New study shows earning power of a diploma

Research from Northeastern University details the heavy economic cost of dropping out

by Meghan McHugh

Every day, high school-aged youth in Philadelphia are making a critical investment decision that could cost them more than they realize: more than $400,000 over the course of a lifetime. According to a new study due out this spring, this figure represents the expected lifetime earnings gap between a high school graduate in Philadelphia and a resident without a high school diploma.

“Kids need to be aware of the risks associated with educational decisions,” said Paul Harrington, principal author of the forthcoming study and associate director of the Center for Labor Market Studies (CLMS) at Northeastern University in Boston. “Years ago kids used to be education consumers; now they’re education investors.”

Using data primarily from the U.S. Census Bureau’s 2006 American Community Survey and Current Population Survey, the CLMS found that simply completing high school in Philadelphia increases one’s lifetime earnings expectation by 90 percent compared to a high school dropout. Completing both high school and college raises expected lifetime earnings by 291 percent.

The research, funded by the Pennsylvania Department of Labor and Industry, shows that attainment of a diploma or any degree in the present economy is an increasingly valuable investment in a worker’s future earnings power.

Harrington said the research is important because awareness of the scale of the dropout crisis in itself may not be enough. With new figures about employment and earnings, “We’re answering the ‘so what?’” he explained.

Powerful findings

Earnings gaps and advantages based on educational achievement are much greater on a percentage basis in Philadelphia than they are in Pennsylvania or in the nation as a whole, Harrington’s research reveals.

Data from the study also show that the unemployment rate for high school dropouts in Philadelphia in 2006 was hovering around 21 percent – nearly twice as high as for those who graduate from high school. This figure is more than five times the unemployment rate of those who have completed college.

Harrington emphasized that the earnings gap connected with education level has grown over time as a consequence of the job market shifting toward more knowledgebased occupations. The CLMS conducted a historical analysis of state labor market data as far back as 1979, suggesting powerfully that the labor market facing high school dropouts today is worlds away from what their parents may have experienced.

In 1979, a Pennsylvania high school dropout could, over a lifetime, still expect to earn two-thirds of what the average Pennsylvanian earned. By 2006, that figure had dropped to only 46 percent.

The researchers found that higher levels of educational attainment resulted in higher wages, increased opportunity for avoiding unemployment spells, and more hours of work over a lifetime. The combined power of these three factors explains the large payoffs in expected lifetime earnings.