Skills and Earnings in the Full-Time Labor Market
Neeta Fogg, Paul Harrington, and Ishwar Khatiwada
The impact of postsecondary education is often viewed as universally positive. Yet postsecondary education is a label attached to a wide variety of educational outcomes, including some college education without a credential. Our analysis of PIAAC data reveals a troubling problem among prime-age, full-time employed workers who enroll in college but leave before earning a bachelor's degree. We found no earnings advantage (relative to high school graduates) among prime-age, full-time workers who had completed some college education but had not earned any postsecondary credentials as well as among those who had earned a postsecondary certificate.
On average during 2015-2016, nearly 16 million prime-age, full-time workers had completed some college without earning a college degree—about one-sixth of the entire prime-age, full-time workforce of the nation. College enrollment and education for these individuals had no earnings payoff. More surprisingly, we also found no independent (regression-adjusted) earnings premium for those with an associate's degree after accounting for skills, work experience, and personal characteristics.
Among prime-age, full-time workers—who constitute the core of the American labor market—the earnings benefits of enrolling in college seem to occur only at the bachelor's degree level. For millions of prime-age, full-time workers who enrolled in college and completed less than a bachelor's degree education, our analysis found no earnings advantage.
These findings pose serious questions about a human capital development strategy that college enrollment should be the objective for every high school student. We find that for the core of the American workforce—prime-age, full-time workers—the payoff to a college education occurs only when a bachelor's degree is earned. Unfortunately, large shares of students who begin college end up leaving before earning a postsecondary credential. Only one in five degree-seeking students who had enrolled for the first time and full-time in 2011 at a community college had graduated with a certificate or associate's degree within three years (150 percent of normal time). The six-year graduation rate (150 percent of normal time) of first-time, full-time degree/certificate-seeking students who had enrolled at four-year institutions in 2007 was 59 percent.58
For prime-age, full-time workers, postsecondary education below the bachelor's degree award level is associated with no independent (regression-adjusted) earnings benefits—despite potentially large costs to both individual college consumers (students) and taxpayers. Given the lack of an earnings payoff for an incomplete postsecondary education, does it make economic sense to send large numbers of teens and young adults into the postsecondary system where many will not earn any degree or certificate award?
While efforts to improve college retention and completion are laudable, many of the factors that exert an influence on college retention, including academic ability and character traits, are developed at the elementary and secondary school level. The postsecondary education system does not seem to be an effective second-chance option for those who exit high school without the proficiencies needed to complete college.
Analysis of the skills of prime-age, full-time workers in this study reveals that even among workers with a bachelor's or higher college degree, sizable shares of these college graduates lacked the minimum level of literacy and numeracy proficiencies that are considered a requirement to function in the job market and daily life.
Many young college graduates also struggle to find employment in college level jobs after completing their bachelor's degree. A recent survey of employers found that "... high employee turnover is the result of workers feeling overqualified for their beginning roles."59 Moreover, college graduates who fail to find work in jobs that utilize the abilities and knowledge thought to be developed in a four-year college have annual earnings well below their counterparts who work in college labor market occupations.60
More significantly, our findings highlight the central role that basic skills proficiencies play in influencing job market outcomes. The earnings of prime-age, full-time workers at every level of education increased with higher levels of literacy and numeracy proficiencies. As Kirsch, Braun, Lennon, and Sands observed, "The multiplicative effects of initial and ongoing differences in opportunity result in widening gaps and increasing inequality in adult outcomes."61 Failure to develop strong reading, writing, and math skills in elementary and secondary school substantially inhibits access to a college degree and thus the potential development of specific kinds of knowledge associated with these degrees that are highly valued in the labor market.62 However, even after accounting for literacy and numeracy proficiencies, we find large and statistically significant gains to earning a bachelor's and advanced college degrees. But the pathway to completing these degrees has many "gates," including one of basic skills proficiencies. Henry Braun observed that, "From birth to, say, age 25, individuals accumulate the human capital ... that will play a critical role in their adult outcomes. ... At each stage of development, the gates represent access or obstacles to opportunities to add human capital, building on whatever potential individuals may have, as well as the human capital they already possess" (emphasis added).63
Opening the pathway to job market success requires the development of basic skills proficiencies. At every level of educational attainment, we find that prime-age, full-time workers with higher literacy and numeracy proficiencies have higher earnings. We also find that earning a bachelor's degree or higher level of education yields large earnings advantages, but the ability to progress along that educational pathway to successful completion is dependent on academic achievement built on the bedrock of literacy and numeracy proficiencies.
58 National Center for Educational Statistics, Digest of Educational Statistics, 2015, Table 326.10 and 326.20 https://nces.ed.gov/programs/digest/d15/tables_3.asp.
59 Kelsey Gee, "I Needed A Degree for This? Why Companies are Failing at Hiring," Wall Street Journal, March 28, 2017.
60 Fogg and Harrington, "Rising Mal-Employment."
61 Kirsch et al., Choosing Our Future.
62 Skills play an important role in influencing major field of study choices in college. See Peter Arcidiacono, "Ability Sorting and the Returns to College Major," Journal of Econometrics 121 (2004): 343-375; Peter Arcidiacono, V. Joseph Holtz, and Songman Kang, "Modeling College Major Choices Using Elicited Measures of Expectations and Counterfactuals," Journal of Econometrics 166 (2012): 3-16.
63 Henry Braun, "The Dynamics of Opportunity in America: A Working Framework," in The Dynamics of Opportunity In America: Evidence and Perspectives," eds. Irwin Kirsch and Henry Braun (New York: Springer, 2016, 137-164).