Return Value on Higher Education Degrees

ENGL 1160
07, May 2021
Return value on higher education degrees
Often people examine the relationship between earnings and education to judge where there is a high return value of getting higher education degrees. Still, there is a need for broader analysis. Evaluating the return value of higher education degrees requires considering the costs and benefits and even comparing outcomes for those with no higher education. The differences in wages between the people with different educational attainment levels are among the reasons for investing in education. There is a relative scarcity of experienced postgraduate students in the graduate market. Since there are costs of investing in education, then the cost-benefit analysis of the investment in education is necessary education. Besides the efficiency considerations, there is also a focus on education attainment to bring equity in a society, where education helps alleviate poverty and reduce income inequality. There is a positive return value on higher education degrees.
From an economic perspective, the decision to enroll in a certain education institution and choosing a major is similar to an investment decision, where the highest economic benefit is preferred. Maximizing the benefits and reducing the costs are necessary to leverage the choices, but higher education is already expensive in the US. As such, those who enroll and attend colleges and universities are more likely to believe that the net benefit of attending is greater than the costs incurred, and the opportunity cost of not attending college. Hoverer, there are productivity spillovers of attaining education attainment as the wages of high school dropouts also rise (Blagg and Blom 12). Income upon graduation and future earnings are some of the factors considered when deciding on whether to attend college
The education system has been and continues to be associated with a better economic future, and those willing to attain higher education expect higher future earnings. Even as there are concerns that the system may be losing relevance, evidence suggests the higher education system has positive returns. However, it also depends on where the graduates work and their costs to get the education. McMahon, Walter, and Alan Wagner (275) estimated that there is a $90,000 benefit over a lifetime for those who have gone through the higher education system when considering the cost of education and benefits over time. Typically students who incur higher education costs tend to expect higher earnings, partly to compensate the costs incurred (McMahon, Walter and Alan Wagner 276). Access to higher education implies productivity improvements. This indicates the likelihood of better earnings in the labor market than if the individual had no higher education.
There is greater demand and preference for higher education as this is associated with haggler future earnings, and earnings reflect the return on investment. Borland et al. (16) reported that on average full-time employed graduates earned a 65 % wage premium more than non-graduates with no degrees over their lifetime when controlling for variables such as age and experience and others. The study results are consistent with other studies that show there is a positive return to investment in higher education even when controlling for the area of knowledge. However, passing through the higher education system does not necessarily mean there will be economic benefits to those who skills, such as those from trade schools.
Attending colleges and universities is associated with higher median earnings than that of high school graduates, but the choice of the major affects the earning potential. According to the Center on Education and the Workforce at Georgetown University, as reported by Gillen, Selingo, and Zatynski, median earnings vary by major, "from $29,000 for Counseling Psychology majors to $120,000 for Petroleum Engineering majors." There is a greater demand for certain skills college majors and technical skills as people expect to have a high return on investment. It is likely that there will also be higher future earnings, career growth, and professional development. Graduates have the lowest earnings level the first few years after graduation. Those with highly demanded skills have more opportunities to increase their earnings in a shorter period of time.
Even as there is an average increase in return to higher education degrees, there are substantive differences for different demographic groups and the choice of college major or career. “Without any controls for personal background or institution, employed white and Asian students are likely to earn more six years after entering higher education than black and Hispanic students” (Blagg and Erica Blom 7). Higher education has been characterized by the increased need for qualified workers in a competitive knowledge economy. Nonetheless, the most skillful and experienced workers earn more on average regardless of whether they have higher education or went to trade schools. As such, considering the different levels of academic and technical training and whether students and employees have gone through specialized programs can provide insights on the returns and efficiency of higher education. Making estimates that can inform students when deciding where to attend higher education requires considering benefits such as future earning potential and both direct and indirect costs.
There are various approaches to evaluate the impact of education on income, and in the theory of human capital, to calculate the returns to education, the Mincerian earnings function is one methodology. The equation indicates how average income varies according to capital accumulation and when considering schooling and experience. The Mincerian earnings function includes the logarithm of wages or income as the dependent variable (Houcine and Zouheyr 95). There are different factors affecting earnings and the earning potential, such as the level of higher education, the institution of higher learning attended, and even age. Houcine and Zouheyr (96) used the Mincerian earnings function and indicated that there was a 10.35% increase in return on investment in education in Saudi Arabia as people attend institutions of higher education. There is improvement in human capital, and they are higher returns if people can use their skills, knowledge, and competence where they are efficient and productive.
Employees with college degrees tend to out-earn those without degrees, and there is a positive return value on high education degrees. Gillen, Selingo, and Zatynski reported that each extra year of schooling increases annual earnings by 6 to 10% based on the Mincer earnings equation. To determine the extent to which higher education improvise human capital and economic development, there is a need to use unbiased data from diverse sources. Blagg and Blom (2) emphasize the benefits of data in decision-making and assessing return on investment in education. Still, they point out that it is challenging to determine the actual cost of college. according to 2016, US Census Bureau graduates aged 25-34 had a 2% employment, while those with a bachelor’s had 35 unemployment rate and those with less than high school had the heist unemployment rate at 12% (Blagg and Blom 11).
In the US labor market there is the perception of the individual's productivity based on the area of specialization, and sometimes the institution attended. When ignoring the institution attended, postgraduate students and workers earn more on average than those with an undergraduate and those who only have a high school diploma. People have wage expectations, and getting a higher education is one way to improve future earnings potential. It is no surprise that in the lifetime of graduates, their earning capacity increases faster than workers with no college degrees. However, the quality of education and skills attained are important to improve the return of investing in education as those with skills tend to be more productive and in high demand (Borland et al. 16).
A positive relationship between attaining higher education and future earning potential implies that the years of studies affect the income levels. However, during the time when students are in school, they earn or no wages and income, but then their earnings increase substantially after graduation and gaining experience. Income and education inequality are still persistent in the US, but higher education is one way for an individual to import the chances of earning more over their lifetime. Economic development and labor market factors both affect the extent to which there is the return on investing in higher education returns of individuals as there are more opportunities for people to use their education.
Matching the education with labor market requ...