It is well established that, on average, people with college degrees earn quite a bit more over the course of their careers than do those without. That earnings premium is one of higher education’s major selling points. A slew of studies—especially recently—have sought to quantify the return on investment, examining annual or lifetime earnings by attainment level or subject studied.
But people who go to college or not aren’t otherwise identical. And even those who do go self-select into different majors.
In a new paper on the college payoff, Douglas Webber, an assistant professor of economics at Temple University, tries to take all of that into account. Mr. Webber spoke with The Chronicle about how prospective students and policy makers should think about the value of a degree. What follows is an edited transcript of that conversation.
Q. You look at the lifetime-earnings premium a little bit differently than some others have. For one, you try to eliminate selection bias. Why is that important?
A. There are two main reasons that people who go to college earn more than everyone else. One is that they are hopefully learning something in college that is going to help them in their future careers. Another is that smarter people tend to go to college, and they were going to be more productive regardless.
So when you’re trying to measure the college premium, you have to look a little deeper than just saying, How much do people who go to college make versus how much do people who don’t go to college make? It’s not an apples-to-apples comparison.
Let’s say college graduates make 40 percent more than high-school graduates. If we were to randomly pick a high-school graduate to receive a college degree, we wouldn’t expect that person to actually get 40 percent more in earnings.
There’s also selection into majors. On average, smarter people tend to major in certain fields over others. Doctors tend to be smarter than the rest of us, and they also tend to earn more money. They probably majored in some science field as undergrads. So is the reason they’re earning more money because they’re smarter, is it because of the training they got, or is it some combination?
Q. So how did you account for selection bias?
A. I use data from the National Longitudinal Survey of Youth, which has detailed information on individuals—everything from their standardized-test scores to noncognitive skills (like, say, self-esteem or locus of control, which is how much you think your actions have an impact on your life).
These things wouldn’t be captured in a standard IQ test, but they’re probably very important for determining whether you go to college—and also your future wages. If you’re kind of fatalistic, and you don’t think what you do is going to make any difference, then you’re probably not going to invest heavily in your education.
The NLSY allows me to control for a very wide range of characteristics, and I can follow people over time.
Q. Did any of the findings surprise you?
A. I was a little surprised at how, even after controlling for as wide a range of selection biases as possible, there were still such big differences in lifetime earnings across majors. I definitely expected some differences, but I didn’t expect them to be as big as they were.
Q. What implications do you see here for prospective students?
A. They should absolutely take into account the big differences in lifetime earnings. That said, it should be only part of the puzzle. They shouldn’t make all of their decisions based solely on which major has the highest potential earnings. They have to take into account things like what they enjoy, what they’re good at. Those all matter a lot in terms of lifetime satisfaction. Money isn’t everything. But money is important.
Q. What implications do you see for policy makers?
A. Universities and policy makers should make it known to 18-year-olds—who may not know how to find these data, who may not even be thinking about their market prospects later on—that decisions you’re making when you’re 18 can have a big impact.
I am absolutely not saying that universities should cut, I really hate to pick out any major, but let’s say art history. But there should be at least some attention paid to graduates in these fields. Are they able to make a good living when they graduate?
Q. On the broader conversation going on about whether college is worth it, do you think the traditional ways economists tackle that question provide good answers?
A. There’s a big piece of the puzzle that many studies and many articles in the popular press miss. Not all colleges are created equal. There’s a big difference if you’re talking about going to Harvard or to a random college no one’s ever heard of. And people also miss that less than 60 percent of 18-year-olds starting college full time are actually going to earn a degree within six years.
Now everything I’m talking about, I’m using average returns. When I said that higher-ability people tend to go into certain majors, I’m saying that on average. So there are many, many absolutely brilliant people who major in art history, and there are many not-so-brilliant people who major in engineering.
A lot of times people put too much weight on outliers. They see someone who is really successful, and they think that’s a good path to take. But if you are an average person, then you should be looking at the average return.
Mick Jagger—and the world—would be much worse off if he had stayed at the London School of Economics and gotten an econ degree instead of dropping out to hang out with Keith Richards. But you know, he’s an extreme outlier.
Q. So we shouldn’t all drop out of school and start a band.