Each year, there are a number of studies that show the same thing: there has never been a time when the salary gap between high school graduates and college graduates has been higher. According to Pew, this salary gap currently averages $17,500. The College Board puts the gap at $21,100.The implication seems clear: stay in school, go to college, and reap the benefits.
However, there is actually a lot of nuance to this story and the true causes of this wage gap are rarely discussed. First, the fact that an average college graduate makes, say $20,000 more than a high school graduate entering the workforce does not mean that if you coax a high schooler who was not going to go to college to attend, he/she will make that much more. In fact, you should expect that particular student to make a much lower wage premium. Why?
The data both Pew and the College Board cite suffers from what researchers would call a “self-selection bias.” In short, high school graduates who enter the workforce immediately after graduation aren’t a comparable base of individuals to those who choose to go to college. The result is an apples-to-oranges comparison that makes the economic value of going to college versus going straight to the workforce to seem greater than it actually is.
To get a true measure of the “college premium” we’d have to run an experiment. We’d take a large sample of high school seniors and assign them to either “work” or “college” randomly. The difference in the “work” and “college” group would be the true college premium, and would be much less than the $20,000 that is claimed. (Of course this experiment could never actually happen!)
Why? Because the high school senior who chooses to college has higher earning potential than the one who chooses to work and would earn more even if he/she did not go to college. Similarly, the high school senior who chooses to work rather than college would be expected to make less than the average that current college students make if he/she chose to go to college.
Another example of this same concept would be the salary figures colleges promulgate. The median starting salary for a Stanford graduate is $61,300 per year. The average starting salary for a 4-year college graduate is $45,370.
Does this imply a Stanford education is responsible for a $15,930 starting salary premium compared to an “average” 4-year college? Absolutely not. To understand the Stanford premium, we’d have to take all incoming college students and randomly assign them to colleges. Then, in four years we can compare the average starting salary of graduates and make a credible claim that the Stanford premium is the difference. It will be much less than $15,930. Why? Because the incoming Stanford student has a potential earning power that is higher than the typical incoming college student. Much of the current “Stanford premium” would be due to this self-selection of the student and not to the education they receive at Stanford.
The information that is put out there regarding the college premium has unintended, but serious consequences. First, it pushes many students to choose college who will not gain the salary premium they expect. Many of these students will take substantial loans, may drop out, and will left in a financial mess that takes much of their adult lives to recover from. It is a little known fact that just 53% of those who enroll in a 4-year college actually end up graduating.
Second, this thinking drives many strong students to go to more expensive colleges. Many don’t realize that the salary premiums they will command likely have more to do with who they are than where they choose to attend college. It is likely that the key determinants of a young person’s success will not be where he/she went to college but more their own talents, hard work, and ambition.
Finally, our political leaders jump on statistics such as the college premium. They perpetuate a myth that all students should go to college, establish programs to make this possible, etc. This has contributed to unemployment among college graduates, declines in starting salaries among those who do, a crisis in middle skills employment, and a mismatch of labor to available jobs.
This is not to say a college education is not a worthy pursuit. In fact, it is a good idea for most, and jobs should not be the sole goal of college. However, we don’t do right by high school students by overstating this gap and having a singular mindset that college is the only path to success.