How Your College Determines Your Earnings

Today is a 4E Day:

Education and…

• Earnings
• Employment
• Economic Mobility

And yes, where you go to school and your major really do make a difference.

The NY Fed had the facts.

Do School and Major Choice Matter?

Earnings

When researchers at the NY Fed’s Liberty Street Economics created a “recipe” for earning more, their first ingredient was a selective college. To be selective, the school had to be ranked in Barron’s top three (out of six) tiers.

The other ingredient was your major. If you just opted out of liberal arts into business, vocational, or STEM (science, technology, engineering, math), you were destined to earn more. However, STEM got you the biggest earnings bump six years after enrollment.

As you can see, the dark blue bars are the best:

Then, ten years after enrollment, it gets even better for selective school grads. However, the STEM premium remains about the same as for six years:

Economic Mobility

As a third step we can ask about moving up the economic ladder. Here, the Liberty Street blog retains our dual focus on the kind of school and the major.

Looking at the following graph, we get one message. For-profit schools massively increase income inequality. At 117%, the difference in mean earnings between the top and the bottom experienced by for-profit grads is considerable. Meanwhile that -43% says how much selective college graduate earnings decrease the top to bottom gap when compared to non-selective colleges:

Our Bottom Line: Human Capital

To imagine what we mean by human capital, please think of a person as you would a factory. Adding education (human capital) to people is like purchasing new machinery (physical capital) for factories. Both boost productivity.

And again like physical capital, more human capital can generate higher earnings that have a widespread benefit. For individuals at “selective colleges” and STEM majors, earnings will rise the most. For the nation, those earnings could diminish income inequality.

My sources and more: Always interesting, the NY Fed’s Liberty Street Blog alerted me to the 4Es. Then for more, I recommend this Brookings paper on problems with for-proift schools. And lastly, you might return to this econlife for a Raj Chetty et al. study of income mobility.