One of the biggest arguments in favor of a college education is that college grads make more money than do those with only a high-school diploma or a few years of college. The difference in earning power over a lifetime—the college wage premium—has been well-documented: One of the most popular recent sources, a paper by Christopher Avery and Sarah Turner, estimated the gap at more than $500,000, on average.
Those last two words are more important than anyone gives them credit for. Focusing on the average college wage premium puts the emphasis on the expected gains from education, which is not a bad thing if you’re trying to persuade lots of people to go to college. But it’s only part of the story. College tuition is expensive, and plenty of students take on tens of thousands of dollars of debt in pursuit of that wage premium—when what matters just as much is how risky it is relative to other ways they might spend their money or time.
When we look at distribution of the college wage premium—how much more the lowest-, middle-, and highest-earning quartiles make relative to high-school grads, the picture of risk becomes clearer. At every level short of graduate school, there’s a not-insignificant chance that a successful high-school graduate will out-earn you. The chances are greatest for college dropouts—the people who spend some time and money but don’t walk away with a degree.
To consider risk, I used the 2013 Current Population Survey conducted by the U.S. Census, which asks detailed questions about employment and earnings. As Avery and Turner did, I took the present discounted value of lifetime earnings, but I included non-students from age 18 to age 65. (Avery and Turner assume that everyone works for 42 years.) I hoped to capture the additional income gained from forgoing college. I also included part-time workers to capture income risk.
The figure below gives the 25th percentile, median, and 75th percentile of expected lifetime earnings for different education groups, starting at age 18 and proceeding to age 65.
I found a $225,000 premium, less than half what Avery and Turner found, partly because I included part-time workers, combined men and women, and granted high school graduates additional working years. The biggest risk of going to college is dropping out: An unfinished degree barely increases your earnings while costing money and time. Vocational two-year degrees have a stronger positive effect on earning power than academic ones do. (Insert English major joke here.)
Education traditionally suggests more security, a lower risk of unemployment, and more stable wages. The figure below shows whether, if you go to college, you will always be paid more than the typical high school graduate.
On average, college pays off, though not always. The wage premium comes with risk. For every degree short of a graduate degree, there’s a decent chance that a good high school graduate will out-earn you. The risk-adjusted premium of college needs to be weighed against the cost of tuition (PDF): In 2010, public, full-time community college tuition cost more than $10,000 a year; undergrad full-time tuition cost $16,000 at public universities and $37,000 at private schools.
None of this suggests that motivated students shouldn’t go to college, especially if they’re committed to finishing. A degree is still a good bet and technology rewards education more than ever. (The data here are based on earnings for current workers of all ages; they don’t capture the increasing returns to education expected in the future.) The data also don’t capture a further benefit to education: It helps people stay employed, at whatever wage range. The unemployment rate for high-school graduates is 7.5 percent, almost double the 4 percent rate among people with a B.A.