The College Wage Premium


  1. What is the college wage premium and how does it affect earnings?
    • The college wage premium is the ratio of the median hourly wage for those holding bachelors’ degrees and the median hourly wage for those who have only completed high school. This calculation has shown that over the last 30 years, college graduates have continually earned higher wages than those with only a high school diploma. Current data indicate that those who hold college degrees earn 84 percent more than their high-school-educated counterparts.
  2. What other educational investment decisions affect the college wage premium?
    • Two decisions that have an impact on the college wage premium are the choice of college major and the pursuit of an advanced degree. There is a wide variation in wages across college majors, while advanced degrees yield a wage premium beyond what is earned for a bachelor’s degree.
  3. What is the advanced degree premium and how does it influence college premium calculations?
    • The advanced degree premium is the ratio of median wages for those who hold bachelor’s degrees and those who have advanced degrees—that is, those that required six or more years of education after college, such as a master’s degree, professional degree, or PhD—over those with only a bachelor’s degree. Between 1977 and today, wage growth for advanced degree earners has been greater than wage growth for those with only a four-year degree.
  4. Give an example of a college major that has a higher rate of advanced-degree holders than do majors as a whole, according to the Census Bureau's American Community Survey for 2009.
    • More than half of college graduates who major in biological and life science go on to receive advanced degrees—not surprising, since this happens to be the predominant undergraduate degree for medical doctors.
  5. Explain how students’ field of study has a strong effect on potential earnings.
    • According to the Census Bureau's American Community Survey for 2009, engineering majors have the highest college wage premium (125 percent), while psychology and social work majors have the lowest premium (40 percent). There are variations within fields as well: Business majors with finance degrees earn a median wage that is 20 percent higher than that of students with degrees in business management and administration.

Additional discussion can be informed by data from the Bureau of Labor Statistics, Occupational Outlook Handbook, available at http://www.bls.gov/ooh/

  1. How do you think individuals decide on college majors?  Do they consider the amount of money they will make after college? What other factors are important?
  2. Do you think that the average college student is aware of the large differences in earning by college major? What would happen if they had better information about the value of different degrees?
  3. Graduates from selective universities (like Harvard) earn more than graduates from lower-ranking universities. However, what do you think the differences in wages would be between an English literature major from Harvard and an electrical engineering major at a state institution? How about in comparison with an electrical engineering major at Harvard?
  4. Many argue that society should pay individuals to go to college (rather than paying for themselves) because education increases economic productivity, that is, college graduates earn more than high school graduates. Given these facts, would it make more sense for society to pay for students going to college for certain degrees rather than for any degree of the individual's choosing?