From Attainment to Earnings
Individuals with greater levels of education tend to work more, with both higher labor force participation and lower unemployment, and earn higher wages. But a potential concern with assuming that education leads to higher earnings is that higher innate ability is likely to cause both greater education levels and higher pay, meaning the observed correlation between education and earnings could be spurious. However, a large body of literature has established that education does indeed have a causal effect on earnings, and that this is due to higher productivity.8 A bachelor’s degree is estimated to increase wages between 20 percent and 48 percent.9 Importantly, much of the individual gain from educational attainment comes from the completion of the degree, meaning that those who are, for example, three-fourths of the way toward a full degree do not receive three-fourths of the benefits. Wages of holders of a bachelor’s degree are significantly higher than the wages of those who dropped out of college.
To estimate how much an individual gains from going from some college to earning a degree, we must compare the gains from completing a degree to the gains from dropping out of college without completing. Data on individual wages and education from the Current Population Survey are used in regression analysis to estimate the wage gains from completing college (see Appendix for details).
The same model allows imputation of the effect of an associate’s degree (see Appendix Table). Here we compare the wage effects of an associate’s degree to a high school diploma. Since associate’s programs are two years long, many dropouts complete less than a full year of the program before they quit. In other words, “some college” is a less relevant comparison group given the short amount of time in the complete program.
Overall, we find that completing a bachelor’s degree boosts earnings by 39 percent compared with some college, and an associate’s degree boosts earnings and productivity by 10.6 percent relative to high school only.
Finally, we capture the effect of education on probability of employment by estimating a similar model as the earnings regression, but use whether or not someone is employed as the dependent variable. Overall, a bachelor’s degree increases the probability of having a job by 4.3 percentage points, and an associate’s degree boosts it by 4.4 percentage points. However, while education increases the odds of employment overall, it decreases employment while enrolled in school. Using Current Population Survey data, the average decline in employment for those enrolled in college is estimated as a 12-percentage point decline. These two effects are combined with estimates of the increase in current enrollment and the increase in overall education attainment of the population to project the net effect on employment in a given year over time.
ENDNOTES
8. David Card, “The Causal Effect of Education on Earnings,” Handbook of Labor Economics 3A (1999): 1,801–1,863.
9. Douglas Webber, “Is the Return to Education the Same for Everybody?” IZA World of Labor (2014).