The ROI on Higher Education

By Watson Scott Swail, President & CEO, Educational Policy Institute/EPI International

There is much press and study about the returns to a higher education. I, myself, have developed and published charts and essays on the power of a postsecondary credential. However, as our readers now, I am more critical, if not skeptical, than most about the true value of a postsecondary degree in this competitive and increasingly global environment.

Without doubt, higher levels of education typically bring economic and cultural capital to individuals. The higher the education, the higher the income, as we know. The harder calculation, and one perhaps that even weighs in greater importance than the fiscal returns, is the societal or cultural piece: the placement of an individual in society and the benefits that are given and received in a complementary fashion between both individual and society.

But the financial piece cannot be ignored. And nor should it be assumed.

In August 2011, the Georgetown University Center on Education and the Workforce released The College Payoff, a review of data from the US Bureau of Labor Statistics. The report highlights the earnings of individuals by level of education, race/ethnicity, gender, and job description/title. It provides very interesting and compelling data that suggests clearly that education pays. For example, lifetime earnings of a high school diploma are $1.3 million compared to a BA return of $2.3 million and a profession degree of $3.6 million. Some of this makes perfect sense: those in occupations that require a higher level of Education, especially professions, earn more, simply by the nature of those industries. A doctor will almost always earn more than a blue collar worker unless the former makes a unique and peculiar decision to do something more specialized with his or her skillset ( e.g., work for doctors without borders and earn a low wage).

However, the other argument may suggest that many of those with advance degrees, including the BA, earn more, simply by the filtering process of our economy. Many jobs filled by people with a BA are not associated with a particular skillset. To the contrary, they are filled by BAs because employers use the BA as a filter for perceived quality. We filter by BA because we can: there are simply millions of BAs looking for jobs. Every employer will hire as high as he or she can if the supply is there. And there continues to be an abundance of BAs of working age. Who wouldn’t? People need to take note of this because this filtering process has a huge skew on the suggestion that more jobs require a BA. They don’t. It isn’t the skillset that is getting the job, but rather, the credential. And credentials do not universally equate to skills. For instance, take a look around your office. Are all the BAs alike? Or have you worked for an employer with great credentials who wasn’t half as good as you or your other colleagues? Just saying. Be very mindful of the difference between skills, credentials, and filters in our jobs market. Proponents of higher education try and use these interchangeably.  They are not interchangeable.

As stated, I don’t argue that higher levels of education equates to an average mean earnings figure. But of interest for today’s conversation is the illustration in the report of the percentage of people with lower degrees than earn as much or more than those with higher degrees. This is very interesting.

For instance, did you know that 14.3 percent of people with a high school diploma earn as much or more than those with a BA? And 9.2 percent as much or higher than master’s level grads? Further, those same high school graduates earned as much or more than 30.5 percent of those with a BA or higher. Put another way, about one third of high school grads earned as much or higher than individuals that earned at least a BA. I understand this occurring to some degree, but one third?

SOURCE: http://cew.georgetown.edu/collegepayoff/, p. 6.

Let’s go a little further down the education pipeline. Table 1 also shows that over one quarter (26.2 percent) of those with an associate’s degree earn as much or more than those with a BA. And get this: 61.8 percent off those with AA’s earn as much or more than those with at a BA or higher, including professionals. Wow! That’s almost two out of three AA recipients. How could this possibly be? They certainly could not possess the requisite skillset to earn more than almost two thirds of those with higher degrees, could they? Is this not against the laws of economics and supply and demand?

Apparently not, and for several reasons. First, we understand that some people will always do better than average, and some will do worse. The Table 1A clearly illustrates something that is very important to the reader: averages are just averages, and those on the outlying percentiles do much better or much lesser than average. For instance, BA recipients at the 75th percentile earn $3.4 million—over $1 million more than the average. Of course, the reverse is also true. Those at the 25th percentile earn $1.5 million, or about $800,000 less than the average BA earner. Another interesting way to look at this is across earners. Associates degree earners at the 75th percentile earn over $100,000 more than the average BA earner. And similarly, AA earners at the 25th percentile earn about $700,000 less than the average high school graduate.

SOURCE: http://cew.georgetown.edu/collegepayoff/, p. 7.

All of this is to say that there is great variation in who earns what, within and across degree types. But it begs a very important question: what value is the actual degree if there is such variation? If almost two thirds of people with an earned AA earn as much or higher than those with a BA, what does that tell us about either the quality of the degrees or the skills that are acquired by those degrees? The simple fact that 61.8 percent of these earners are at pace with BA recipients suggests that perhaps the earned degree isn’t an accurate measure of readiness for the workforce. Rather, the application of skills—some gained from academic work, others from life work—is the more appropriate measure.

But we don’t do that. We simply vacate that argument and suggest that the degree is our default measure of preparedness, if not intelligence (I dare say), in American society. It would be particularly interesting to look at the variance in earnings by degree levels in countries such as Canada, Germany, and France, to name a few. My educated-but-clearly-biased-and-unknown-guess is that the variation is much smaller, with my thesis that it is larger in the US because of our filtering process for the workforce.

I think if we have more BAs as a percentage of our workforce (currently about 27 percent) our nation could be a better place. More education. More literacy. More knowledge and capacity of current and important issues. At least that is one conclusion. But this would ONLY occur if we can ensure that the academic AND social outcomes attributed to a higher education are indeed higher. As I have often argued, higher numbers of low quality does us little more than feel good. If we get our BA rate up to 35 percent and our postsecondary rate to 65 percent, that only does that nation well if the quality of those degrees (a) increases and (b) provides meaning to our future society. There is certainly nothing to suggest that this is occurring. In fact, I argue that the reserve is more likely to be true. As we continue to massify the higher education system and open access, it follows logically that quality declines. The fight for more students who are historically underrepresented in higher education, and by definition, less prepared than those who traditionally have accessed higher education, puts a downward pressure on quality teaching and learning.

This does not have to be the case, but it currently is. Our current efforts to improve compulsory education at the primary, elementary, and secondary levels does not appear to be increasing the quality of high school graduates, and certainly not the quality of high school dropouts.

So what do we do to change this? Primarily, by having a real conversation about the linkage between the workforce, skillsets, higher education, and compulsory education. Until we have a much greater knowledgebase of the linkages between these various levels of the life cycle, we will continue to imprudently use filters in our workforce that are inappropriate.

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About Educational Policy Institute

The Educational Policy Institute is a Washington, DC-based research think tank on education and the social sciences. EPI conducts evaluation and policy studies on various educational issues from Pre-K to workforce outcomes in the United States, Canada, and beyond. Visit us at educationalpolicy.org.
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