Thursday, August 25, 2011

Returns to Education

There's a very useful report out from the Georgetown University Center on Education and the Workforce that has a bunch of graphs of lifetime earnings varying by highest educational level.  The graph above gives the top-line summary - you will make 3 or 4 times more with a professional degree than as a high-school drop out (and that's assuming that the high-school dropout is actually working, which is far from certain since employment population ratios are very low for those educational groups).

When they say "lifetime earnings", since it's not possible to figure out what people will make 20 years from now, what they are actually doing is taking survey data of how much people of all different ages are making at the moment, and then adding up all the numbers.  So it's basically the area under these curves:

(Except note the graph is not zero-scaled so you have to imagine it extending another $20k down).  This reveals some interesting things like the fact that bachelor's degrees in their fifties and sixties earn less than their colleagues in their forties.  I would guess this doesn't reflect older workers having to take paycuts as much as Gen X workers having had more bargaining power as they rose in the workforce than the Baby Boomers before them.

The data above is all based on the median earnings of the various groups - 50% earn more, 50% earn less.  The full distributions are all heavy tailed:

That is to say that it is still possible in America to drop out of high school or college, start a business, and end up making a bunch of money (and thus being in the long right tail of your distribution).  However, very few pull it off and the odds get a lot better if you finish college or get your MBA first.

Here is a breakout by occupation type:

No wonder our health care costs so much...

The thing I found most intriguing in the report is the table of top 10 occupations by educational accomplishment.  Here's what folks who didn't finish high school are most likely to end up doing:

Driving is your best reasonably widely available option in this situation.  Google is not your friend.  Nor is peak oil.  Note also that "working on an assembly line" - something that would have been a mainstay for this demographic thirty years ago - first shows up in position 9 (if I'm reading it right).

If you finish high school, here are the most likely outcomes:

Many of the same occupations, but also you are more likely to be trusted to deal with the public (Retail Salespersons) or manage your peers (low level managerial positions start to show up).  There's also the beginning of a possibility of working in an administrative position.  Those trends become stronger still if you go to college but leave without a degree:

By the time we get to associates degrees, the most likely outcomes are slots in the bureaucracy and technical professionals:

By this point, you've roughly doubled your median earnings from if you'd dropped out of high school.  College degrees open up many more possibilities:

In addition to teaching, for the first time you start to have some sort of shot at being a "Financial Manager" or a "Chief Executive" of something - jobs with much higher lifetime earnings.  Master's degrees are similar but with even better odds of something high in the status hierarchy that's very renumerative:

For example, while many masters' grads are teachers, now your odds are far better to be an "Education Administrator".

Get a doctorate and the most likely outcome is to teach college, but you have a range of other highly remunerative technical professions as possibilities too:

I fall somewhere off the bottom of this particular list (I guess I shouldn't be surprised that "Chief Scientist at a Startup" is a small niche and not in the top ten occupations for doctorates).

Finally, the most reliable way to really make the big bucks has been to get a graduate professional degree and be a doctor or a lawyer:

So that's what the top heavy pyramid looks like circa 2011.  If you can figure out a reasonable niche for yourself within the system in which you can do something that makes you reasonably happy, it's still ok.  However, it's definitely not the most obvious mix of occupations to satisfy a bunch of primate hunter gatherers and I can understand why some people decide, in the words of commenter g that "the current arrangements blow. why would one want to perpetuate them?"  My worry is that further technical advances are only going to make it blow harder for a lot of people and that eventually there's going to come a point where the resulting discontent is not manageable.


A Quaker in a Strange Land said...

Now comes the return on investment analysis... professionals that went to public high school, state colleges, and state professional schools are very likely to have the best return on investment... that path would likely cost about $200k versus the $600k investment of private high school, private liberal arts college, and private grad program. At 4% (after tax) compounded (say invested in high dividend equities) it will be hard for the $600k investor's to catch up to the $200k investor's $400k present value advantage and compounded interest.

Life time earnings means active income, not passive income. At 4%, that $400k will double every 18 years... in his mid 50's that state school "investor" will have the advantage of a $1.6 million net worth... or the mirror image... starting with $400k in debt, with interest, makes putting away any serious wealth almost impossible for a life time earnings of $6mm net of taxes...

Great stuff!

rjs said...

i have seen similar reports, stuart; what each fails to take into consideration is the fact that those who enter college already have a leg up in capability & intelligence over those who cant get past high school...

Joe said...

I am most worried because I have a doctorate, and most of my work is done either on the phone or in front of a computer screen.

For the past fifteen years, it has become easier and easier for me to work while I am travelling or on vacation-- which means that it is just a matter of time before many of the functions I perform are in competition with lower paid, but just as highly educated, English speaking persons from other continents.

Every significant occupation for the high school drop outs requires that person's actual presence in the United States for the work to be done.

But for transactional lawyers, radiologists, and accoutants, not so much.

Note that the only strong unions left in the country are affiliated with those manual laborers and skilled jobs that are not in competition with people overseas: casinos in Las Vegas, government workers, police, firemen, and teachers.

kjmclark said...

"Note that the only strong unions left in the country are affiliated with those manual laborers and skilled jobs that are not in competition with people overseas: casinos in Las Vegas, government workers, police, firemen, and teachers."

Um, Joe, have you heard of the American Medical Association? If you really want a powerful union, pick a field that people can't do without, and limit the number of people who are allowed to do the work.

Alexander Ac said...

More many, more contribution to resource depletion...