Wages and Education – Reading, ‘Riting, and Remuneration

by Erik Knoder

January 23, 2020

Although the awkward subtitle shows why economists aren’t hired when catchy slogans are needed, there is no denying that one of the “Rs” of education could be about the fact that more education typically means higher wages. Oregonians with less than a high school diploma earned an average of about $26,327 in 2018, but those with graduate school or professional degrees typically made about $69,381. The U.S. Census Bureau data in the table below show a clear relationship between median earnings and the educational achievement of people ages 25 and over.
The figures from the U.S. Census Bureau include earnings by Oregonians in the 12 months prior to the survey by their highest level of education. Median earnings for all Oregonians in the survey were $40,148, but the more important point of the chart is that median earnings increase steadily with educational achievement. The biggest jump in earnings (+$17,682) occurs when people obtain a graduate or professional degree, and the biggest relative jump in earnings occurs with getting a bachelor’s degree (+43%).

But Sex Can Trump Education

Although it is commonly known that earnings differ by sex, you might be surprised to learn that the difference between sexes is often larger than the difference in educational attainment.
The chart above examines the purely hypothetical question of, would a woman earn more if she changed her sex or increased her education? The data show that for most levels of education, women would earn more if they changed their sex. For example, Oregon men with less than a high school diploma have median earnings $5,436 higher than Oregon women with high school diplomas. The exception was women who earned a bachelor’s degree; men with only some college or an associate degree had median earnings $898 less. So for both sexes it really pays to get that four-year college degree.

Wages by Occupational Requirement

Another way to gain insight into the effect of education on earnings is to look not at the education workers have but at the education employers want for their workers. The Oregon Employment Department surveys employers in Oregon to collect data on which occupations they employ and how much they pay each position. Additionally, most occupations have a “competitive education” level associated with them. A competitive education is the level needed to get the job in a competitive hiring process, and it is usually more education than the minimum required to do the job.

The table below shows the 2018 median and mean annual wages in Oregon for all occupations requiring the given education level to be competitive. For example, there are nearly 90 occupations in Oregon, such as nurse practitioner and librarian, for which people need a master’s degree to be a competitive job applicant. The median wage that these existing occupations paid in 2018 was $75,726 and the mean wage was $80,328. Again, the data show that more education tends to be rewarded, although the mean wage for occupations needing a master’s degree was a little lower than the mean wage for occupations needing a bachelor’s degree.
The table also shows the difference between median and mean wages. As usual with wages, mean wages are higher than median wages. The median wage is the middle wage of all the wages in the group after wages are sorted from lowest to highest. The mean wage is the arithmetic average of all the wages in the group. That is, all the wages are added together then divided by the number of wages. Mean wages are usually higher than average wages because in most groups there are a small number of individuals who earn very high wages, but minimum wage laws and the fact that people need to earn enough to live prevent there being an equal number of people earning very low wages to balance them out. Plus, wages can’t go below zero, but there is, within reason, no limit to how high they can go. So a few high-earning individuals can add significantly to the total wages of a group, but they make little change to where the middle wage is. For this reason a median wage generally gives a better indication of a typical wage for a group than does a mean wage.

Other Factors also Affect Earnings

More detailed data show that although the general pattern of more education leading to higher earnings is true, the rule doesn’t always hold and other factors can be important as well. These detailed data aren’t available for Oregon, but they are for the nation as a whole. The table below shows the estimated median earnings by education for people ages 25 and over who were surveyed in 2018. The median earnings for everyone in the national survey was $44,963. This was about $4,800 more than the median for Oregonians. The table also shows that earnings typically increased as education increased. A small exception was that people who had less than a 9th grade education made a few dollars more than people who had a 9th to 12th grade education but hadn’t graduated from high school. People who held a doctorate degree also made less than people with a professional degree, but that difference is probably more about occupational choice than much of a difference in education. Both are advanced degrees.
The data also show the value of working full time and year round and the differences in earnings by race and ethnicity for different education levels. Working full time and year round adds $6,771 a year in median income for all education levels combined. And the gains in working full time and year round also increase with education.

The variation in earnings by race is as stark as the variation by education. Whites and Asians had annual median incomes higher by $5,104 and $11,259, respectively, for all educational groups combined. Blacks and Hispanics had annual median incomes lower by $8,383 and $12,583, respectively, for all educational groups combined. Whites had their highest earnings advantage in the lowest and highest educational groups, but they held an advantage at every educational level except when holding a master’s degree. Asians were disadvantaged with lower median income when holding a high school diploma or less and had large advantages when achieving high educational levels. Blacks had lower median incomes at every level of education except for less than 9th grade, and the effect was largest at the higher levels of education. Hispanics had the largest disadvantage in income, and they were disadvantaged at every level of education, although the difference was not significant for Hispanics with 9th to 12th grade educations without diplomas.

There are many other factors that influence earnings such as occupation, industry, tenure, union membership, and bargaining ability. These may account for some of the earnings differences in the groups above, but the large differences in earnings support the idea that race and ethnicity are significant factors on their own.

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