Stay in school, it pays: study

Millennium Foundation says a degree is a great investment, but other studies raise a few caveats

If you have a university degree, you can expect to earn $746,000 more over your working life than someone with only a high school diploma. The information is contained in a study released today by the Canadian Millennium Scholarship Foundation, authored by Joseph Berger and Andrew Parkin. The authors also found that Canadians with only a high school diploma are two and a half times more likely to be unemployed than a university graduate. College graduates enjoy higher earnings than those with only a high school education, but the earning gap is not as wide and their lifetime payoff is only about half that of university graduates.

Bergin and Parker say they wrote this report in in order to counter “a series of recent suggestions that somehow we have too many [post-secondary] students in Canada, not too few.” They write that “the evidence about the positive returns to post-secondary education is so well-known that it seems unnecessary to review it again.” There’s pretty much no refuting that, if you take the income levels of all those with a university education and compare it to the incomes of all those with only high school, university looks is one heck of a good investment. College similarly looks like a good investment, but university appears to be a much better one. A few years ago, I opened our annual Rankings issue with an article entitled “The Best Investment Money Can Buy.” I estimated, based on a less thorough analysis of Statscan data than Berger and Parkin offer, that the return on a university degree was about $1 million dollars in extra lifetime earnings.

I still hold to the view that university offer serious economic benefits to students and society — but I have some caveats. Education is the fount of progress: social, scientific and economic. A more skilled society will be a more prosperous and successful society. But the more I look at our higher education system, the more frequently I see disconnects between the true statement “our society needs more educated people” and the not necessarily equivalent statement that “our society needs more people with university degrees.” The latter should equal the former, but unfortunately that’s not always the case. There’s lots of evidence that an increasing number of kids are simply being pushed through the system: they may get a university degree (and before that, a high school diploma) without having learned anywhere near as much as the credential suggests they should have. A few weeks ago, a chemistry professor told me about how some students in his third-year and fourth-year classes — students who are majoring in chemistry — never learned the most basic elements of the first-year material. He’s not sure how they made it in to upper-year courses; they’re not educated enough to be called scientists. But they’re going to get a B.Sc. What exactly is their degree worth? Somewhat less than the ideal.

A number of commentators, such as professors James Cote and Anton Allahar, authors of this book (and a related blog) have said that we are lowering standards in order to raise enrolment, devaluing higher education in the process. I’ve got a lot of sympathy for Cote and Allahar’s argument that we are putting too much emphasis on getting more people into higher education, and too little emphasis on what they do once they get there — what they actually learn. Cote and Allahar similarly point to a focus on credentials over learning in some high school systems — which deal with weak students by shoving them through the system regardless of actual performance or learning, raising everyone’s grades, raising graduation rates and giving the illusion of educational progress. More knowledge/skill/education are good things, for the individual and for our society and economy. However, we can’t just assume that more schooling, of whatever type, in whatever field and of whatever quality, equals education/learning/skills. Our system should aim to make those linkages — and this is where Parkin/Berger and Cote/Allahar surely agree. We can’t automatically assume that more people with credentials (whether that is a high school diploma or a B.A.) equals more people with knowledge and skills that lead to higher returns to themselves and to society.

Caveat number two: It’s true that people with university degrees enjoy higher incomes than people without university degrees, but it’s also true that only the best students go to university. In other words, even if there were no such thing as a university, it’s highly likely that these top high school students would enjoy more success in the workforce than the students in the bottom half of the high school class. It’s just too simple to say that any difference in income between the university educated and everyone else is entirely due to the effects of university. Some of their higher income surely has to do with the education they received at university. Maybe even most of their extra earning power is due to their university training. But we don’t really know how much. All of which is not an argument against going to university; I spent time at four universities (two even gave me a degree) and I can’t recommend the experience enough. But we have to be cautious about ascribing 100 per cent of the extra earnings of university graduates to their university experience. The kids who go to university are already on first base or second base, academically speaking. If they cross home plate, economically speaking, does that mean they (and the university system) hit a home run?

Another caveat: if you drill down into the income data, one finds real differences among graduates of the various university and college fields of study. Broadly speaking, university graduates earn considerably more than those who never went to university. But graduates of some fields earn more than others. And in a number of fields, the college-educated are out-earning the university-educated. Two years ago, I asked Jack Jedwab of the Association for Canadian Studies to drill deeply into data, looking at the incomes of university and college graduates by field of study. Jack crunched the data for men with aged 35 to 39 — people who’ve had time to get settled in their careers. What did we find? Not surprisingly, the earnings of university graduates vary markedly by majors and degrees. Some university majors make double that of other majors. And in some instances, college graduates earn more than their the university grads.

In 2000, the average man aged 35 to 39, whose highest level of education was a university bachelor’s degree, earned $56,810. But those with a degree in computer science and other applied mathematics earned considerably more, nearly $70,000 a year. Those who majored in economics earned an average of nearly $72,000 a year. Those with degrees in electrical and electronic engineering made nearly $73,000. Those with degrees in business, commerce and management were making well over $70,000, too. Bachelor’s degrees in mining, metallurgical and petroleum engineering earned nearly $80,000, while those who studied actuarial science were pulling in just shy of $95,000. And so on.

But many degrees in the arts, humanities and some sciences and social sciences led to considerably lower incomes. Late-30s men with a bachelor’s in biology made just over $52,000. Those with a degree in sociology earned $51,000. Psychology grads made $49,000; English language and literature earned $45,000. Those with degrees in philosophy earned $44,000, fine arts earned $42,000, anthropology pulled in $40,000 and grads with degrees in music made $38,000.

Many of those university grads from low-earning majors were out earned by some of the college peers. As I wrote then:

Men in their late 30s whose highest level of education is a college certificate or diploma in social work and social services earned $49,000 a year in 2000. That’s more than the university grads in fields such as philosophy, anthropology or history. The same goes for those with college educations in business, commerce, marketing, transportation technologies, chemical technology, and other engineering technologies. Men in their late 30s with any of those credentials had average incomes of $50,000 or more.

I also pointed to a number of trades, from motor vehicle technicians to aircraft mechanics to industrial electricians, where those with the necessary training — which you can’t get at university — make as much or more as the average university grad, and considerably more than university arts and humanities majors.

So education can pay off, for both the individual and society. But average payoff varies — substantially — by field of study. Not all university degrees are created equal. Not all non-university training is create equal. What you study matters.

More caveats: How long you stay in school also matters. Staying in school too long, earning a second and third degree, can in some cases be a negative. Even when it’s a positive, for most people it’s a less good investment than the first degree. Or at least that’s the conclusion of a recent CD Howe Institute study (see also our news story on it, here). It finds that the returns on a bachelor’s degree are high — like Berger and Parkin, the CD Howe researchers conclude that its generally a good investment. There are up front tuition costs, it takes you out of the full-time workforce for four (or more) years and you earn little or no income during that time, but a lifetime of higher earnings more than makes up for the short-term pain. But the returns to master’s degrees and doctorates are, the CD Howe study finds, considerably lower. In fact, for men (but not women) who earn a Ph.D., their return on investment is zero. Zip. Zilch. All of the costs involved in acquiring the doctorate are, on average, greater than any increase in lifetime earnings that it carries with it. The same goes for men who earn a bachelor’s degree in the humanities. Return on investment: zero.

Final caveat: it turns out that a remarkably high percentage of college- and university-educated Canadians are low-income earners. In fact, according to this recent Statistics Canada study, Canada’s proportion low-income, college- and university-educated people is the highest — i.e. the worst — in the world. It’s not clear why this is, though Statscan’s analysis shows that university-educated women are more likely than men to report low incomes, as are university-educated Canadians over 55. So it could be that this is a positive story. In both of those cases, low incomes may be a choice, not a tragedy, and a sign of economic success: the lower-income, over-55 group may include people who are retiring early or only working part-time; their wages are low because they’re living on pension income. Some of those university-educated female workers are probably similarly be cutting back on work for a period of time in order to raise children, which makes them (temporarily) look like they are “low income.” In the case of both groups, their university educations, — and their associated higher career incomes — may be one of the reasons that they are able to work less. What looks at first blush like bad news might be good news.

So: the economic benefits of attending university? Turns out it’s a complicated story. I’d welcome your thoughts and comments.




Browse

Stay in school, it pays: study

  1. Tony, these two ideas seem to be at odds, don’t they?

    “A number of commentators…have said that we are lowering standards in order to raise enrolment, devaluing higher education in the process.”

    “it’s also true that only the best students go to university”

    Is it really possible for both of these to be true?

  2. Interesting post. Two points.

    1) That Statscan article raised the question of whether the reason Canada has a disproportionate number of university grads with earnings on the low end, is because we have too many university grads, but did not delve into the question. I would have liked to have seen a comparison of participation rates from other countries. It wouldn’t necessarily answer the question but it would be another bit of data that could be useful. Similarly, if you look at what Canadian students study compared to their counterparts in Europe, Canadians are more likely to major in the social sciences and humanities than others, and we graduate fewer science and business grads. Given your data on the earning potential of people with various degrees, this could be a factor.

    2) When we talk about the social benefits of education, it is rarely mentioned that the big post-war expansion in university students coincided with the expansion of the welfare state. Governments have always drawn heavily from the universities to staff the bureaucracy, but the demand for government employees was much greater at the time governments began pushing ever increasing numbers of Canadians into higher education.

  3. @Reasoned and Measured:
    Good question. And yes, it is possible for both of those statements to be true.

    Look at it this way: let’s say that in the not too distant past, in a class of 20 high school students, only four went to university. Those four were among the very best students in the high school class. Today, six or eight members of that high school class of 20 students go to university. Though the percentage of high school grads going to university has risen over the past couple of generations, it’s still the top students who are being admitted. Only now it’s the top 30% or 40% or 50% of the high school class, instead of the top 20%. We’re reaching deeper into the pool — but we’re still casting the net in from the deep end of the pool, not the shallow end.

    Yes, there are lots of people who did poorly high school who attend and graduate from university, and yes, there are some top high school students who never earn a B.A. (see Bill Gates, Steve Jobs). But on average, its the students with better high school grades who go to university, and those with below par high school grades who don’t.

  4. @Tony Keller

    Uh, yeah, the problem is that it’s not anywhere near 40-50% of high school grads who are going to university. Maybe not even 30%. Last good set of numbers was about 25%, so we’re really not sending that many new people to university, proportionally, despite increasing enrollments. Furthermore, even within that enrollment, gaps in participation along income, SES, ethnicity persist. In other words, for any new enrollments we’ve achieved in Canada we have done little to increase participation rates and almost nothing to close achievement gaps among different groups of Canadians. The Millennium Scholarship Foundation has released some of this analysis in the past, maybe you should ask them if they have any new, good data.

    Reasoned and Measured

  5. @Tony Keller

    Also – Gates and Jobs are great examples of people without BAs who became successful and rich. They both graduated high school, of course, and enrolled in highly selective universities (Harvard and Reed, respectively). Here’s my question: would you encourage your kids to follow their educational/career path? If not, why not? Clearly there share characteristics that made them successful, but can they be replicated?

    Reasoned and Measured

  6. @ Reasoned and Measured:

    University participation rates have gone up substantially in the past two generations, and there’s even been a jump in the past decade or so.

    For example, looking at the most recent participation rate stats I could quickly grab from the Council of Ontario Universities (see their “Facts and Figures 2006″, here http://www.cou.on.ca/_bin/publications/onlinePublications.cfm), they report that in the decade after 1995, undergraduate participation rates increased from 35 per cent to 44 per cent. That’s from Table 1.4 of the report. Some of the jump was due to the double cohort. And if we traced the stats back further, to the 1960s, 70s, and 80s, you’d see a number of other increases in university participation rates.

    (And given falling youth population, the only way that university enrolment can remain stable or rise will be even higher participation rates in the years to come).

    A sense of how much university applications and enrolments have increased since the 1970s can be gleaned from the charts in section 2, page P2-2 of the above report. It shows that the number of registered applicants at Ontario universities have more than doubled since the early 1970s.

    One other interesting and controversial figure: on the next page, section 2 page P2-3, there’s a chart showing the average high school grade of Ontarians who applied to university. The average grade has gone from a 76 per cent in the early 1980s to close to 82 per cent early in this decade. This is the sort of stuff that interests Cote and Allahar, and with good reason. What is at work here is either (a) grade inflation, such that even as we reach deeper into the student pool, the average magically rises or (b) proof that students in 2003 are, on average, considerably better educated and better prepared for university than students in 1983.

    Another interesting tidbit from COU: its “Application Statistics 2007″ report, which has the most recent Ontario application and enrolment stats, shows that the number of registrations at Ontario universities increased by 52 per cent from 1998 to 2007, or quite a bit faster than the underlying population.

Sign in to comment.