The Growing Disconnect Between Education and Wealth

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The Growing Disconnect Between Education and Wealth

The Center for Household Financial Stability at the St. Louis Fed conducted a recent symposium titled Is College Still Worth It: Looking Back and Looking Ahead.” It concluded that the returns on a college degree have generally declined over time and highlighted ways those returns could be boosted, going forward.

The research concentrated on income and wealth outcomes for college graduates born in the 1930s, 1940s, 1950s, 1960s, 1970s, and 1980s. In order to ensure large enough sample sizes, it looked at only two demographic subsets in each cohort: non-Hispanic white families and African-American families. In the process they looked at the boost to income and wealth associated with both four-year degrees and graduate school degrees like MBA, MD, and Ph. D.

As shown graphically in this month’s printable issue, the expected income premium among families of either race headed by those with four-year degrees largely held steady across birth cohorts, with the exception of white grads born in the 1980s.

Certainly, the returns were highest among older generations. According to the Fed economists, the generation born in the 1930s benefited marvelously from earning a four-year degree. Incomes of grads born in the ‘30s were 72 percent higher for whites and 109 percent higher for blacks than for their non-college peers. The premium for grads born in the ‘40s through ‘70s were similar.

And while the study also shows that for white grads born in the ‘80s, the college income premium was meaningfully lower than those of previous generations even that cohort received a 43% boost to their income over their non-college peers. So it’s clear the college grads of either race, born in any decade, reaped sizable rewards in the labor market.

But what about graduate degrees?

The premium associated with a graduate degree has declined somewhat over time among white families. After it peaked at 108 percent among those with graduate degrees born in the '30s, it gradually shifted down to 54 percent for those with graduate degrees born in the '80s.

Among black postgrads, the earnings boost is considerably more volatile across generations. After looking at the statistical noise related to these estimates, the Fed economists concluded that the graduate degree boost to black income has not meaningfully changed over time...

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