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“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
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“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
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Education at a Glance 2019, Indicator A5 What are the financial incentives to invest in education

OECD Staff Organisation for Economic Co-operation and Development

Date Posted:: May 26, 2020
Is Database:: Database

Adults completing tertiary education experience significant financial returns, with men investing around USD 45,100 and women USD 34,800, yet men benefit more due to higher earnings and employment rates, yielding USD 341,000 for men and USD 262,400 for women over their careers.

Adults completing tertiary education experience significant financial returns, with men investing around USD 45,100 and women USD 34,800, yet men benefit more due to higher earnings and employment rates, yielding USD 341,000 for men and USD 262,400 for women over their careers. The public sector also gains from a higher proportion of tertiary-educated individuals through increased tax revenues and social contributions. In most OECD countries, the main cost of tertiary education is foregone earnings rather than direct payments. The private benefits vary by country due to differences in tax and social contribution systems, with net financial returns generally higher for bachelor's, master's, or doctoral degrees compared to short-cycle tertiary degrees.

Takeaways by Macro Roundup^® AI

OECD's Education at a Glance 2019 reports net financial returns to tertiary education over a career of USD 341,000 for men and USD 262,400 for women, against investments of about USD 45,100 and USD 34,800 respectively.
Men benefit more than women from tertiary education because of their higher earnings and employment rates, according to the OECD indicator.
In most OECD countries the main cost of tertiary education is foregone earnings rather than direct payments, and net financial returns are generally higher for bachelor's, master's or doctoral degrees than for short-cycle tertiary degrees.

Organisation for Economic Co-operation and Development. Accessed October 2, 2019. “Education at a Glance 2019, Indicator A5 What are the financial incentives to invest in education.”https://www.oecd-ilibrary.org/education/education-at-a-glance-2019_f8d7880d-en

Highlights

Adults who complete tertiary education benefit from high returns on investment because they are more likely to be employed and to earn more than adults without tertiary education.

Not only does education pay off for individuals financially, but the public sector also benefits from having a large proportion of tertiary-educated individuals, for example through greater tax revenues and social contributions.

Across OECD countries on average, a man invests around USD 45 100 (direct costs plus foregone earnings) to earn a tertiary degree, while a woman invests around USD 34 800. Because men tend to have higher earnings and employment rates, they also have higher total benefits over their career: USD 341 000 for men, compared to USD 262 400 for women.

Education at a Glance 2019, Indicator A5 What are the financial incentives to invest in education: Extended Excerpt Image 1

Context

Investing time and money in education is an investment in human capital. Better chances of employment (see Indicator A3) and higher earnings (see Indicator A4) are strong incentives for adults to invest in education and postpone employment. Although women currently have higher levels of education than men on average (see Indicator A1), men reap more benefits from their investment, as they have better employment and earning outcomes from education, on average.

Countries benefit from more highly educated individuals through higher revenues from taxes and social contributions paid once individuals enter the labour market. As both individuals and governments benefit from higher levels of educational attainment, it is important to consider the financial returns to education alongside other indicators, such as access to and completion of higher education (see Indicator B5).

Other factors not reflected in this indicator also affect the returns to education. The financial returns may be affected by the field of study and by the country-specific economic, labour-market and institutional context, as well as by social and cultural factors. Furthermore, returns to education are not limited to financial returns, but also include other economic outcomes, such as increased productivity, and social outcomes, such as greater participation in cultural or sport activities (see Indicator A6).

Other findings

In most OECD countries, the main cost of tertiary education is not direct payments, such as tuition fees and living expenses, but the earnings individuals forego while they are in education. This is true even when taking students’ earnings into account.

The private benefits from investing in education depend on countries’ tax and social contributions systems. For instance, in Chile, Estonia and Korea, income taxes and social contributions amount to less than one-quarter of the gross earnings benefits for a man attaining tertiary education, while in Belgium and the Netherlands they add up to more than half of the gross earnings benefits.

For nearly all countries with available data, the private and public net financial returns from obtaining a bachelor’s, master’s or doctoral degree are greater than the returns from obtaining a short-cycle tertiary degree.

Note

This indicator provides information on the incentives to invest in further education by considering its costs and benefits, including net financial returns and internal rates of return. It examines the choice between pursuing higher levels of education and entering the labour market, focusing on two scenarios: 1) investing in tertiary education versus entering the labour market with an upper secondary qualification; and 2) investing in upper secondary education versus entering the labour market without an upper secondary qualification (available on line).

It considers two types of investors: 1) the individuals (referred to here as “private”) who choose to pursue higher levels of education and the additional net earnings and costs they can expect; and 2) the government (referred to here as “public”) that decides to invest in education and the additional revenue it would receive (e.g. as tax revenues) and the costs involved.

This indicator estimates the financial returns on investment in education only up to a theoretical retirement age of 64 and, therefore, does not take pensions into account. The direct costs of education presented in this indicator do not take into account student loans.

Please note that due to continuous improvements to this indicator’s methodology, the values presented in this edition of Education at a Glance are not comparable with those in previous editions.

Education at a Glance 2019, Indicator A5 What are the financial incentives to invest in education

Easy A’s, Less Pay: The Long-Term Effects of Grade Inflation

Jeffrey Denning, Rachel Nesbit, Nolan Pope and Merrill Warnick National Bureau of Economic Research

Date Posted:: March 24, 2026
Is Database:: Database
Is Important:: Important

Data from Los Angeles and Maryland linking high school, postsecondary, and earnings records suggest that one class-year with a teacher with 1 SD higher mean grade inflation reduces the PDV of their students’ lifetime earnings by ~$213,872.

We develop two teacher-level measures of grade inflation: one measuring average grade inflation (the year-specific teacher fixed effect showing the teacher’s average contribution to grades after controlling for the student's contemporaneous performance in the focal subject as measured by the corresponding subject test score as well as prior test scores, prior grades, and other background characteristics), and another measuring a teacher's propensity to give a passing grade [which affects primarily students near the bottom of the distribution]. A [separate] cognitive value-added measure [included in the regressions] is a teacher fixed effect capturing how much a teacher raises students' standardized test scores relative to what would be predicted from the students' prior test scores and background characteristics. Grade-inflating teachers have moderately lower cognitive value-added and slightly higher noncognitive value-added. The two [grade-inflation] measures differentially impact students' long-term outcomes. Being assigned a higher average grade inflating teacher reduces a student's future test scores, the likelihood of graduating from high school, college enrollment, and ultimately earnings. A teacher with one standard deviation higher average grade inflation reduces the present discounted value [PDV] of lifetime earnings of their students by $213,872 per year. In contrast, passing grade inflation reduces the likelihood of being held back and increases high school graduation, with limited long-run effects. [Figure 7 in the gallery].

Takeaways by Macro Roundup^® AI

The authors estimate that assignment to a teacher with one standard deviation higher average grade inflation reduces the present discounted value of students' lifetime earnings by $213,872 per year.
Higher average grade inflation by teachers lowers students' future test scores, high school graduation likelihood, college enrollment, and earnings, while passing-grade inflation instead reduces grade retention and raises high school graduation with limited long-run effects.
Grade-inflating teachers have moderately lower cognitive value-added, measured as a teacher's contribution to standardized test scores beyond what students' prior scores and background characteristics predict, and slightly higher noncognitive value-added.

Master’s Programs Are Cash Cows for Universities. Do They Pay Off for Students?

Mark Schneider American Enterprise Institute

Date Posted:: September 10, 2024
Is Database:: Database
Is Important:: Important

Mark Schneider @AEIecon reviews the ROI of master’s degree programs and finds “vast differences among fields of study and among programs in the same field of study.” He argues that policymakers need to provide accurate ROI metrics to applicants.

The absolute increase in lifetime earnings is the average gain in income between students completing the degree and the counterfactual earnings of similarly situated students without the degree. Incorporating the time spent getting a master’s degree, the cost of obtaining the degree, and the probability of completing a program generates an “adjusted ROI.” Taking these costs into account drastically reduces the return to the student—and puts the return for master’s degrees dead last. [But] Averages Hide Lots of Information. Business is the single largest field of study for master’s students; but, on average, business master’s degrees have a negative ROI. But graduates from the top performing programs—including Dartmouth, the Massachusetts Institute of Technology, and the University of Pennsylvania— can earn millions more than graduates from other business programs. Students who choose badly could experience a negative ROI of over $1 million. Even in computer science, the field with the highest overall ROI, graduates from some programs experienced negative ROIs.

Takeaways by Macro Roundup^® AI

Adjusting lifetime earnings gains for time spent in school, the cost of the degree, and the probability of completion drastically reduces the return to master's students and places master's degrees last on adjusted ROI.
Business, the single largest field of study for master's students, has a negative ROI on average, while graduates of top-performing programs at Dartmouth, MIT, and the University of Pennsylvania can earn millions more than graduates of other business programs.
Students who choose badly could experience a negative ROI of over $1 million, and even in computer science, the field with the highest overall ROI, graduates of some programs experienced negative ROIs.

Human Capital Spillovers and Health: Does Living Around College Graduates Lengthen Life?

Jacob Bor, David Cutler, Edward Glaeser and Ljubica Ristovska National Bureau of Economic Research

Date Posted:: April 25, 2024
Is Database:: Database

Bor, @Cutler_econ, Glaeser, and @lj_ristovska find a strong negative correlation between the % of college graduates in an area and all-cause mortality, even after controlling for individual education.

[There is] a strong and robust relationship between area human capital and mortality, even after controlling for individual education. More than half of the correlation between area human capital and mortality can be explained by differences in smoking rates and obesity rates across areas, and that [these effects are] strong even after controlling for individual education. More than half of the correlation between area human capital and mortality can be explained by differences in smoking rates and obesity rates across areas. We find empirical evidence for [both] regulatory policies such as workplace smoking bans, and peer effects about the harms of smoking. Health-related behaviors are particularly sensitive to human capital spillovers among younger individuals, implicating the role of changing social norms around smoking and obesity across generations in the widening geographic gaps in health between high and low human capital areas.

Takeaways by Macro Roundup^® AI

The authors find a strong, robust relationship between area human capital and mortality that persists after controlling for individual education, with more than half the correlation explained by differences in smoking and obesity rates across areas.
The authors find empirical evidence for both regulatory policies, such as workplace smoking bans, and peer effects regarding the harms of smoking.
Health-related behaviors are particularly sensitive to human capital spillovers among younger individuals, implicating changing social norms around smoking and obesity across generations in the widening geographic health gaps between high and low human capital areas.

Comments On: "Accounting For the Widening Mortality Gap Between American Adults With and Without a BA" By Anne Case and Angus Deaton

Caroline Hoxby Brookings Papers On Economic Activity

Date Posted:: October 10, 2023
Is Database:: Database

Caroline Hoxby argues that Anne Case and Angus Deaton’s recent findings on the divergence btw Americans with a BA and those without is largely driven by a compositional shift that has occurred as more Americans have graduated college.

I find it entirely plausible that selection accounts for most or even all of the widening mortality gap. Measures of achievement have not risen among 12 graders and other high school students for essentially the entire period since we started to measure them in a consistent way (i.e. since the early 1970s). However, the share who obtain a BA degree has increased quite dramatically over the same period. An NLSY [National Longitudinal Survey Youth] exercise shows that non-BAs are increasingly negatively selected. A comparison between the NLSY79 (1979) and the NLSY97 (1997) shows that the distribution of ASVAB [Armed Services Vocational Aptitude Battery] percentiles of non-BAs is shifted to the left for 97 vis-a-vis 79.

Takeaways by Macro Roundup^® AI

Selection is plausibly responsible for most or even all of the widening mortality gap between American adults with and without a BA, according to this commentary on Anne Case and Angus Deaton's work.
Comparing the National Longitudinal Survey of Youth cohorts of 1979 and 1997, the distribution of ASVAB percentiles among adults without a BA is shifted leftward for 1997, suggesting non-BAs are increasingly negatively selected.
Measures of achievement among 12th graders and other high school students have not risen since consistent measurement began in the early 1970s, while the share obtaining a BA degree rose dramatically over the same period.

Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges

Raj Chetty, David Deming and John Friedman National Bureau of Economic Research

Date Posted:: July 24, 2023
Is Database:: Database
Is Important:: Important

.@OppInsights finds that the “Ivy-Plus” (Ivy League, plus UChicago, Duke, MIT, Stanford) admit students from the highest income families scoring in the top 1% of SAT/ACT at far greater rates than those from lower-income families.

Children from families in the top 1% are more than twice as likely to attend an Ivy-Plus college (Ivy League, Stanford, MIT, Duke, and Chicago) as those from middle-class families with comparable SAT/ACT scores. Two-thirds of this gap is due to higher admissions rates for students with comparable test scores from high-income families; the remaining third is due to differences in rates of application and matriculation. The high-income admissions advantage at private colleges is driven by three factors: (1) preferences for children of alumni, (2) weight placed on non-academic credentials, which tend to be stronger for students applying from private high schools that have affluent student bodies, and (3) recruitment of athletes, who tend to come from higher-income families. Highly selective public colleges that follow more standardized processes to evaluate applications exhibit smaller disparities in admissions rates by parental income than private colleges that use more holistic evaluations.

Takeaways by Macro Roundup^® AI

Children from top-1% families are more than twice as likely to attend an Ivy-Plus college (Ivy League, Stanford, MIT, Duke, Chicago) as middle-class students with comparable SAT/ACT scores.
Two-thirds of that attendance gap comes from higher admissions rates for high-income students with comparable test scores, and the remaining third from differences in application and matriculation rates.
The high-income admissions advantage at private colleges reflects preferences for alumni children, weight on non-academic credentials that tend to be stronger among applicants from affluent private high schools, and recruitment of athletes, while highly selective public colleges using more standardized evaluation show smaller disparities by parental income.

Education Has Less to Do With Inequality Than You Think

Paul Krugman Krugman Wonks Out

Date Posted:: May 11, 2022
Is Database:: Database

@PaulKrugman, according to his Wonk Out piece, the gap btw median male college graduate wages and the 95th percentile has widened since 2000, with the latter seeing substantial gains while the former’s real income has stagnated or declined.

Since 2000, wage inequality has risen while the college wage premium has stagnated, challenging the notion that education is a primary driver of economic inequality. Data shows that the gap between wages at the 95th percentile and those of the median male college graduate has widened, with the former seeing substantial gains while the latter's real income has stagnated or declined. This suggests that a college degree is no longer a reliable path to financial success for many, contradicting the belief that college-educated individuals are part of the economic elite. The disparity highlights that factors beyond education, such as structural economic changes, play a significant role in rising inequality. This insight is crucial for policymakers considering student debt relief and broader economic reforms, as it underscores the need to address systemic issues rather than focusing solely on educational attainment.

Takeaways by Macro Roundup^® AI

Wage inequality has risen since 2000 while the college wage premium has stagnated, challenging the view that education is a primary driver of economic inequality.
The gap between wages at the 95th percentile and those of the median male college graduate has widened, with top earners posting substantial gains while median college-graduate real income stagnated or declined.
The stagnation of college-graduate incomes suggests that policymakers weighing student debt relief and broader economic reforms should address structural economic changes rather than educational attainment alone.

The Economic Policy Institute had a very useful analysis of this data just before the pandemic. Between 1979 and 2000, there was a rough match between growth in one measure of overall inequality — the gap between wages at the 95th percentile and those of the median worker — and its estimate of the average wage premium for college-educated workers. Since 2000, however, wage inequality has continued to rise, while the college premium has barely changed... my own version of this observation, comparing growth of incomes of households at the 95th percentile with those of the median male college graduate. Now, Americans at the 95th percentile don’t consider themselves rich, because they aren’t, surely as compared with C.E.O.s, hedge funders and so on. Nonetheless, they have seen substantial gains. On the other hand, the typical college graduate — who is, remember, someone who made it through and received an accredited degree — hasn’t.

Paul Krugman, "Education Has Less to Do With Inequality Than You Think,"Krugman Wonks Out, April 29, 2022, https://www.nytimes.com/2022/04/29/opinion/college-student-loan-debt.html

Education Has Less to Do With Inequality Than You Think

President Biden says that he is taking a “hard look” at student debt relief, which probably means that some significant relief is coming. For one thing, Biden promised relief during the 2020 campaign. For another, it’s one progressive priority he can address by executive action, which is important given the extreme difficulty of getting anything through an evenly divided Senate.

How much relief will he offer? I have no idea. How much relief should he offer? I’m for going as big as political realities allow, but I understand that too generous a debt write-off might produce a backlash. And I have no confidence that I know where the line should be drawn.

What I think I do know is that much of the backlash to proposals for student debt relief is based on a false premise: the belief that Americans who have gone to college are, in general, members of the economic elite.

The falsity of this proposition is obvious for those who were exploited by predatory for-profit institutions that encouraged them to go into debt to get more or less worthless credentials. The same applies to those who took on educational debt but never managed to get a degree — not a small group. In fact, around 40 percent of student loan borrowers never finish their education.

But even among those who make it through, a college degree is hardly a guarantee of economic success. And I’m not sure how widely that reality is understood.

What is widely understood is that America has become a far more unequal society over the past 40 years or so. The nature of rising inequality, however, isn’t as broadly known. I keep encountering seemingly well-informed people who believe that we’re mainly looking at a widening gap between the college-educated and everyone else.

This story had some truth to it in the 1980s and 1990s, although even then it didn’t account for the huge income gains at the top of the distribution — the rise of the 1 percent and even more among the 0.01 percent. Since 2000, however, most college graduates have actually seen their real incomes stagnate or even decline.

Education Has Less to Do With Inequality Than You Think: Extended Excerpt Image 1

Furthermore, not all college graduates have had the same experience. Some have done pretty well, but many have seen no gains at all:

Education Has Less to Do With Inequality Than You Think: Extended Excerpt Image 2

I have my own version of this observation, comparing growth of incomes of households at the 95th percentile with those of the median male college graduate:

Education Has Less to Do With Inequality Than You Think: Extended Excerpt Image 3

Now, Americans at the 95th percentile don’t consider themselves rich, because they aren’t, surely as compared with C.E.O.s, hedge funders and so on. Nonetheless, they have seen substantial gains. On the other hand, the typical college graduate — who is, remember, someone who made it through and received an accredited degree — hasn’t.

So here’s how I see it: Much of the student debt weighing down millions of Americans can be attributed to false promises.

Some of these promises were scams pure and simple; think Trump University. Even those who weren’t outright cheated, however, were pulled in by elite messaging assuring them that a college degree was a ticket to financial success. Too many didn’t realize that their life circumstances might make it impossible to finish their education — it’s hard for comfortable, upper-middle-class Americans to realize how difficult staying in school can be for young people from poorer families with unstable incomes. Many of those who did manage to finish found that the financial rewards were far smaller than they expected.

And all too many of those who fell victim to these false promises ended up saddled with large debts.

Of course, there are many Americans who have suffered from rising inequality. I wouldn’t argue that college debtors are greater victims than, say, truck drivers who have seen their real wages plunge or families stuck in declining rural areas and small towns. And we should be helping all of these people.

Unfortunately, most things we could and should be doing for Americans in need — like extending the expanded child tax credit — can’t be done in the face of 50 Republican senators, plus Joe Manchin. Student debt relief, by contrast, is something President Biden can do. So he should.

Adults completing tertiary education experience significant financial returns, with men investing around USD 45,100 and women USD 34,800, yet men benefit more due to higher earnings and employment rates, yielding USD 341,000 for men and USD 262,400 for women over their careers.

Do the financial returns to a tertiary education exceed its costs?

Takeaways by Macro Roundup® AI

Data from Los Angeles and Maryland linking high school, postsecondary, and earnings records suggest that one class-year with a teacher with 1 SD higher mean grade inflation reduces the PDV of their students’ lifetime earnings by ~$213,872.

How does teacher grade inflation affect students' long-term outcomes and earnings?

Takeaways by Macro Roundup® AI

Related Articles:

Mark Schneider @AEIecon reviews the ROI of master’s degree programs and finds “vast differences among fields of study and among programs in the same field of study.” He argues that policymakers need to provide accurate ROI metrics to applicants.

Do master's degrees pay off for students after accounting for costs?

Takeaways by Macro Roundup® AI

Related Articles:

Bor, @Cutler_econ, Glaeser, and @lj_ristovska find a strong negative correlation between the % of college graduates in an area and all-cause mortality, even after controlling for individual education.

Does living around college graduates lengthen life?

Takeaways by Macro Roundup® AI

Related Articles:

Caroline Hoxby argues that Anne Case and Angus Deaton’s recent findings on the divergence btw Americans with a BA and those without is largely driven by a compositional shift that has occurred as more Americans have graduated college.

Does selection explain the widening mortality gap by education?

Takeaways by Macro Roundup® AI

Related Articles:

.@OppInsights finds that the “Ivy-Plus” (Ivy League, plus UChicago, Duke, MIT, Stanford) admit students from the highest income families scoring in the top 1% of SAT/ACT at far greater rates than those from lower-income families.

Why are high-income students likelier to attend highly selective private colleges?

Takeaways by Macro Roundup® AI

Related Articles:

@PaulKrugman, according to his Wonk Out piece, the gap btw median male college graduate wages and the 95th percentile has widened since 2000, with the latter seeing substantial gains while the former’s real income has stagnated or declined.

Is education a primary driver of rising wage inequality?

Takeaways by Macro Roundup® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI