The growing BA household income premium
We continue to be constantly barraged with messages that for many not pursuing a four-year degree is the best course of action. Some version of if you don’t get a BA in a STEM field you are at high risk of being crushed by student loans and unable to realize the American Dream. It’s nonsense!
That the conventional wisdom is nonsense is confirmed by the decisions many of those who make the case against pursuing a four-year degree are making for their own kids. Almost all of whom are getting a four-year degree after attending pre K-12 college prep schools.
As we have explored frequently in this blog those with four-year degrees work more and earn more over a forty-year career. Contrary to conventional wisdom the premium for getting a four-year degree over those who don’t is growing, not declining.
Yes there are good-paying jobs and careers that do not require a four-year degree. But there are far fewer of them and they pay less than conventional wisdom has it. And yes a four-year degree does not guarantee you a good-paying career. There are no guarantees. But the evidence is clear: getting a four-year degree or more is the most reliable path to the middle class and above.
Most of the data on the premium BA holders have is for individuals. How much more does one earn annually and over a lifetime compared to those with less education attainment. As part of researching our last post we looked at household income by education attainment over the long term: from 1967 to 2017. This data make even clearer the large and growing BA premium.
In 1967 households headed by someone with a high school degree had median income of $53,178 in today’s dollars. In 2017 households headed by someone with a high school degree had median income of $44,970.
That compares to households headed by someone with a four-year degree or more where the median income was $76,351 in 1967 and $100,021 in 2017. You read that right! The median household income for those headed by some with a BA or more is in six figures.
So the BA household income premium in 1967 in today’s dollars was a substantial $23,173. Today that premium is $55,051. Today households headed by someone with a BA or more have a median income more than double that of households headed by someone with a high school degree.
It is true that median household income for those headed by someone with a BA or higher, after growing steadily for four decades, have been stagnant since 1998 when the median was $100,197. (It peaked for BA headed households in the tech boom peak of 1999 and 2000 at over $102,000.)
It is also true that having a BA doesn’t insulate you from the effects of a recession. Coming out of the Great Recession median household income for those headed by someone with a BA or higher hit a cyclical low in 2013 of $91,078. A decline of more that $11,000 from the peak of 1999. But through both economic ups and downs the BA household income premium is substantial and growing.
The peak year from 1967 to 2017 for a household headed by someone with a high school degree was 1973 at $59,511. In 1999––the peak year for those with a BA or more––the median for households headed by someone with a high school degree was $52,575. Coming out of the Great Recession the low for households headed by someone with a high school degree was $42,619 in 2012.
So post Great Recession median households incomes have grown from the trough year by $8,943, for those households headed by someone with a BA or more compared to $2,351 for those households headed by someone with a high school degree. Adding another nearly $6,600 to the already substantial BA household income premium.
I agree that many more of our young people should earn a 4 year degree or higher. However, every person has there own interests an abilities. Some people are actually very good at performing certain services that do not require a 4 year degree. They often do not make as much money as a person with a 4 year degree, but they may be willing to forgo some income in order to do what the love. My niece is a professional photographer with her own business. She doesn’t earn as much as some of her friends, but she has enough for a decent life and loves it. And is very good at it. There are also auto mechanics, plumbers, electricians and carpenters who are skilled at what they do, and when I need their services I am glad they are there. In summary I agree that more people should pursue a college degree, but we have to remember that each person is an individual with different interests and abilities.
Absolutely. Our education system should provide everyone with accurate information on all occupations and as well as possible on the potential for those occupations to be automated. Then everyone has the right to pick their own career path. What we have been trying to do is be one of the sources of accurate information on earnings by education attainment and by occupation.