What a Flattening Wage Gap Means for College Degree Value
For at least a century, attaining a college degree was part of the American dream. For those select few—a proportion that has grown higher as time has gone on—earning a four-year degree has meant a potential jump into a higher socioeconomic class, thanks largely to a dramatic wage differential between those who attain a four-year degree or more and those who earn a high-school degree alone.
Not only that, for a brief, halcyon time in the 1980s and 90s, the so-called “wage gap” between college-degree earners and those with a high-school degree only was widening, indicating that money spent (and, often, borrowed) to attend college would be paid back with a degree that allowed a significantly better economic condition than if one had foregone the extra study. It was a bit like the housing market in the middle of the 20th century; one could feel fairly confident maxing out one’s housing budget to buy a new home, certain that the value of one’s purchase was increasing over time.
This math may no longer hold up, however. Writing for the National Bureau of Economic Research, Robert G. Valletta, vice president of the economic research department for the Federal Reserve Bank of San Francisco, has discovered a flattening of the higher education wage premium. In his article, titled “Recent Flattening in the Higher Education Wage Premium: Polarization, Skill Downgrading, or Both?” Valetta details the flattening in the wage gap and the possible reasons behind it.
Reasons for the flattening
Since 1980, high school–only graduates could expect to earn somewhere between $16 and $18 an hour in constant 2015 dollars. At the same time, those with a four-year degree saw their wages rise from nearly $23 an hour in 1980 to nearly $29 in 2000, at which point the increase in wages began to flatten out. Those with even more schooling were insulated from this trend for a while, but they could not remain so. Hourly wages for those with a graduate degree increased from around $27 an hour in 1980 to nearly $40 in 2010, but this curve shows signs of flattening out as well.
Valetta attributes the flattening of these curves to two factors. The first is “polarization,” which he defines as “a shift away from middle skills occupations driven largely by technological change.” In short, this means that some of the “routine” jobs that made up the middle-income part of the workforce have been replaced by computers and other types of technology. Jobs like bookkeeping, clerical work, and factory jobs that require continual monitoring and repetitive processes have been replaced by information technology, eliminating those jobs that once were performed by those with college degrees at some point in their careers.
The second factor is “skill downgrading,” which Valetta defines as “a general weakening in the demand for advanced cognitive skills that cascades down the skill distribution.” He contends that both factors—an increase in the use of technology and a lessening of the demand for cognitive skills—have led to the flattening of the wage gap among other effects. “Occupational employment shifts have held down the college-only premium somewhat since the year 2000, suggesting that college-educated workers are increasingly sliding down into routine jobs,” he writes. He adds, “more recently, since 2010, the wage gap between graduate degree holders and the college-only group within the same broad occupations has declined somewhat, suggesting that graduate training may be providing less of a competitive edge than it has in the past.”
The study points to some interesting implications of this trend. First, the data provide confirmation of what many have felt intuitively for over a decade: college is the new high school, and grad school is the new college. Simply put, students need a college diploma to access the “routine jobs” that may be counterparts to those accessible with only a high-school diploma just a generation ago. This is not a small shift, because the cost to the student of a four-year degree—to say nothing of a graduate degree—has increased dramatically over the same period. Without steadily climbing wages and a shot at an intellectually challenging job, it is increasingly difficult to make the case that all students should incur decades of debt.
Second, there is a debate to be had about the potential value of “advanced cognitive skills.” While likely no one will—or even should—stop the march forward of technology, the value of workers lies not only in their abilities to handle current job demands but in their abilities to continue to learn on the job. This requires students learn not only technical skills during their courses of study but also the kinds of holistic and contextual learning strategies that are the hallmarks of the liberal arts education.
Of course, the issue is far more complicated than a single study or article can solve. However, every academic leader needs to consider the implications of this flattening wage gap as it relates to increasing costs of education, because every leader will one day look at a prospective student who answers not, “Why should I come to your college?” but, “Why should I go to college at all?”
Valletta, Robert. “Recent Flattening in the Higher Education Wage Premium: Polarization, Skill Downgrading, or Both?” 2016. doi:10.3386/w22935.
Jennifer Patterson Lorenzetti is the managing editor of Academic Leader and the chair of the 2017 Leadership in Higher Education Conference. She is the owner of Hilltop Communications (hilltopcommunications.net).