Skills and the Earnings of College Graduates: ETS R&D

This second report in "The Impact of Human Capital in the American Labor Market Series" finds that college graduates with higher literacy and numeracy skills have a better chance of accessing higher-paying jobs, but many college graduates lack a minimum level of those skills and wind up mal-employed.

Factors Affecting Future Earnings

Earning a bachelor's degree has become a basic goal for high school students, but many college graduates with a four-year degree find themselves struggling to earn enough money to achieve their version of the American dream. In fact, a significant percentage earn no more than a high school graduate. How is that possible?

A study by Neeta Fogg, Paul Harrington, and Ishwar Khatiwada of Drexel University's Center for Labor Markets and Policy points to three important factors that affect a newly minted graduate's ability to get on a path that leads to high future earnings:

Those with insufficient literacy and numeracy skills will pay a price in future earnings. Using U.S. results from the Programme for the International Assessment of Adult Competencies, or PIAAC, the authors looked at employed college graduates from ages 21 to 65. They found, on average, significant increases in income for those with higher level skills.

Graph details

There are two rotating graphics shown comparing the earnings of college graduates in relation to level of skills.

In literacy, those with below minimum skills earn only $5,333, in contrast to the $6,117 earned by those with minimum skills and the $7,337 for those with above minimum skills.

In numeracy, those with below minimum skills earn only $5,307, in contrast to the $6,280 earned by those with minimum skills and the $7,644 for thsoe with above minimum skills.

SKILLS ARE CRITICAL: The better your skills, the more likely it is that you will earn better wages. In literacy, those with below minimum skills according to PIAAC 2012-2014 results earn only $5,333 per month on average; compared to $6,117 for those with minimum skills, and $7,337 for those with above minimum skills. The statistics are similar for numeracy.

Gaining access to employment in college-level occupations (that use the skills, knowledge, and abilities that are typically developed with a college education) is critical. College graduates who work in college-level occupations get large earnings premiums compared to those who work in high school-level occupations.
And, related, those with stronger literacy and numeracy skills have a better chance of obtaining a college-level job than those who don't.

Graph details

There are three rotating graphics shown comparing the mean monthly earnings of different categories of employed workers.

The first shows that college graduates in jobs using college-level skills earn $7,200, or double the $3,632 earned by college graduates in jobs not using college-level skills.

The second shows that college graduates in jobs using college-level skills earn $7,200, or more than double the $3,191 earned by all employed high school graduates.

The third shows the similarity between the earnings of college graduates in jobs not using college-level skills ($3,632) and all employed high school graduates ($3,191).

TYPE OF OCCUPATION MATTERS: College graduates in jobs that use college-level skills earn double the amount of the mal-employed: those in jobs not using college-level skills ($7,200 to $3,632). Mal-employed college graduates earn about the same as high school graduates.

Key Takeaways

College graduates who don't work in college-level jobs, also known as the mal-employed, earn no more than high school graduates. One-third of those with just a bachelor's degree were mal-employed at the time of the PIAAC study.
Having a college degree does not automatically mean that one has the skills to succeed in the workforce. One in five college graduates lacked minimum literacy skills, according to PIAAC results, while the ratio was one in three for numeracy.
Employers seem able to discern literacy and numeracy skill differences among college graduates and pay substantially more to those with better skills.
Although a college degree is a strong indicator of future earnings, it's important to consider addressing the literacy and numeracy skills of college students to reduce the risk of college graduates failing to reap the benefits from their education.