Meet the Author

Dionissi Aliprantis |

Research Economist

Dionissi Aliprantis

Dionissi Aliprantis is a research economist in the Research Department of the Federal Reserve Bank of Cleveland. He is primarily interested in applied econometrics, labor and urban economics, and education. His current work investigates neighborhood effects on education and labor market outcomes.

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Meet the Author

Margaret Jacobson |

Senior Research Analyst

Margaret Jacobson

Margaret Jacobson is a senior research analyst in the Research Department of the Federal Reserve Bank of Cleveland. Her primary interests are macroeconomics, monetary policy, banking, and financial crises.

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03.07.2012

Economic Trends

Educational Attainment and Earnings

Dionissi Aliprantis and Margaret Jacobson

Median household income growth has slowed in the United States over the last decade. The earnings of full-time workers play an important role in income trends, and the median earnings for all workers have grown more slowly since 2000 than they did in the 1990s.

One factor that could be influencing the slowdown in earnings is educational attainment. Researchers have shown that educational attainment helps to determine employment and labor force participation patterns, as well as other labor market outcomes. We can see very distinct patterns in earnings when we examine them by educational attainment. Over the past decade, there were large gaps in median earnings across groups with different levels of attainment. For example, the median earnings of those with bachelor’s degrees (BAs) in 2005 were 61 percent higher than the median earnings of high school graduates. Similarly, the median earnings of advanced degree holders in 2005 had earnings that were 25 percent higher than those with BAs.

Looking within each attainment group, we can see that median real earnings have not grown rapidly since 2000 for any group. Figure 3 shows earnings growth instead of levels to see these trends more clearly. From 2000 to the point at which the median real earnings of all workers peaked (see first chart above), only the median earnings of those with a BA or advanced degree had grown. Nevertheless, the median real earnings of all workers grew over the past decade, even if moderately.

How can we explain the earnings growth in the overall population when earnings were relatively flat within educational attainment groups? One possible explanation is that overall earnings have grown because workers have shifted to levels of higher educational attainment, and therefore receive the corresponding higher earnings. In fact, there were large increases between 2000 and 2011 in the share of full-time workers who held advanced or bachelor’s degrees. In 2000, 31 percent of workers held such degrees, but by 2011 it was 38 percent. Similarly, the share of less educated workers fell. In 2000, 41 percent of full-time workers had a high school degree or less, and in 2011, it was 35 percent.

Examining the population shifts between educational attainment groups helps to illustrate that the relationship between earnings and attainment can be complicated. Not only have the shares of attainment groups changed over time, but so have their demographic compositions. For example, it is well-documented that the share of BA holders who are females has been increasing steadily over recent decades. It is also well-documented that women tend to earn less than men, so the higher share of female BA holders might mute earnings growth for the group of BA holders. As well, changes in unemployment and labor force participation rates could also influence the earnings received by full-time workers.

What is clear amidst this complicated picture is that the strong relationship between educational attainment and earnings points to attainment as one of the most important demographic characteristics for understanding the evolution of earnings over time.