#YourCareer : The Financial Payoff From A College Degree Is Shrinking. Average Salary of College Grads vs High School Diplomas is Falling. Great REad!

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A four-year college education is a big and long-term investment, as the 40 million plus Americans who carry $1.6 trillion in federal student debt know all too well. Nevertheless, it can be worth it, because of the college wage premium– the extra salary graduates with four-year college degrees earn over those who have only high school diplomas. In fact, one of the metrics Forbes used to rank the Top 500 Colleges for 2023, is how many months or years of excess wages it takes for alumni of a college to pay off the net cost (after scholarships and discounts) of their degrees.

With payments and interest on federal student debt about to resume after a Covid pandemic moratorium that began in March 2020, the payoff from college is front of mind these days. Which is why an analysis released this week by the Federal Reserve Bank of San Francisco is particularly timely. It shows a flattening of the college wage premium, which grew substantially between 2000 and the 2010s.

This isn’t necessarily bad news. It turns out that pay for college graduates is still increasing. But wages for those who have only high school degrees have been growing faster in the tight labor market of recent years, particularly during the recovery from the brief Covid-19 recession.

The College Wage Premium Is Falling

The percentage difference between average wages earned by workers with four-year college degrees versus those with only a high school diploma is falling.

Leila Bengali, regional policy economist at the San Francisco Federal Reserve Bank and the lead author of the economic letter, notes conditions in the labor market at the time a teen graduates from high school can affect the decision to go to college. In a tight labor market, for example, a high school graduate might think it’s easier to find a job with solid wages without going to college. But in a slack labor market, “an individual coming out of high school might think, ‘well, there are no jobs and the jobs that are available don’t have very high wages,’ That would then also change the calculus of whether or not to go to college,” she says.

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Article continued …

Naturally, the Fed doesn’t encourage such short term thinking since the wage premium (even if compressed) lasts throughout one’s working life. “For most people considering college, the implied increase in lifetime earnings outweighs the cost enough to make college a sound financial investment, often with very high returns,’’ the new analysis notes.
Still, the specifics on how the wage premium has shrunk, and for which groups, are of interest. The San Francisco Fed researchers used data from the U.S. government’s monthly Current Population Survey, which includes wages and hours. They compiled the data over each year to build a larger sample, suitable for analysis based on race and ethnicity.

The Fed economists found a distinctly large college wage premium for Asian workers: Asian college graduates earned more than twice as much as Asian high school graduates, compared with a 70-80% premium for other groups. The researchers attributed that to Asian students’ choices in undergraduate majors, post-graduate degrees and jobs. A Cleveland Fed analysis from 2015 showed more than 30% of Asian degree recipients majored in STEM (science, technology, engineering and math), compared with about 16% of white degree recipients, 11% of Black degree recipients and 14% of Hispanic degree recipients. Forbes’ new list of the 25 colleges with the highest earning young alumni is heavily weighted to schools with a large concentration of STEM majors.

Similarly, the recent overall narrowing of the wage premium for a college education looks different when broken down by race. Since 2011, wages for Black and Hispanic high school graduates have grown faster than those for Black and Hispanic college graduates. Meanwhile, wages for white high school graduates and white college graduates have risen at about the same pace, while Asian college graduates have actually widened their premium compared to Asians with only a high school diploma.

In addition to the Census data, there’s anecdotal evidence that good workers without college degrees are in higher demand these days. Some large companies, including GoogleGOOG +0.9%, IBMIBM +0.2% and AccentureACN 0.0%, now offer college degree-free ways into their operations. In 2021, IBM announced it had removed bachelor’s degree requirements for more than half of its job openings in the U.S. In 2021, just 26% of job postings for software QA engineers at Accenture required a degree, according to a report from the Burning Glass Institute. Meanwhile, OracleORCL +0.3% required degrees for 100% of postings for the same position and AppleAAPL +1.9% required degrees in 90% of them.

 

Forbes.com | August 30, 2023 | Rina Torchinsky