As the downsides of a “college for all” perspective become clear, it’s critical that we continue to track how the “college wage premium” (CWP) is evolving, for whom, and at what levels of degree attainment. The CWP is typically understood to mean the difference between average wages earned by workers with a four-year degree versus those earned by workers with a high school diploma. (That said, there’s also been illuminating research on earning differences between holders of bachelor’s and associate degrees.) This latest report from the Federal Reserve Bank of San Francisco gives us another look at CWP (bachelor’s only) over the years from 2000 to 2022.
The descriptive study uses microdata from the Current Population Survey, a longitudinal project of the Census Bureau, which collects a plethora of data each month from roughly 60,000 households. Analysts focus on the quarter of that sample that gets asked every month about wages and work hours, and they combine those responses over the twelve months of each year to yield annual samples comparable across racial and ethnic groups. They adjust the results for differences in the demographic and geographic composition of the sample across groups and over time and identify the racial groups in a way where there is no overlap.
Results show that, in 2000, wages for workers with at least a college degree were 68 percent higher on average than wages earned by high school graduates. This was part of a substantial rise in CWP during the three decades starting in the 1980s. However, that rise began to flatten during the decade following the Great Recession of 2007–09. CWP peaked at 79 percent in the mid-2010s but declined to about 75 percent in 2022. While that 4 percentage point drop may sound small, especially given three years of Covid-fueled economic turmoil at the end, it’s substantial in light of the 10 percentage point gain in the CWP between 2000 and 2015.
In looking at racial and ethnic groups, analysts find that CWP is especially large for Asian workers, with college grads earning more than twice what high school graduates earn, a 120 percent premium. The other three racial and ethnic groups averaged between 70 and 80 percent CWP. In the early half of the recovery from the Great Recession, all groups saw gains, but those gains flattened for White workers towards the latter half of the recovery and fell for Hispanic and Black workers. But the premium for Asians continued to rise during that period, which likely reflects differences in their choice of majors, attainment of post-graduate degrees, and subsequent occupations. (Since the onset of the pandemic in 2020, CWP edged down slightly for all groups except Hispanic workers.)
Why did CWP plateau during the Great Recession recovery and subsequently decline? The analyses show that more rapid wage growth for high school graduates, rather than slower wage growth for college graduates, is the primary explanation for the flattening or reduction of the premium. Specifically, from 2000 to 2011, real wages picked up for all groups, but they accelerated more for those graduating from high school and for Black and Hispanic workers in particular.
Since 2011, wages for White high school grads and college grads rose roughly the same amount, while wages for Asian college grads rose more rapidly than for Asian high school grads. The one substantive change seen during the first two years since pandemic onset is that real wages for Asian high school grads has now picked up again, too. The researchers conclude that tight labor markets in recent years have changed relative wages and may be altering the perceived benefits of a college education, leading fewer students to pursue college after high school.
It is good news that students with just a high school diploma are earning more today than they have historically. Increased minimum wages, tax and transfer policies, and Covid-era supports also likely contributed to this laudable boost for lower-income Americans. However, given the higher lifetime earnings of college grads—CWP doubles for them over the course of their lives—those students who are motivated, able, and have a good chance of finishing college should go! Those not prepared or less than motivated by the idea of four years spent in college should know their other options—and high schools should do a better job equipping them for those possibilities.
SOURCE: Leila Bengali, Marcus Sander, Robert G. Valletta, and Cindy Zhao, “Falling college wage premiums by race and ethnicity,” The Federal Research Bank of San Francisco (August 2023).
