Wednesday, July 02, 2014

The Economic Benefits of University Education in the USA

The graph above, from The Economist, shows that the United States which was a world leader in the portion of its population obtaining university degrees three decades ago, has lost that lead. Japan and South Korean 25 to 35 year olds are now more likely to hold degrees  than Americans.

I quote from the article on the value of higher education in terms of student's post university income.
Christopher Avery of Harvard University and Sarah Turner of the University of Virginia estimate that between 1965 and 2008 the discounted present value of a college education in America, net of tuition fees, rose from $213,000 to $590,000 for men, and from $129,000 to $370,000 for women in 2009 dollars. Most of the increase occurred before 2000...... 
A recent study by Payscale, which monitors trends in compensation, calculated the expected financial return from graduating from almost 1,500 institutions of higher education. For grand places like Caltech and MIT the 30-year return on a bachelor’s degree is around $2m. But attending institutions near the bottom of the list actually diminishes earnings. Graduates of Valley Forge Christian College can expect to be made $148,000 worse off for their trouble....... 
Jonathan James of Cal Poly, San Luis Obispo, found that the college premium in America ranges from 125% for engineering graduates, for whom demand seems endless, to 40% for students of psychology or social work. 
And at least some of the college wage premium reflects the rising importance of postgraduate study. The premium earned by biology graduates is relatively small once those with postgraduate degrees (often in medicine) are stripped out. A recent study reckons that the premium earned by postgraduates relative to college graduates was virtually nil in America in 1963 but had risen to roughly 27% by 2010.
Of course, we know that the community in which a degree holder works benefits from his/her presence in ways that are not captured by his/her pay check. A glance at the two maps at the end of this post shows that the locations with the highest density of people with degrees (blue) were also the most prosperous (darkest color).

I would point out that the lifetime earnings of people do not always vary according to the social value of their occupations. I recall a friend years ago point out that his earnings potential had peaked when he got his MD, dropped when he subsequently got his masters degree in public health, and dropped again when he got his doctorate in public health. Yet a country needs well trained experts in public health, and while they are relatively few I would guess that a state health director provides more benefits to the people of his/her state than does the average family doctor there. Thus, I would propose that the state should provide heavy subsidies for a few post MD public health degrees, recognizing that "the external benefits" not captured in the public health doctors' pay justify subsidies to his/her training and education.

Source: "The B.A. Divide"
Source: "Finding Rural America's Prosperous Communities"

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