compute the college earnings premium for three college graduate cohorts, namely those graduating in the 1950s–60s, the 1970s–80s, and the 1990s–2000s. The premium measures the difference between the average annual earnings of college graduates and high school graduates over their work lives. To account for the fact that high school graduates gain work experience during the four years they are not in college, we compare earnings of college graduates in each year since graduation to earnings of high school graduates in years since graduation plus four. We also adjust the estimates for any large annual fluctuations by using a three-year centered moving average, which plots a specific year as the average of earnings from that year, the year before, and the year after. Read Is It Still Worth Going to College? here .
Filed under: GDP, higher ed, Labor Department, earnings, San Francisco Fed, students, federal reserve bank of san francisco, economic letter, student loans, mary daly, college cost, college costs, Mary C. Daly, earnings potential, college as an investment, leila bengali, college earnings premium