The Return on a College Degree

Going to college - or attending university as it is thought of in much of the rest of world - conveys a number of important benefits; social, professional, reputational and, of course, financial.

As the following article explains, those who graduate from a college or university in most of the world earn 57 percent more than those with a high school education. In the US, that premium rises to 77 percent.

This is reflected, to some degree, by the fact that most tertiary or higher education in the US is private rather than public in the rest of the world. Presumably, if your graduates make that much more, you can charge more.

Perversely, however, public financial support for higher education in the US has been declining for years, despite the evidence that it makes the country more competitive and its citizens wealthier. Some of the opposition is purely ideological, driven by those who consider any public expenditure a waste, but some of it is merely stupid, suggesting, perhaps, that all that educational attainment may convey riches, but it doesnt always insure wisdom. JL

Catherine Rampell reports in the Economix blog:

There are major returns from going to college. This is true around the world, but it is especially true in the United States.

According to a report released this week by the Organization for Economic Cooperation and Development, across the developed world the average person who has graduated from college (either two-year or four-year) and has any earnings makes about 57 percent more than a counterpart with no more than a high school education. In the United States, the comparable earnings premium is 77 percent.

Source: Organization for Economic Cooperation and Development.

Only four O.E.C.D. member countries — Chile, Brazil, Hungary and Slovenia — have a higher earnings premium. (The premiums are higher, I should note, if you look only at the universe of people with four-year degrees; across the O.E.C.D., the premium is 68 percent, and in just the United States, it’s 84 percent.)
The chart above also shows the earnings penalty paid by people who don’t have high school diplomas. And just as American workers are rewarded unusually well for getting tertiary education, they are penalized unusually harshly for not completing secondary education. The average worker with earnings in the O.E.C.D. who didn’t complete high school makes 76 percent of what the average high school graduate with earnings makes. In the United States, that share is 64 percent.
Now you might think that since the incentives to become more educated are substantially higher in the United States, then college graduation rates would also be higher in the United States. But in fact, while the United States had one of the highest college attainment rates in 2000, it has since fallen behind in the rankings.

Source: Organization for Economic Cooperation and Development.

Our graduation rates have risen, but rates have risen much more in other rich countries. In 2000, 38 percent of 25- to 34-year-olds in the United States had tertiary education (fourth place among countries tracked by the O.E.C.D.); in 2011, the share was 42 percent (11th place among O.E.C.D. countries, 12th place if you count a Russia, a nonmember country that the O.E.C.D. tracks).
Of course, there are other factors that affect college graduation rates besides the higher wage you get once you have the degree, including how expensive it is to enroll. And the private cost of going to college is much greater in the United States than the most other developed countries, which more heavily subsidize higher education.
In fact, as a special O.E.C.D. report on education in the United States notes:

In the United States, the public-private balance of expenditure on tertiary education is nearly the reverse of the average across other OECD countries. In the United States, 36% of expenditure on higher education come from public sources, and 64% come from private sources. Across all OECD countries, 68% of expenditure on tertiary education come from public sources, while 32% come from private sources.

You could argue that with the private returns so high to attending college, maybe the United States government is right not to provide more subsidies for higher education. But here’s the thing: the public returns to college-going are also huge in the United States, higher than they are in almost every other O.E.C.D. country.
Here’s a chart showing both the public and private returns of tertiary education for the average man in each developed country.

The average return to taxpayers is $230,722 in the United States, versus less than half that, $104,737, across the developed world.
In other words, there should be strong monetary incentives not only for individual Americans to go to college, but also for taxpayers to help students actually graduate.