The Value of Education

Fox Business shares some data that highlights the value of education. The highlights:

Based on the assumption of a 40-year work history (from age 25 to 64) and using 2011 dollars for its example, the Census Bureau finds that full-time workers' lifetime earnings capacity soars as their education level rises. Non-high school graduates with a ninth through 12th grade education level and high school graduates in its example bring home $936,000 and $1.1 million in earnings over their lifetimes. Individuals with at least some college experience netted an average of $1.6 million, while those with an associate's degree brought home $1.8 million over their lifetime.

The data showed that people graduating with a four-year bachelor's degree earned an average of $2.4 million over their lifetime in 2011 dollars, with people attaining a master's degree bringing home $2.8 million. More specialized degrees, such as a doctoral or professional degree (for example, law or engineering), led to lifetime earnings of $3.5 million and $4.2 million, respectively.

To summarize, average lifetime earnings are:

• Non-high school graduates: $936k
• High school graduates: $1.1 million
• Some college: $1.6 million
• Associate's degree: $1.8 million
• Bachelor's degree: $2.4 million
• Master's degree: $3.5 million
• Doctoral degree: $3.5 million
• Professional degree: $4.2 million

Several thoughts on this info:

• There's an on-going debate about whether or not education is worth it because of 1) cost/debt incurred and 2) the time it takes to earn a degree takes away from the number of years you earn an income. I think this data shows that educations is generally worth it (by generating more lifetime income) even given these two factors.
• Using data from ages 25 to 64 seems to limit the value of some degrees. Many (most?) people have their Bachelor's degree by age 22 or 23 and many (most?) work way past 64. So it seems like the value of some degrees are understated. Even those with no degree could begin working at 18 or younger and work well past 64, making the non-high school graduates and high school graduates numbers higher too.
• You can maximize the financial value of any degree by 1) cutting college costs (and time) in getting the degree and 2) working at your career so you make more than average. The above incomes are the average figures, but who says you have to be average? Even being just a bit above average will earn you a tremendous amount more over the course of a working career.
• I'm not sure if an MBA counts as a Master's degree or a professional degree. Getting my MBA was certainly one of the smartest money moves I've ever made. I "only" worked 28 years and made well more than $4.2 million. That said, all that income wasn't from my career -- a decent amount was from investments (which my career enabled) and from a few side businesses.

Overall, this data seems to clearly show the value of an education, especially one done right (the lowest costs possible and the highest earnings possible). Anyone think differently or like to support what's above?

Comments

[freebird]

The difference in average lifetime earnings between the bins looks pretty clear, but I would hesitate to attribute this solely to the value of an education. There's probably some personality sorting going on as well, for example in cognitive ability, leadership skills, or the perseverance to complete a long-term task, any of which can affect earning power alone. I suspect this explains why college degrees are required even where the job responsibilities have nothing to do with the curriculum of a bachelors degree. Many HR departments use a college degree as a screening tool and nothing more.

It bothers me when universities point to data like this to justify their spiraling costs. One experiment I'd like to run where I work is to recruit high school graduates who received an admission letter from an Ivy-league school or equivalent, and to put them through our in-house training program alongside our new hire graduates (most of whom did not attend such prestigious institutions). I believe it's likely that their performance will be equivalent or better, and as a selling point to HR I imagine retention will be less of an issue (I work in Silicon Valley where our young stars are constantly getting poached by the FANGs after a few years). Unfortunately our management was not convinced, so perhaps it's up to someone like Peter Thiel to try this.

[Abandoned Cubicle]

I'm glad I got my MBA! Excellent summary of the benefits, FMF. I hope our kids avoid going out of state or to some private school unless there's significant scholarship money to be earned.
So many times I questioned whether the part-time MBA was worth the sacrifice. Looking back though, it was pretty easy to do as I was single and kid-free during those years.

[Apex]

+1 freebird.

Higher education selects for those who were already destined to do well. I believe it is as much an indicator as it is an instigator. Malcolm Gladwell covers some of this in his book David and Goliath.

It's also the case that these studies by their very nature are using old data. Anyone who has earned this much money through age 64 by definition started college 45 years ago or more (probably actually 50 years ago since they used 2011 dollars so probably people who were at least 64 in 2011). Are the results of people who went to college in the late 60's and early 70's still equally applicable to the sets of people going to college in 2016 with such a large expansion of the percent of the population that is going to college? I think likely they are not very applicable. There are many factors that are not being accounted for in these studies as they relate to the population of college students today and the employment market and opportunities that are available today.

[Jay]

One point not mentioned in the Fox Business article, is the pure Unemployment Rate by education level. I follow this metric, and share it with younger family members when they start making noise about 'gap years' and 'finding my passion' (translation: hanging out a few years and letting someone else pay their way).

Here is a table from the Bureau of Labor Statistics, a graph quickly showing earnings and employment by level. http://www.bls.gov/emp/ep_chart_001.htm

[JayCeezy]

One point not mentioned in the Fox Business article, is the pure Unemployment Rate by education level. I follow this metric, and share it with younger family members when they start making noise about 'gap years' and 'finding my passion' (translation: hanging out a few years and letting someone else pay their way).

Here is a table from the Bureau of Labor Statistics, a graph quickly showing earnings and employment by level. http://www.bls.gov/emp/ep_chart_001.htm

[FMF]

Love that chart! Thanks!

[Apex]

That chart is also heavily influenced by people who got their degrees in the 70s and 80s.

http://www.bls.gov/opub/ted/2013/ted_20130405.htm

Here is a chart from the same BLS of unemployment by recent grads (20-29 year olds with a college degree) through 2011. 13.5% unemployment for bachelors degrees and 8.6% for advanced degrees. Granted there were still lingering effects from the recession in 2011 and those numbers are likely better today, but even on this chart in 2007 the rate was 9% for bachelors degrees so it was already far higher than the average rate of everyone with a bachelors degree even before the recession started. The point here is that people see charts that show 2.8% unemployment for a bachelors degree and start assuming it means that if they get a bachelors degree that represents their prospects. That they are equal to everyone else in that pool of "have a bachelors degree". They are not. They are young, inexperienced, and with a group of people where far more of them are getting degrees than used to 30 years ago. That changes things a lot.

The best of them probably have great prospects as they are cheaper than the older members of the pool. But there are many of them who simply won't measure up. As such their prospects are quite different from those of 50 year olds with experience and degrees and fewer competitors at their level. The considerably higher unemployment rate at graduation is at least a partial indicator of this and that is to say nothing of the underemployment rate where many of these graduates have degrees but they are simply a sales clerk at Macy's or something similar, a job which requires no degree at all. Their prospects will also not necessarily get better as they get older either. Again they are with a much bigger pool of college graduates than their 50 year old peers. Their prospects when they are 50 years old may be very different than the the prospects of a 50 year old today.

The point is that giving 18 year old prospective college students advice today based on this kind of broad sample of data that is heavily weighted with people who went to college in an entirely different era is not presenting them with a balanced view of their prospects. Unfortunately this is the exact kind of data that I see used 100% of the time to justify college always for anyone who wants it. What is needed is data on the prospects of 22-29 year olds and data that breaks it down by decile and major to see where you need to fall in your class to have it work out well for you. At least then prospects could make a more informed decision. That data is not easy to find, but it would be very enlightening to understanding the true value for the typical and marginal student of today's college degree.

I am not arguing against college. I expect both my kids to go. But the argument is often made in a way that suggests it is nearly universally beneficial. I believe that is increasingly false today. The difficult question is trying to figure out who it will not be beneficial for and for that we could use some better data.

I think the truth is that very few people actually want to answer that question because if the answer is that 20-30% of people going to college today should not go then what? What should they do instead to improve their prospects? Must they accept meager prospects and simply save the money they would have spent on college but be relegated to low earnings? I don't know the answer and I suspect that is part of why no one wants to ask and answer that question. The answer may be uncomfortable.

[JayCeezy]

@Apex, you posit an interesting theory, and to your credit you admit to no evidence. "Belief" "data is not easy to find" "we could use some better data"

First, the data isn't hard to find. http://www.epi.org/chart/class2015-figure-a-unemployment-rate-of-workers-under-age-25-and-all-workers-1969-2015/
Second, those 20-29 year olds won't be 20-29 forever. Third, those "people who got their degrees in the '70s and '80s" had it just as bad (see the linked chart).
Fourth, the five-year window you note includes the bottom of the Great Recession, where Unemployment was horrendous for all categories, 500,000 jobs per month were being lost, and Unemployment Insurance was extended to 99 weeks; it isn't representative.

Forgive me if my response is somewhat defensive, but I was surprised to provide a chart with real numbers that show a trend that is undeniable. Even if you doubled all the gaps, it doesn't matter; more education means better employment prospects at all ages.

[Apex]

@JayCeezy,

I apologize if my comment appeared to be an attack on your post specifically. I was merely using it as another example of the data that is backing the argument. I am not attacking you. Most people are making the argument you are making.

As to the data I do think you perhaps missed the point I was making. I spelled out fairly specifically the data I was looking for. Namely:

1. 22-29 years old.
2. have a bachelors degree.
3. break it down by college major.
4. break it down by deciles, so that we see the unemployment rate for those in the top 10% of their class all the way down to the bottom 10% of their class.

I am not sure why you posted a chart of unemployment for all workers under age 25 which includes 16-19 year old teenagers in high school, college students looking for a job, and all other non-degree holders. I do not see how that data would relate to this discussion on recent college graduates as the vast majority of the people in that group of all workers under age 25 would not fit that description.

If you can find anything like the data that I listed above please do post it. I have not been able to find anything like it. I would be all too happy to find the data showing that I am wrong and the prospects are good for nearly all college graduates. I do not think they are but you are correct that I do not have concrete data to prove it. In the absence of data, I can only draw conclusions from what can be observed.

From 2003 to 2016 student loan debt has gone from a total of 3% of all outstanding U.S. debt to 10%. Considerably larger numbers of graduates every year are saying they either can't find jobs or can't find good enough jobs to make their student loan payments.

https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2016Q2.pdf

(see the first charge for graphical change in student loan debt).

For me I am willing to be a small minority voice raising the point that something appears to be wrong with this. We are letting too many students down by letting them believe this is a golden ticket that will eventually pay off for all. I believe the data that is being used which includes all college graduates of the last 45 years provides a misleading picture about the prospects for increasingly larger numbers of new graduates.

Again I apologize if it appeared I was attacking you. I am not. No hard feelings. There is room for opposing views. I am merely trying to offer an alternative view. One that is not very popular, but I am OK with that.