Today, we’re going to talk about how education impacts income.
In the United States, there’s 12 years of primary and secondary schooling that is “mandatory”, culminating in a high school diploma. After that, you can further your studies by getting degrees of various types, including 2-year Associate’s, 4-year Bachelor’s, Master’s, Doctorate’s, and many more professional degrees focused on specific types of jobs.
But does getting a college degree actually increase how much money you make? Let’s find out!
If you’d like to watch a video version of this topic, check this out:
United States
I do want to caveat that the rest of the conversation is geared towards education in the United States. We’ll be looking at data collected by the US Bureau of Labor Statistics in 2019. Given the current situation going on in the world with COVID-19, unemployment rates have skyrocketed and the income landscape is probably changing. However, looking at this data can still give us some good insights about the relative benefits of earning a college degree.
High School Diploma
Ok, so before we talk about college degrees, let’s start by taking a look at the high school diploma, which doesn’t actually qualify to be called a degree.
You get one of these when you finish… you guessed it… high school!
If you don’t have a high school diploma, you can expect to make $30,800 a year on average. If you do have a high school diploma, you can expect to make $38,800 a year. That’s an increase of $8,000, or 26%!
What’s more, the unemployment rate if you don’t have a high school diploma is 5.4% compared to only 3.7% for those with a high school diploma. In other words, you are 46% more likely to be unable to find a job if you don’t have a high school diploma vs if you do.
So the lesson is… don’t drop out of school!
Undergraduate vs Graduate
Now, let’s talk about college degrees. We’ll cover 5 types of degrees: 2 that you earn through undergraduate studies, and 3 that you earn through graduate studies.
Undergraduate education is what you can do right after completing high school, as most undergraduate courses just require a high school diploma. We’ll be looking at both associate’s degrees and bachelor’s degrees.
Graduate education is done after you complete undergraduate studies, usually with a 4-year bachelor’s degree as a requirement. The options here really expand, but we’ll look at the broad categories of master’s, doctoral, and professional degrees.
As we talk about each degree, we’ll compare them with those in the same tier of education, the previous tier of education, and against just having a high school diploma to see what the value of getting a degree is.
Alright, let’s dive in!
Some college, no degree
It turns out that if you simply go to college but don’t even get a degree, you can expect a boost in income to just over $43,300, which is an increase of over $4,500 or 12% compared to a high school diploma without attending college. The unemployment rate drops from 3.7% to 3.3%, which means you are 11% more likely to be unemployed if you don’t attend college (even without getting a degree) compared with just a high school diploma.
Who knew that just going to college without getting a degree could increase how much money you make? But if we think about it, it actually makes a lot of sense. Going to college means you get to meet a lot of people, form connections that open up new opportunities, and boost your knowledge and skills. All of these things increase your earning potential even before you get that piece of paper at the end that shows you completed a milestone.
Undergraduate: Associate’s and Bachelor’s degree
Alright, what if you actually do get a degree?
Let’s talk about undergraduate education. First up is the associate’s degree. which is typically given after 2 years of study. This degree is the next step up from high school.
One level higher is the Bachelor’s degree, which is considered the standard 4-year course of study. That’s not to say you can’t complete these degrees in a shorter or longer period of time; you definitely can and many people do, but these are the standard time frames.
Associate’s and Bachelor’s degrees can be considered alternatives; you might get an associate’s degree if you don’t want to spend the time and/or money to obtain a bachelor’s degree. And you don’t need to get an associate’s degree in order to obtain a bachelor’s degree.
So enough background info, what about the money?
Having an associate’s degree brings an income of just over $46,100, a $2800 or 7% increase over going to college but not having a degree. Compared to a high school diploma, we see a $7300 boost, or around 19%. The unemployment rate also goes down to 2.7%, meaning you are 27% less likely to be unemployed compared to just having a high school diploma.
Having a bachelor’s degree, however, is something else altogether. The average income increases to almost $65,000 (more like $64,900), which is an enormous boost of $18,800 or 41% over an associate’s degree. Compared with a high school diploma, a bachelor’s degree gives you $26,100 or 67% more income. Unemployment sits around 2.2%, which is 41% lower than the 3.7% for high school.
The difference between associate’s and bachelor’s degrees is the largest percentage difference from degrees in the same tier that we’ll see today. That means there’s HUGE benefit to going for a bachelor’s degree instead of an associate’s degree. The extra 2 years you’ll spend for the bachelor’s is worth more than twice as much as the first 2 years you would already need to spend for the associate’s degree. Now that’s something to think about.
Graduate: Master’s and Doctoral degrees
Alright let’s move on to graduate degrees.
A master’s degree is often completed in 1 or 2 years, and gives you more advanced knowledge about a particular field.
A doctoral degree is really oriented around researching a topic very deeply to not only learn what others have discovered, but also to contribute your own new discoveries. These programs can take upwards of 5 years or even longer.
Continuing on from a bachelor’s degree to obtaining a master’s degree will net you around $13,000 additional income, an increase of about 20%, taking you from $64,900 to $77,800. This effectively doubles what someone with only a high school diploma would earn. Unemployment continues to drop to 2%, which is 46% lower than high school diplomas.
Alternatively, those who choose to pursue a doctoral degree instead can increase income by a whopping $33,000 (or 51%) compared to a bachelor’s degree, bumping up all the way to $97,900! Compared with a high school diploma, we’re talking about $59,100 or 152% more yearly earnings. The unemployment rate is the lowest of our categories at 1.1%; that’s 70% lower than just having a high school diploma.
So does this mean if you want the highest income that education can give you, you should go for a doctoral degree? Not necessarily… There’s a bunch of reasons why, but let’s talk about that after we look at the data for one more type of degree.
Graduate: Professional degrees
The last type of degree we’ll take a look at are professional degrees. The definition of a professional degree varies somewhat, but generally refers to completion of a program that trains you for a specific profession. These could technically be at the undergraduate, master’s or doctoral levels, but the the US Census Bureau uses the classification of “professional degree beyond bachelor’s degree”.
It turns out that professional degrees can give you almost the same level of income as doctoral degrees — a average of $96,800, which is only $1100 less than doctoral degrees. This still gives you a boost of $31,900 or 49% compared to bachelor’s degrees, and $58,000 or 150% more income than just a high school diploma. Unemployment isn’t quite as impressive as for doctoral degrees, but at 1.6%, its still lower than everything else, including the high school diploma by 57%.
Actually, in an earlier 2017 version of this data, the earnings for those with professional degrees was actually higher than for those with doctoral degrees by almost $5,000 a year and there was no difference in unemployment rates, which means jobs requiring doctoral degrees have gotten more lucrative recently. However, its unknown if this trend will continue.
What we do see is that compared with master’s degrees, both doctoral and professional degrees can result in higher income. This makes sense, as professional degrees are all about training you for specific professions, which by definition are designed to earn money.
Doctoral programs are very specialized and give you a particular skillset that can be lucrative if you find a good fit in academia or business, but there are also lot of programs that don’t match the goals of the business world. We’ll have to wait for the next version of this survey to see if doctoral or professional degrees come out on top again.
The Cost of Education
Finally, I want to talk about some factors that we didn’t examine closely.
One of them is how this data would break down for individual fields of study like law, medicine, engineering, and so forth. We just looked at the averages across broad categories of degree types.
We also didn’t look at how much it costs to enroll in these degree programs. The cost of education has been steadily rising, and possibly at a rate that could outweigh its benefits.
The other important factor is that there is a major time commitment needed to get a college degree, ranging from 1 year to 5 or more years. That’s a huge opportunity cost. In other words, you could have spent those years working, making money and advancing in your career, which would also increase your income and wealth.
This opportunity cost is also why doctoral and professional degrees, despite boosting income quite a bit, may not actually always be the best path to take compared with stopping earlier on after a bachelor’s or master’s degree. In the end, we only have so much time we can spend, and spending time on one thing means not spending it on something else.
Summary
That’s it for this look at how education impacts income. Are the results what you expected, or were you surprised?
If you want to hear more about this or other additional topics, let me know by leaving a comment.
