Is A College Education Still A Good Investment?

As students head back to school in the gloomy context of rising tuition costs and student debt, falling wages for college graduates, and a challenging job market, a new post published on the Federal Reserve Bank of New York's blog, "Liberty Street Economics," takes a look at the economic value of a college degree.

The authors, Jaison R. Abel and Richard Deitz, took into account the costs of going to college (average tuition and fees paid by undergraduates plus the "opportunity costs," or the wages one gives up while in school, estimated as the average wages of someone with only a high school diploma), as well as the benefits (the "college wage premium"—the extra wages one can expect to earn having obtained a college degree, estimated as the average wage of college graduates compared with the average wage of those with only a high school diploma, summed up over a working life of more than forty years).




Their results, expressed in 2013 constant dollars, suggest that the value of a college degree is near its all-time high of about $300,000 at the turn of the 21st century, up from $80,000 in the early 1980s.  At the same time, the time required to recoup the costs of the degree has remained near its all-time low: whereas it used to take more than twenty years in the late 1970s and early 1980s to recoup the costs of a college education,  in 2013 it only took ten.



In a more in-depth article, Abel and Deitz conclude that
"investing in a college education still appears to be a wise economic decision for the average person. Why is this the case? The answer lies in the declining fortunes of those without a college degree—a key consideration in assessing the economic costs and benefits of obtaining a college degree. On the benefit side, although the wages of college-educated workers have stagnated since the early 2000s—and even declined in the years since the Great Recession—the wages of high school graduates have also been falling. As a result, the college wage premium has remained near its all-time high. On the cost side, rising college tuition has largely been offset by the declining opportunity cost of attending school, which, again, is driven by the falling wages of high school graduates. [...]  The good news for college graduates is that the return to college remains high on average, regardless of one’s college major. However, the bad news is that college students are paying more to go to school and are earning less upon graduation. At this point, it is not clear whether these trends will continue. Indeed, an important caveat about our analysis is that it is based on the historical earnings of college and high school graduates who entered the labor market at different points in time, and we have no guarantee that these earnings patterns will hold in the future. Nonetheless, despite the recent struggles of college graduates, investing in a college degree may be more important than ever before because those who fail to do so are falling further and further behind."

Read more:
http://libertystreeteconomics.newyorkfed.org/2014/09/the-value-of-a-college-degree.html#.VAXtDvldW6V
http://www.newyorkfed.org/research/current_issues/ci20-3.pdf

TeachingwithData.org resources:
Economics of Education (http://www.teachingwithdata.org/resource/2916)
Without a High-School Education (http://www.teachingwithdata.org/resource/3861)
Men's real hourly wage by education, 1973-2007 (http://www.teachingwithdata.org/resource/2947)
Do Blacks Earn Less than Whites and Why? (http://www.teachingwithdata.org/resource/3162)
Women's Education (http://www.teachingwithdata.org/resource/3104)
Education and Earnings: Does Education Pay? (http://www.teachingwithdata.org/resource/3107)
Education in America (http://www.teachingwithdata.org/resource/3124)
Exploring Education Attainment of U.S. Native-born and Foreign-born (http://www.teachingwithdata.org/resource/3131)
The Value of College (http://www.teachingwithdata.org/resource/3866)
Frederique Laubepin

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