Declines in Educated Americans’ Income After the Great Recession

Income has gone down since the official end of the recession in spite of more education.

 

The last blog introduced a report released last week by Sentier Research, a data-analysis company. The report was authored by former high officials and statisticians of the U.S. Census Bureau, using the Bureau’s data. Its general results are eye-opening enough: the nation’s median income went down not just during the official recession but even more so during the supposed recovery, and that this is true across all or almost all age, educational, and racial groups.

The U.S. Is Now More Educated, Yet Has Lower Income

Focusing on the educational angle, here is even more confounding study result: Overall median income is down even though educational attainment is sharply up.

This is disturbing. As a nation, in the last four years we have worked hard at getting better educated, but are making less money in spite of that effort.

Even after digging deeper, this doesn’t seem to make sense. The number of households headed by people with some college, or by those holding an associate degree, or by those holding a bachelor’s degree all increased since the 2009 official end of the recession. In just four years the increases have been very significant—a nearly 15% increase in households headed by people with an associate degree and a more than 10% increase in those headed by those with a bachelor’s degree.

During the same time the number of households headed by people who either did not graduate from or who had only finished high school declined; by nearly 8% and about 1%, respectively.

Yet, income decreased for all these groups during the last four years, and for this significantly better educated population as a whole.

What’s Going on Here?

What this seems to indicate is that people are working hard to improve their workforce skills, but at least so far this has been not bearing fruit. This combined effort seems to be outweighed by the still historically high unemployment rate, which keeps down wages and limits opportunities for people of all educational levels.

There are also other, maybe temporary, factors.

First, during the recession and in the four years after, because of high unemployment many have chosen to go to or stay in school. Because of the relatively few employment opportunities people are trying to wait out the bad job market and improve and adjust their academic credentials while doing so. This has increased the percentage of more educated households. Indications of credential adjustment are likely especially reflected in the huge increase in households headed by people with associate degrees, which are associated with workforce skills training.

Second, less educated young people are not leaving their parents to form new households, because of less job opportunities, lowering the number of households led by those young people.

Third, those young people with associate and bachelor’s degrees who find only relatively low paying employment are forming their own households but their low incomes drag down the median income for those households.

Is Higher Education Worthwhile?

This is the current hot issue, for individual families and young people wondering about the costs and benefits of higher education, especially when having to pay for it through student loans. This is also a crucial issue for national policy makers weighing the broad economic implications.

The present reality is that more education continues to pay high dividends in the labor market. For example, according to this same study, the income of households headed by those who didn’t finish high school and by those headed by those with at least a bachelor’s degree both declined these last four years by a similar percentage (6-7%). But this leaves the current median income for the first group at only $24,448 while for the second group the income is at $84,705.

However, while in broad terms the income benefit for those with education is still huge, the difference in dollars of income is less than it was four years ago.

And these statistics refer to the entire population, without looking specifically at the income benefit for those who have recently received their associate and bachelor degrees. Considering the high unemployment rate of this younger group, the income benefit for recent graduates may well be worse.

So we are left with the more specific crucial question whether the benefits of more education will increase or decrease with time, as the economy continues to improve and thereafter, and thus whether the investment in education—borrowed or paid for—will continue to be worthwhile. If the income benefit of more education continues to erode, fewer people will decide to take the risk of that investment. 

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