WikiLeaks Document Release http://wikileaks.org/wiki/CRS-RS22792 February 2, 2009 Congressional Research Service Report RS22792 Education Matters: Earnings and Employment Outcomes by Educational Attainment Linda Levine, Domestic Social Policy Division January 23, 2008 Abstract. 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. Order Code RS22792 January 23, 2008 Education Matters: Earnings and Employment Outcomes by Educational Attainment Linda Levine Specialist in Labor Economics Domestic Social Policy Division Summary http://wikileaks.org/wiki/CRS-RS22792 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. CRS-2 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 Not a High School Some College Bachelor's Y All High School Graduate (or or Associate Degree e Workers Graduate Equivalent) Degree Only a Current 2006 Current 2006 Current 2006 Current 2006 Current 2006 r http://wikileaks.org/wiki/CRS-RS22792 Dollars Dollars Dollars Dollars Dollars Dollars Dollars Dollars Dollars Dollars 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: Created by the Congressional Research Service from U.S. Census Bureau, Annual Social and Economic Supplement. Note: Nominal earnings adjusted for inflation based on the CPI-U-RS (the Consumer Price Index for all Urban Consumers Research Series). CRS-3 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 http://wikileaks.org/wiki/CRS-RS22792 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. CRS-4 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 http://wikileaks.org/wiki/CRS-RS22792 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.