Education Matters: Earnings and Employment Outcomes by Educational Attainment

Education Matters: Earnings and Employment
Outcomes by Educational Attainment
Linda Levine
Specialist in Labor Economics
Domestic Social Policy Division
Summary
The amount of education in which individuals invest greatly influences their labor
market outcomes. For example, highly educated workers on average are better paid than
other workers. Four-year college graduates also are less at risk of unemployment; if
they should lose their jobs, these displaced workers are more likely than others to find
new jobs. The importance of educational attainment to earnings levels has grown over
time as well. Concern about the extent of wage inequality in U.S. society arose in part
because of the comparatively large increases in real (inflation-adjusted) earnings of
workers with at least a bachelor’s degree.
The benefits of greater educational attainment that accrue to individuals are both
monetary (e.g., higher earnings) and nonmonetary (e.g., better health). The benefits of
additional years of schooling extend beyond individuals and their families. These societal
benefits also are of a pecuniary (e.g., greater economic growth) and nonpecuniary (e.g.,
increased civic involvement) nature. Partly because of the spillover of benefits from
individuals to society, Congress has enacted measures to encourage more of the nation’s
population to enroll in postsecondary educational institutions (e.g., Pell Grants, education
tax provisions). This report focuses specifically on differences over time in selected labor
market outcomes of individuals associated with their educational attainment.¹
Earnings
Workers with more education historically have had higher annual earnings on
average than workers with less education. In 2006, the latest year for which data are
available, a worker with a bachelor’s degree earned almost three times more than a worker
who had not graduated from high school ($56,788 and $20,873, respectively). As also

¹ For information on societal benefits, see CRS Report RL33238, The Benefits of Education, by
Linda Levine.

can be seen from the columns labeled “current dollars” in Table 1, the importance of
educational attainment to earnings has increased over the years. The wage premium of
workers with a bachelor’s degree compared to workers with some college courses or an
associate degree grew by 13 percentage points from 51% on average in the first seven
years of the 1980s to 64% on average in the first seven years of the 2000s. The payoff to
graduating as opposed to not graduating from high school similarly increased by 14
percentage points from an average of 33% in the earlier period to 47% thus far in the
current decade. The wage gap between workers with postsecondary education short of
a four-year college degree and high school graduates also widened, but by less than 4
percentage points, from 10% on average in 1980-1986 to under 14% in 2000-2006.
Table 1. Average Earnings of Workers 18 Years or Older
by Highest Level of Educational Attainment, 1980 to 2006
^Y^All^No^{t a}^Hi^gh^S^c^h^ool^Hi^gh^S^c^h^ool^G^r^ad^u^a^{te (or}^So^m^e^Co^lleg^e^{or A}^s^s^o^ci^ate^B^a^chelor’s^Degree
^e^Work^ers^G^r^a^dua^t^e^Equiv^a^l^ent⁾^Degree^On^l^y
^a^C^u^rren^t²⁰⁰⁶^Cur^r^eⁿ^t²⁰⁰⁶^Cur^r^eⁿ^t²⁰⁰⁶^C^u^rren^t²⁰⁰⁶^Cur^r^eⁿ^t²⁰⁰⁶
^r^Do^llar^s^Do^llar^s^Do^llar^s^Do^llar^s^Do^llar^s^Do^llar^s^Do^llar^s^Do^llar^s^Do^llar^s^Do^llar^s
²⁰⁰⁶^41,412^41,412^20,873^20,873^31,071^31,071^34,650^34,650^56,788^56,788
²⁰⁰⁵^39,579^40,877^19,915^20,568^29,448^30,414^33,496^34,594^54,689^56,482
²⁰⁰⁴^37,899^40,454^19,182^20,475^28,631^30,561^32,010^34,168^51,568^55,044
²⁰⁰³^37,046^40,612^18,734^20,537^27,915^30,602^31,498^34,530^51,206^56,135
²⁰⁰²^36,308^40,692^18,826^21,099^27,280^30,574^31,046^34,795^51,194^57,375
²⁰⁰¹^35,805^40,776^18,793^21,402^26,795^30,515^30,782^35,056^50,623^57,652
²⁰⁰⁰^34,514^40,410^17,738^20,768^25,692^30,081^29,939^35,053^49,595^58,067
¹⁹⁹⁹^32,356^39,152^16,121^19,507^24,572^29,733^28,403^34,369^45,678^55,273
¹⁹⁹⁸^30,928^38,205^16,053^19,830^23,594^29,146^27,566^34,052^43,782^54,084
¹⁹⁹⁷^29,514^36,967^16,124^20,196^22,895^28,677^26,235^32,860^40,478^50,700
¹⁹⁹⁶^28,106^35,965^15,011^19,208^22,154^28,348^25,181^32,222^38,112^48,768
¹⁹⁹⁵^26,792^35,196^14,013^18,408^21,431^28,153^23,862^31,347^36,980^48,579
¹⁹⁹⁴^25,852^34,779^13,697^18,427^20,248^27,240^22,226^29,901^37,224^50,077
¹⁹⁹³^24,674^33,902^12,820^17,615^19,422^26,686^21,539^29,595^35,121^48,257
¹⁹⁹²^23,227^32,703^12,809^18,035^18,737^26,381^20,867^29,380^32,629^45,941
¹⁹⁹¹^22,332^32,240^12,613^18,209^18,261^26,363^20,551^29,669^31,323^45,221
¹⁹⁹⁰^21,793^32,590^12,582^18,816^17,820^26,649^20,694^30,947^31,112^46,527
¹⁹⁸⁹^21,414^33,620^12,242^19,220^17,594^27,622^20,255^31,800^30,736^48,255
¹⁹⁸⁸^20,060^32,853^11,889^19,471^16,750^27,432^19,066^31,225^28,344^46,420
¹⁹⁸⁷^19,016^32,286^11,824^20,075^15,939^27,062^18,054^30,652^26,919^45,704
¹⁹⁸⁶^18,149^31,855^11,203^19,663^15,120^26,538^17,073^29,966^26,511^46,532
¹⁹⁸⁵^17,181^30,702^10,726^19,167^14,457^25,834^16,349^29,215^24,877^44,454
¹⁹⁸⁴^16,083^29,726^10,384^19,193^13,893^25,679^14,936^27,606^23,072^42,644
¹⁹⁸³^15,137^29,123^9,853^18,957^13,044^25,096^14,245^27,407^21,532^41,427
¹⁹⁸²^14,351^28,790^9,387^18,831^12,560^25,197^13,503^27,088^20,272^40,668
¹⁹⁸¹^13,624^28,980^9,357^19,904^12,109^25,758^13,176^28,027^19,006^40,429
¹⁹⁸⁰^12,665^29,505^8,845^20,606^11,314^26,358^12,409^28,909^18,075^42,109
^Source:^Cr^e^a^t^e^d^b^y^t^h^e^Co^ngr^e^ssi^oⁿ^a^l^Re^se^a^r^c^h^Se^r^vⁱ^c^e^f^r^o^m^U^.^S.^Ce^{nsus B}^u^r^e^a^u^,^A^nnua^l^So^cⁱ^a^l^aⁿ^d
^Econ^omⁱ^c^S^u^ppl^em^en^t^.
^No^te^:^N^o^mⁱ^na^l^e^a^rⁿⁱ^{ngs a}^d^j^u^st^e^d^fo^rⁱⁿ^fl^a^tⁱ^o^{n b}^a^se^d^oⁿ^t^h^e^CP^I^-^U^-^{RS (}^t^he^Co^nsum^e^r^P^rⁱ^c^e^Iⁿ^d^e^{x fo}^r^a^l^l
^Urban^C^oⁿ^s^u^m^ers^R^e^s^earch^Series^).

All workers generally have seen their standard of living increase over the years, but
their wages have been more insulated from rising prices the greater their educational
attainment. The growth in earnings of individuals who did not graduate from high school
just slightly outpaced the rise in the Consumer Price Index between 1986 and 2006, which
would have increased their purchasing power by $1,210. The real (inflation-adjusted)
value of wages paid to workers with a high school diploma or some college or associate
degree held up much better against price increases over the 20-year period. They could
have bought an additional $4,533 and $4,684, respectively, in goods and services.
Bachelor’s degree holders fared the best: the purchasing power of their 2006 paychecks
was $10,256 greater than their 1986 paychecks. (See columns labeled “2006 dollars” in
Table 1.)
The real average annual earnings of four-year college graduates grew very
substantially and fairly steadily through the mid-1990s, while those of workers with a high
school degree or less rose slightly or fell. This disparate pattern sparked still ongoing
concern about the extent of wage inequality in U.S. society.² Although the real wages of
college graduates have continued to increase in the last 10 or so years, the earnings trend
of less educated workers has improved. As a result, the premium paid to workers with
a bachelor’s degree has been rising more slowly in recent years.
The annual earnings differences by level of education presented in Table 1 can be
expected to produce even larger disparities after years spent in the labor force. According
to a 2002 Census Bureau study, high school dropouts employed full-time year-round (i.e.,
at least 35 hours a week at least 50 weeks a year) over a 40-year working life might earn
a total of $1.0 million in 1999 dollars. Similarly employed high school graduates might
earn $1.2 million, and those with some college courses or an associate degree might earn
$1.5-$1.6 million. College graduates employed full-time year-round throughout their
working lives were estimated to earn considerably more, $2.1 million on average.³
Employment
As educational attainment increases, the likelihood of unemployment decreases. In
2006, for example, the unemployment rate of workers age 25 and older was 6.8% if they
lacked a high school diploma, 4.3% if they were high school graduates, 3.6% if they took
some postsecondary courses or obtained an associate degree, and 2.0% if they had at least

² See CRS Report RL33835, Real Earnings and the Distribution of Earnings, 1995-2005, by
Gerald Mayer. See also Thomas Lemieux, “Postsecondary Education and Increasing Wage
Inequality,” American Economic Review, vol. 96, no. 2, May 2006; and for an explanation of
changes in the educational wage premium over a longer period of time, see Claudia Goldin and
Lawrence F. Katz, The Race Between Education and Technology: The Evolution of U.S.
Educational Wage Differentials, 1890 to 2005, National Bureau of Economic Research Working
Paper 12984, March 2007.
³ The estimates, expressed in constant 1999 dollars, are based on average earnings of 25- to 64-
year-olds in the 1997-1999 period. The individuals are assumed to be employed throughout their
40-year working lives. U.S. Census Bureau, The Big Payoff: Educational Attainment and
Synthetic Estimates of Work-Life Earnings, #P23-210, July 2002.

a bachelor’s degree.⁴ Unlike the previously examined increase over time in the
educational wage premium, relative unemployment rates by educational attainment
generally have been stable since 1978.⁵
The risk of displacement is lower and the likelihood of reemployment is higher for
long-tenured workers with at least a bachelor’s degree compared to other workers.⁶
Workers with a four-year college degree or more were laid off from long-held jobs at a
below-average rate from the late 1990s to the mid-2000s, while the displacement rate of
workers with a high school diploma or less usually equaled the average rate. Workers
with more years of schooling who were displaced from full-time jobs had a higher rate of
reemployment in full-time jobs than displaced workers with fewer years of education. For
example, 72% of workers with an advanced degree and 63% of workers with a bachelor’s
degree displaced from full-time jobs in the January 2003 to December 2005 period were
reemployed in full-time jobs in January 2006; comparable reemployment rates were 57%
among displaced high school graduates and 39% among displaced workers who did not
enter or complete high school.
The U.S. Bureau of Labor Statistics (BLS) projects that employment in occupations
typically requiring at least a bachelor’s degree will increase by 15.3% between 2006 and
2016, well above the all-occupations average of 10.5%. The nearly five million new jobs
estimated to be available to persons with at least a four-year college degree could account
for almost one-third of all jobs projected to be added to the economy in the ten-year
period. Many of the estimated five million new jobs are in professional occupations.
Some professional specialties — computer software engineers (applications), computer
systems analysts, and network systems and data communications analysts; elementary and
postsecondary school teachers; and accountants and auditors — not only are projected to
be among the fastest growing fields but also among those adding the largest number of
positions through 2016. Occupations that usually require little or no postsecondary
education are projected to grow at a comparatively slow rate, but these less skilled
comparatively low-paying jobs (e.g., retail salespersons, food preparation and serving
workers, general office clerks, home health aides) nonetheless rank among those
estimated to experience the largest numerical increases in employment between 2006 and

2016.⁷

⁴ U.S. Bureau of Labor Statistics (BLS), Employment and Earnings, January 2007, Table 7.
⁵ Mary C. Daly, Osborne Jackson and Robert G. Valletta, “Educational Attainment,
Unemployment, and Wage Inflation,” FRBSF Economic Review, 2007. Note: The unemployment
rate of workers without a high school diploma compared to the overall unemployment rate
worsened markedly between 1978 and 2000, but has since shown some improvement.
⁶ BLS defines a displaced worker as someone who loses a job held for at least three years because
of plant closings or moves, insufficient work, or abolition of positions or shifts. The information
in the above paragraph is from unpublished BLS tabulations of the Displaced Worker Survey.
⁷ Arlene Dohm and Lynn Shniper, “Occupational Employment Projections to 2016,” Monthly
Labor Review, November 2007.