U.S. Economy

College Is More Valuable Than Ever, and That's Driving Income Inequality


Wharton School at the University of Pennsylvania

Photograph by Kendall Whitehouse

Wharton School at the University of Pennsylvania

The cost of college is deepening the divide between the richest and poorest segments of the country. Those who can afford a degree should pursue one, though, because they’ll be far better off than those who don’t, a new central bank report shows.

College graduates earn consistently more than people who don’t go back to the classroom after high school, the Federal Reserve Bank of New York said in a report this week.

“The return to a college degree has held steady for more than a decade at around 15 percent, easily surpassing the threshold for a sound investment,” wrote New York Fed researchers Jaison R. Abel and Richard Deitz, who weighed the price of college and lost earnings from four years of school against the paycheck a degree yields.

That trend is good for the highly educated. But it is also the most influential driver of inequality, according to some economists.

“The growth of skill differentials among the ‘other 99 percent’ is arguably even more consequential than the rise of the 1 percent for the welfare of most citizens,” wrote David Autor, an MIT economist, in Science magazine this May.

Over the past 40 years, people with college degrees earned 56 percent more than people with high school diplomas, the New York Fed study found. The wage gap between the two groups has grown over time, so even though people are shelling out more than ever to pay for college, they’re buying into a bigger upside.

The upshot: the rise of the superrich has nothing on the advantage that degree-holders among the 99 percent have over their peers. The top 1 percent of Americans took in nearly a quarter of all U.S. household income in 2012, up from 10 percent in 1979. The earnings edge for college-educated workers widened dramatically over the same period. Families with two college-educated parents used to earn about $30,000 more than those whose educations stopped at a high school diploma. Now they earn $58,000 more.

The people most likely to get that leg up are those whose parents graduated from college. “When the return to education is high, children of better-educated parents are doubly advantaged—by their parent’s higher education and higher earnings—in attaining greater education while young and greater earnings in adulthood,” wrote Autor.

Focusing on very top of the income ladder can obscure the inequality that divides the rest of the country’s earners. One of the deepest wedges between the haves and the have-nots of the 99 percent is also the cornerstone of upward mobility in America: a college degree.

Kitroeff is a reporter for Bloomberg Businessweek in New York, covering business education.

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