The Right Path but the Wrong Direction

Get a good education, work hard, and good things will happen, that’s the American Dream. But it may be fading as we let stagnant earnings continue as they have. This post, which is about work, earnings, higher education, and inflation, also portends an American Dream for some, but not for the majority who find themselves going backwards.

Let’s go right to the graph.

MensEarningsHiEdThe graph displays weekly median earnings for adult men who are employed full time. The timeline is broken out by three levels of higher educational attainment. All earnings are in constant 2014 dollars. What it shows is that unless you have an advanced degree, about 12% of adults,1 on average you’re losing ground to the combined forces of inflation and stagnant earnings.2

There’s no disputing that generally more education increases earnings. What’s concerning, is the picture presented here shows that the value of earnings below an advanced degree is diminishing (and diverging). Over the past 15 years, men with advanced degrees have consistently stayed ahead of inflation. On the other hand, average earnings for men with a bachelor’s-only fell behind inflation six of the last seven years, and prior to that (2000-2007) was nothing to shout about. It’s even worse for men with an associate’s or some college. They have fallen behind every year for the last 10 years while barely hanging on for the previous five. And you just know adults with less education are doing even worse.

What the graph conveys is especially troubling because investing the resources and effort to pursue post-secondary education is the right thing to do. For most of us it has been the gateway to middle-class status and the American Dream. And it’s what we’ve been repeatedly told, and are still told, is the right path as long as we have the will and are able. Indeed, for those full-time and meaningfully employed, it’s better than having less education. And of course, a college education can have other benefits like higher knowledge and improved social status which also make it worthwhile. But education’s monetary return has been receding.

The statistics presented here are about the earnings of college educated men who are employed full time. In conversations with restaurant wait staff, clerks, and other front-line workers, it’s unsettling, sad really, to learn how many people have gone to college and are way under-employed. A few weeks ago I was at my doctor’s office for a routine check-up. While having my vitals taken, sitting behind the nurse was a young man, an observer. The three of us chitchatted and the young man told me this was his last day as an observer and he’ll have completed his one year of intensive training to become a nurse. It turns out he already has a master’s degree in political science but that wasn’t productive. I encounter many stories like that. It’s not just the full-time employed shown here as numbers but also the under-employed and unemployed. Equally important, the significance of work is not just about earnings, it’s also what you become by it. We could go even further and get into context but let’s not go there; to student debt, homes underwater, additional costs pushed down on us because of privatization…

In short, as the graph clearly shows, unless you have an advanced degree, on average you’re moving backward in spite of having rationally pursued the right path.

Caveats
Recipients of just a bachelor’s degree make up 20% of the adult population while associate’s and some-college is another 25%. So all together, including those with advanced degrees (12%), adult men with at least some college account for 57% of the adult male population.

A similar tale is told when I spot checked statistics of weekly earnings for higher ed women and for men with a high school diploma or less.

Higher education statistics are generally grouped as either “bachelor’s or higher,” or “associates or some college.” Beginning 1992 the Census Bureau’s Current Population Survey began further separating educational degrees.3 What was easily available for this post was earnings for “bachelor’s degree only” separated from “advanced degrees” going back to the year 2000. Unfortunately associate’s degree by itself was not readily available as far as I could tell. That’s unfortunate because almost surely an associate’s has greater value in the marketplace than some-college. I’d think it’s completing a degree program that employers value, more than just going to school. In fact, that’s indicated in the unemployment statistics: the unemployment rate among associate’s degrees was lower than the some-college rate.4

I ran a real earnings timeline for “bachelor’s or higher,” grouping advanced degrees and bachelor’s. When the data is grouped that way the stagnant wage effect for bachelor’s-only is masked. Then just year 2014 is below the real 2000 earnings line. Separating bachelor’s degree data from advanced degrees makes sense.

A few words about inflation. The inflation estimate for year 2009 was negative. That is the likely reason 2009 real earnings for bachelor’s-only was above the 2000 line.

The CPI is a point estimate. As with any point estimate (e.g., the garden variety mean) you can lose meaningful detail. Additionally specific components of inflation can have disproportionate effects. I recently moved from Seattle to the Tacoma area, 30 some odd miles south, because it no longer made sense to pay Seattle’s skyrocketing rents. That had a disproportionate effect on me. As an everyday food example, in nominal dollars a gallon of milk cost $2.80 in December 2000 and $3.80 in December 2014.5

As usual, the data used for this analysis will be available for about a year.6

Notes

 

  1. http://www.census.gov/hhes/socdemo/education/data/cps/2014/tables.html
  2. The earnings data: http://www.bls.gov/webapps/legacy/cpswktab5.htm
  3. http://www.census.gov/cps/about/cpsdef.html
  4. http://www.lettingthedataspeak.com/?p=207
  5. http://www.bls.gov/webapps/legacy/cpswktab5.htm
  6. Data in an Excel file, https://drive.google.com/file/d/0B8XSmAJ_rKgNeU10N1BGbmlObE0/view?usp=sharing. The Stata -do- file, a text file, used to create the graph and other for those who might want it: https://drive.google.com/file/d/0B8XSmAJ_rKgNVXE4TjdqWU9PdzA/view?usp=sharing

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