Education in States and Nations: 1991

(ESN) Indicator 27: Education and earnings

This measure examines the relationship between education and earnings among persons in their prime earning years - from ages 25 to 64. The measure is the ratio of average annual earnings at a particular highest level of educational attainment to the average annual earnings of persons whose highest level of educational attainment is an upper secondary school degree, multiplied by 100. For example, in a nation or state in which persons with an upper secondary education earn an average annual income of $20,000, a ratio of 69 for persons with less than an upper secondary education would indicate that those persons earned $13,800, or 69 percent of what persons with an upper secondary degree earned. The earnings ratio for persons with an upper secondary degree is always 100. This earnings ratio represents the impact that attaining various levels of education may have on one's earnings and, by extension, on the potential quality of one's life. It also is an indication of the demand a nation or state has for workers at particular levels of educational attainment relative to those with an upper secondary level of education.

• In all states and nations around 1990, higher levels of education resulted in higher average annual earnings. In addition, investment in education beyond the upper secondary level resulted in greater increased earnings than a lack of an upper secondary credential resulted in decreased earnings.

• In 46 U.S. states, the difference in average annual earnings between males with university degrees and those with less than an upper secondary degree was greater than the same difference in 8 of the 11 other countries. In contrast, the same was true in only 15 states regarding female earnings.

• In 36 U.S. states, lack of an upper secondary credential for males was more costly than in 10 of the 11 other reporting countries.

• In all states but Utah, the earnings ratio for persons with non- university higher education degrees was higher for females than for males.

Notes on interpretation:

Although the educational attainment of a population is an indicator of its current skill level, it is not necessarily a measure of success in educating a large proportion of the population. Within the 25- to 64-year-old age group, there may be many who have moved out of the country or state where they received their education. Thus, particularly in some U.S. states, large segments of the resident population may have been educated elsewhere.

Education represents an intangible investment in human skills that may produce benefits for the individual and society. These benefits may include higher earnings from work if employers demand these skills and are willing to pay for them. The earnings advantage that more highly educated persons have, compared to others, can be viewed as part of the economic return to individuals' investment in education. This return is greater as the earnings advantage of more highly educated persons increases.

Care must be taken in using this indicator as a measure of the rate of return to individuals' investment in education. Earnings are influenced by many factors, for example the balance between labor demand and supply. Also, a calculation of the rate of return must take account of the costs to individuals of obtaining additional education. These costs include tuition and other costs of attending college, along with earnings foregone by not working (or working part-time) while attending school. If these costs are similar in two countries, then higher levels of earnings will generally represent a higher rate of return. If the costs differ, higher earnings may reflect differences in the costs of obtaining additional education as well as a higher rate of return.

Table 26b

Figure 27a