ITS NOT JUST THE MONEY The Benefits of College Education to - PowerPoint PPT Presentation

IT’S NOT JUST THE MONEY The Benefits of College Education to Individuals and to Society LUMINA ISSUE PAPERS PHILIP TROSTEL UNIVERSITY OF MAINE

You already know…  It is now widely accepted that education creates “human capital,” which is generally understood to mean the value of the higher earnings associated with education attainment.  The “college earnings premium” is frequently used to indicate this notion.

Average Annual Earnings $90,000 $82,139 $80,000 $70,000 $26,016 $60,000 $56,122 $50,000 $40,000 $32,112 $36,178 $31,565 $30,000 $12,168 $7,555 $24,010 $20,000 $9,668 $14,342 $10,000 $0 Less than High School High School Diploma Some College Associate's Degree Bachelor's Degree Advanced Degree Diploma

Present Value of Lifetime Earnings (At Age 19 using a 3% Discount Rate) $1,800,000 $1,593,959 $1,600,000 $1,400,000 $419,467 $1,174,493 $1,200,000 $1,000,000 $625,483 $795,406 $800,000 $701,936 $246,396 $152,926 $600,000 $549,010 $205,009 $400,000 $344,001 $200,000 $0 Less than High School High School Diploma Some College Associate's Degree Bachelor's Degree Advanced Degree Diploma

You probably also know…  There is no sign of a shrinking college earnings premium, despite relatively more college-educated labor.  In fact, the college earnings premium has generally risen over the past several decades.

100% 120% 20% 40% 60% 80% 0% 1975 1976 1977 1978 High School Diploma 1979 1980 1981 1982 1983 1984 1985 Trend in Degree Premia in Earnings Some College 1986 1987 1988 1989 1990 1991 Associate's Degree 1992 1993 1994 1995 1996 1997 1998 Bachelor's Degree 1999 2000 2001 2002 2003 2004 Advanced Degree 2005 2006 2007 2008 2009 2010 2011 2012

The Curse of the College Earnings Premium  The large monetary payoff to college education has been demonstrated countless times.  Two unfortunate side effects:  Numerous other important benefits tend to get overlooked.  It fuels the perception that college education is primarily a private good and thus there is little need for taxpayer support.  Our actions are speaking. Public support for higher education:  Falling relative to national income (since early 1980s)  Falling relative to total government spending (since about 1980)  Falling relative to net student/family contributions

“If you can’t measure it, it doesn’t exist”  The “other” benefits are at least as important as the well- known effect on earnings.  They are not just the gravy.  The report compiles evidence from several different literatures (and shows a few new things too).  Most of the data are from 2012.  The benefits from college attainment are emphasized, not the benefits from college education generally.  The benefits from research and public service activities are not quantified.

Caveats  Numerous effects are separately summarized, but they are unlikely to be independent.  A simple summation risks double counting.  The report does not deal with issues of causation.  The correlations could be the result of omitted-variables bias (a.k.a. “ability bias” in this context).  The literatures have found that instances of causal estimates being noticeably lower than the observed correlations are uncommon.

Other Private Benefits  Some other private benefits of college attainment:  Greater fringe benefits from employment  Reduced risk of unemployment  Better health and reduced risks of disability and mortality  Increased savvy in making consumption and financial decisions  Reduced risk of imprisonment  Better marriages  Increased life satisfaction  These benefits are partially passed on to their children

Average Annual Employer Contribution for Health Insurance $4,500 $4,000 $3,984 $3,500 $3,226 $3,000 $2,500 $2,568 $2,267 $2,000 $1,859 $1,500 $1,000 $836 $500 $0 Less than High School High School Diploma Some College Associate's Degree Bachelor's Degree Advanced Degree Diploma

Retirement Plan through Employment 60% 54.7% 50% 45.7% 40% 38.8% 33.1% 30% 26.6% 20% 10% 9.2% 0% Less than High School High School Diploma Some College Associate's Degree Bachelor's Degree Advanced Degree Diploma

Unemployment Rate 16% 14% 13.6% 12% 10% 9.6% 8% 7.8% 6% 6.0% 4% 4.4% 3.1% 2% 0% Less than High School High School Diploma Some College Associate's Degree Bachelor's Degree Advanced Degree Diploma

Self‐Reported Health 80% 76.1% 72.6% 70% 60% 61.3% 57.4% 50% 50.5% 40% 39.2% 38.4% 34.7% 30% 25.2% 23.5% 20% 19.5% 15.0% 10% 0% Less than High School High School Diploma Some College Associate's Degree Bachelor's Degree Advanced Degree Diploma Excellent Excellent or Very Good

Life Expectancy  Hummer and Lariscy (2011) found that the mortality rate is 25% lower for bachelor’s degrees compared to high school.  They also show that college attainment is inversely related to all broad categories of mortality, but particularly for the most preventable causes.  The strongest negative effects on mortality are for diabetes and lung cancer, followed by respiratory disease and external causes (homicide, suicide, and accidents).  Meara et al (2008) estimated life expectancy at age 25 (in 2000). Life expectancy for those with at least some college was 81.6, compared to 74.6 for those who never attended college.

More on Life Expectancy  Mokdad et al (2004) indicate that “modifiable behavioral risk factors are leading causes of mortality” in the U.S.  Smoking is the leading cause of death, followed closely by poor diet and physical inactivity, with alcohol a distant third.  Cutler and Lleras-Muney (2010) found that college education has:  a positive relationship with exercise  a positive relationship with eating fruits and vegetables  negative correlations with both obesity and heavy drinking  a positive correlation with seat belt use  positive correlations with various types of preventative medical care

External Benefits  College education also creates substantial benefits to the rest of society.  Some external benefits of college attainment:  Probably the most important is knowledge creation and technological change fostered by college education, but this is not quantified.  “Productivity externalities”  “Fiscal externalities”  “Philanthropic externalities”  “Civic externalities” (a.k.a. “social capital”)

Productivity Spillovers  Education not only increases the incomes of those being educated but may also increase the incomes of others.  Regional data on income and college attainment suggest that productivity spillovers are important.  The greater regional income associated with greater regional college attainment is substantially more than can be explained by the greater incomes of graduates.  Estimating the magnitude of productivity spillovers is challenging because correlation is not causation. But the best evidence indicates that it is comparable in size to the college earnings premium.

Fiscal Externalities  Greater earnings associated with higher education create greater tax revenues, which benefit others by financing public services.  The lower incidences of poverty, unemployment, disability, etc reduce spending on public assistance and social insurance, which benefit others by freeing government resources for other programs and/or reducing taxes.

Present Value of Lifetime Taxes (At Age 19 using a 3% Discount Rate) $500,000 $443,890 $450,000 $53,025 $400,000 $72,750 $350,000 $328,511 $47,947 $300,000 $60,070 $250,000 $62,082 $201,341 $186,280 $200,000 $43,248 $40,775 $38,813 $136,564 $150,000 $55,373 $258,045 $49,552 $34,208 $100,000 $24,564 $175,234 $22,709 $63,429 $43,108 $50,000 $24,304 $15,380 $80,629 $75,206 $6,065 $31,760 $43,868 $1,300 $0 Less than High School High School Some College Associate's Degree Bachelor's Degree Advanced Degree Diploma Federal Income Taxes State Income Taxes Property Taxes Sales Taxes

Present Value of Lifetime Public Assistance (At Age 19 using a 3% Discount Rate) $100,000 $95,454 $90,000 $80,000 $70,000 $33,430 $60,000 $54,155 $50,000 $38,617 $15,430 $40,000 $31,803 $30,000 $10,059 $51,090 $6,626 $20,000 $14,480 $33,709 $9,394 $24,772 $2,116 $22,053 $10,000 $981 $11,097 $7,638 $0 Less than High School High School Some College Associate's Degree Bachelor's Degree Advanced Degree Diploma Medicaid SNAP School Lunches Cash Assistance Energy Assistance Housing Subsidy

Present Value of Lifetime Social Insurance (At Age 19 using a 3% Discount Rate) $25,000 $22,664 $969 $1,921 $19,139 $20,000 $1,656 $15,527 $2,445 $15,000 $1,594 $13,099 $13,971 $1,069 $2,987 $7,110 $1,847 $9,253 $10,000 $3,642 $544 $3,043 $7,506 $1,969 $553 $1,421 $2,122 $5,000 $652 $7,928 $7,303 $7,140 $5,804 $5,319 $4,179 $0 Less than High School High School Some College Associate's Degree Bachelor's Degree Advanced Degree Diploma Unemployment Insurance Supplemental Security Disability Workers' Compensation