Stay in school, it pays: study

Millennium Foundation says a degree is a great investment, but other studies raise a few caveats

If you have a university degree, you can expect to earn $746,000 more over your working life than someone with only a high school diploma. The information is contained in a study released today by the Canadian Millennium Scholarship Foundation, authored by Joseph Berger and Andrew Parkin. The authors also found that Canadians with only a high school diploma are two and a half times more likely to be unemployed than a university graduate. College graduates enjoy higher earnings than those with only a high school education, but the earning gap is not as wide and their lifetime payoff is only about half that of university graduates.

Bergin and Parker say they wrote this report in in order to counter “a series of recent suggestions that somehow we have too many [post-secondary] students in Canada, not too few.” They write that “the evidence about the positive returns to post-secondary education is so well-known that it seems unnecessary to review it again.” There’s pretty much no refuting that, if you take the income levels of all those with a university education and compare it to the incomes of all those with only high school, university looks is one heck of a good investment. College similarly looks like a good investment, but university appears to be a much better one. A few years ago, I opened our annual Rankings issue with an article entitled “The Best Investment Money Can Buy.” I estimated, based on a less thorough analysis of Statscan data than Berger and Parkin offer, that the return on a university degree was about $1 million dollars in extra lifetime earnings.

I still hold to the view that university offer serious economic benefits to students and society — but I have some caveats. Education is the fount of progress: social, scientific and economic. A more skilled society will be a more prosperous and successful society. But the more I look at our higher education system, the more frequently I see disconnects between the true statement “our society needs more educated people” and the not necessarily equivalent statement that “our society needs more people with university degrees.” The latter should equal the former, but unfortunately that’s not always the case. There’s lots of evidence that an increasing number of kids are simply being pushed through the system: they may get a university degree (and before that, a high school diploma) without having learned anywhere near as much as the credential suggests they should have. A few weeks ago, a chemistry professor told me about how some students in his third-year and fourth-year classes — students who are majoring in chemistry — never learned the most basic elements of the first-year material. He’s not sure how they made it in to upper-year courses; they’re not educated enough to be called scientists. But they’re going to get a B.Sc. What exactly is their degree worth? Somewhat less than the ideal.

A number of commentators, such as professors James Cote and Anton Allahar, authors of this book (and a related blog) have said that we are lowering standards in order to raise enrolment, devaluing higher education in the process. I’ve got a lot of sympathy for Cote and Allahar’s argument that we are putting too much emphasis on getting more people into higher education, and too little emphasis on what they do once they get there — what they actually learn. Cote and Allahar similarly point to a focus on credentials over learning in some high school systems — which deal with weak students by shoving them through the system regardless of actual performance or learning, raising everyone’s grades, raising graduation rates and giving the illusion of educational progress. More knowledge/skill/education are good things, for the individual and for our society and economy. However, we can’t just assume that more schooling, of whatever type, in whatever field and of whatever quality, equals education/learning/skills. Our system should aim to make those linkages — and this is where Parkin/Berger and Cote/Allahar surely agree. We can’t automatically assume that more people with credentials (whether that is a high school diploma or a B.A.) equals more people with knowledge and skills that lead to higher returns to themselves and to society.

Caveat number two: It’s true that people with university degrees enjoy higher incomes than people without university degrees, but it’s also true that only the best students go to university. In other words, even if there were no such thing as a university, it’s highly likely that these top high school students would enjoy more success in the workforce than the students in the bottom half of the high school class. It’s just too simple to say that any difference in income between the university educated and everyone else is entirely due to the effects of university. Some of their higher income surely has to do with the education they received at university. Maybe even most of their extra earning power is due to their university training. But we don’t really know how much. All of which is not an argument against going to university; I spent time at four universities (two even gave me a degree) and I can’t recommend the experience enough. But we have to be cautious about ascribing 100 per cent of the extra earnings of university graduates to their university experience. The kids who go to university are already on first base or second base, academically speaking. If they cross home plate, economically speaking, does that mean they (and the university system) hit a home run?

Another caveat: if you drill down into the income data, one finds real differences among graduates of the various university and college fields of study. Broadly speaking, university graduates earn considerably more than those who never went to university. But graduates of some fields earn more than others. And in a number of fields, the college-educated are out-earning the university-educated. Two years ago, I asked Jack Jedwab of the Association for Canadian Studies to drill deeply into data, looking at the incomes of university and college graduates by field of study. Jack crunched the data for men with aged 35 to 39 — people who’ve had time to get settled in their careers. What did we find? Not surprisingly, the earnings of university graduates vary markedly by majors and degrees. Some university majors make double that of other majors. And in some instances, college graduates earn more than their the university grads.

In 2000, the average man aged 35 to 39, whose highest level of education was a university bachelor’s degree, earned $56,810. But those with a degree in computer science and other applied mathematics earned considerably more, nearly $70,000 a year. Those who majored in economics earned an average of nearly $72,000 a year. Those with degrees in electrical and electronic engineering made nearly $73,000. Those with degrees in business, commerce and management were making well over $70,000, too. Bachelor’s degrees in mining, metallurgical and petroleum engineering earned nearly $80,000, while those who studied actuarial science were pulling in just shy of $95,000. And so on.

But many degrees in the arts, humanities and some sciences and social sciences led to considerably lower incomes. Late-30s men with a bachelor’s in biology made just over $52,000. Those with a degree in sociology earned $51,000. Psychology grads made $49,000; English language and literature earned $45,000. Those with degrees in philosophy earned $44,000, fine arts earned $42,000, anthropology pulled in $40,000 and grads with degrees in music made $38,000.

Many of those university grads from low-earning majors were out earned by some of the college peers. As I wrote then:

Men in their late 30s whose highest level of education is a college certificate or diploma in social work and social services earned $49,000 a year in 2000. That’s more than the university grads in fields such as philosophy, anthropology or history. The same goes for those with college educations in business, commerce, marketing, transportation technologies, chemical technology, and other engineering technologies. Men in their late 30s with any of those credentials had average incomes of $50,000 or more.

I also pointed to a number of trades, from motor vehicle technicians to aircraft mechanics to industrial electricians, where those with the necessary training — which you can’t get at university — make as much or more as the average university grad, and considerably more than university arts and humanities majors.

So education can pay off, for both the individual and society. But average payoff varies — substantially — by field of study. Not all university degrees are created equal. Not all non-university training is create equal. What you study matters.

More caveats: How long you stay in school also matters. Staying in school too long, earning a second and third degree, can in some cases be a negative. Even when it’s a positive, for most people it’s a less good investment than the first degree. Or at least that’s the conclusion of a recent CD Howe Institute study (see also our news story on it, here). It finds that the returns on a bachelor’s degree are high — like Berger and Parkin, the CD Howe researchers conclude that its generally a good investment. There are up front tuition costs, it takes you out of the full-time workforce for four (or more) years and you earn little or no income during that time, but a lifetime of higher earnings more than makes up for the short-term pain. But the returns to master’s degrees and doctorates are, the CD Howe study finds, considerably lower. In fact, for men (but not women) who earn a Ph.D., their return on investment is zero. Zip. Zilch. All of the costs involved in acquiring the doctorate are, on average, greater than any increase in lifetime earnings that it carries with it. The same goes for men who earn a bachelor’s degree in the humanities. Return on investment: zero.

Final caveat: it turns out that a remarkably high percentage of college- and university-educated Canadians are low-income earners. In fact, according to this recent Statistics Canada study, Canada’s proportion low-income, college- and university-educated people is the highest — i.e. the worst — in the world. It’s not clear why this is, though Statscan’s analysis shows that university-educated women are more likely than men to report low incomes, as are university-educated Canadians over 55. So it could be that this is a positive story. In both of those cases, low incomes may be a choice, not a tragedy, and a sign of economic success: the lower-income, over-55 group may include people who are retiring early or only working part-time; their wages are low because they’re living on pension income. Some of those university-educated female workers are probably similarly be cutting back on work for a period of time in order to raise children, which makes them (temporarily) look like they are “low income.” In the case of both groups, their university educations, — and their associated higher career incomes — may be one of the reasons that they are able to work less. What looks at first blush like bad news might be good news.

So: the economic benefits of attending university? Turns out it’s a complicated story. I’d welcome your thoughts and comments.