Education and raises

by on June 26, 2011 at 12:46 am in Education | Permalink

David Leonhardt reports (longer version of the argument here):

The Hamilton researchers — Michael Greenstone and Mr. Looney — also offer a chart on lifetime earnings, which shows that a big part of college’s value is that it brings much larger raises over someone’s career:

blink June 26, 2011 at 1:00 am

I count Leonhart’s final graph and comment as prima facie evidence for some signaling model: “A college degree also often lifts people’s earnings in occupations that do not require a degree…” Yes, because workers with higher earning potential self-select into college.

kebko June 26, 2011 at 1:05 am

Could this just reflect a catch-up phenomenon? At age 24, you’re comparing a high school grad with 4 years of work experience with a college graduate with little or no full time work experience. The high school grad is already past the highest slope on the graph. I wonder how it would affect the theory to move the college graph 4 years to the left?

Rahul June 26, 2011 at 2:37 am

Another adjustment: the time value of money. 5 years of investment (hell, 9 if you get a PhD) and compound interest are a strong force. A still stronger force: 9 years of debt and compound interest.

( I still think higher education is worthwhile but for other reasons. The most part of a college’s value escape this graph. )

Asher June 26, 2011 at 2:38 am

I second blink. Acquiring human capital in any amount should affect (positively) only the level of income, not its growth rate. (Think of the Solow growth model.) The college graduates are evidently those with a greater return to investments in human capital over the entire life cycle.

dirk June 26, 2011 at 3:34 am

I used to attack Steve Sailer on this blog, but now I’m going to go the opposite extreme and say he’s right. College serves no purpose. I went back to college and got a degree in physics and when I went back into the job market I got a good job but I ended up working with retards and did a job a monkey could do. I never used anything I learned in college at my job.

Companies should hire entirely based upon SAT scores. College, with the exception of a few, few PHD’s, is a waste of time and money for the entire economy.

josh June 26, 2011 at 7:09 am

Credentials matter even beyond ability signalling in no small part because we live in a totalitarian country.

andy June 26, 2011 at 7:55 am

Is the graph sat-score adjusted…?

Ape Man June 26, 2011 at 8:34 am

I would be interested in seeing this chart for men only. I suspect that if you took the females out of the chart the gap in graph would not be nearly so big. Of all the people I know without collage degrees, woman are by far the most likely to be stuck in one job at one pay level for their entire career (housekeeping, clerical, ect,). Woman with collage degrees do not seem to have the same kind of being “stuck” (except for the stay at home moms). And this does not even take into consideration all the woman with out collage degrees who only work part time.

Jeffrey Smith June 26, 2011 at 8:54 am

Two thoughts:

1. This pattern is hardly new. It was identified and discussed by both Becker and Mincer decades ago.

2. Beware of synthetic cohorts. See the Heckman, Lochner and Todd handbook chapter on earnings functions.

thehova June 26, 2011 at 9:09 am

Maybe I’m just an elitist. But IMHO, we have a much better higher learning education system than secondary. A student can attend a community college and a state school and receive a better education than most of the best secondary schools would provide.

It’s no secret why students come out of college much more polished and prepared to score promotions.

dearieme June 26, 2011 at 9:16 am

Please can Ape Man be given the Typo of the Month Award?

“Woman with collage degrees” is just brilliant: I know the type of degree – a course on Photography; a course on Dance; a course on European Literature, but all read in translation; a course on Herstory…….

Rahul June 26, 2011 at 10:45 am

You missed the best. “Woman’s Studies”.

The fluffiest ones took that. Was never sure what they did in that department.

Jim June 26, 2011 at 3:58 pm

It’s not a typo when you spell it wrong three times.

See also, Barack Obama and “corpseman.”

Ape Man June 26, 2011 at 5:16 pm

They say that on the internet nobody knows when you are a dog but I find that it occasionally it slips out. It seems as if I have been busted once again.

Ironman June 26, 2011 at 11:37 am

There’s a graph that looks a bit familiar!

blah June 26, 2011 at 12:29 pm

“which shows that a big part of college’s value is that it brings much larger raises over someone’s career…”

Deans and professors especially.

TGGP June 26, 2011 at 3:43 pm

Half Sigma would say it’s about getting in the right “career track”.

dirk June 26, 2011 at 4:18 pm

Yeah, it’s entirely the career track. This should be obvious to anyone who has worked in the corporate world. Without a degree, you aren’t granted entry into the system. Anyone who thinks it’s the skills one learned in college that accounts for the larger raises over one’s career is a fool.

thehova June 26, 2011 at 5:17 pm

As I noted above, I think students learn valuable skills in college. Our higher education system is the best in the world and is vastly superior to our secondary education system. Ideally, the US should have a better secondary education system and universities should assume more of a vocational skill building role. But right now, we don’t have that.

This quote from the article somewhat refutes Half Sigma’s “career track” argument:

“Finally, the Georgetown paper points out that the value of college is not merely that it’s necessary for many good jobs, like doctor, teacher, scientist or corporate executive. A college degree also often lifts people’s earnings in occupations that do not require a degree, like construction worker, day-care worker, plumber and secretary”.

I happen to believe that there’s both a lot of truth to the career track argument and a lot of truth to the belief that college improves human capital.

Whatever the case, I think the point stands that it’s important to go and complete college.

conchis June 27, 2011 at 1:34 pm

There may also be a bargaining power explanation for this: if collage improves individuals’ outside options, then you might expect to see a wage impact in “non-relevant” occupations.

Nick Bradley June 26, 2011 at 11:48 pm

Misleading — I want to see those who choose to not go to college vs those who choose to go to college. So you’ll see those who obtained a trade, enlisted in the military, etc vs college grads. control for HS GPA

mobile June 27, 2011 at 1:27 am

Why stop the analysis at bachelor’s degrees? Everyone should get a Ph.D.! Especially foreigners. M.D.’s for everyone would be good, too.

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Hugh June 27, 2011 at 9:58 am

For graduates the best part of the curve is after age 30.

So it seems that as you forget what you learned in college your earnings improve. This has certainly been my experience and I am gratified to see these statistics.

TallDave June 27, 2011 at 3:35 pm

And notice it’s a lot easier to semi-retire in your 50s.

Personally, I want to start living off the interest in my 40s.

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