New study shows earning power of a diploma

March 1, 2008

Meghan McHugh, The Notebook

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.

Even those high school dropouts who do find work in the current economy may not be working as many hours, according to the study – and the demand for these workers is shrinking every year. Hours worked annually by Philadelphians without a high school degree declined roughly 7 percent between 1979 and 2006, while those completing high school saw an increase in annual work hours over the same span of time. Those completing a bachelor’s degree increased their work hours by 20 percent over this period.

In short, CLMS data shows definitively that the labor market continues to shrink for Philadelphia’s less educated residents.

Yet as educational attainment becomes an ever more critical factor for predicting success in the current economy, high school graduation rates in the city have not improved. In 2006, one in five Philadelphians aged 25 or older had not completed high school.

Local leaders weigh in

The widening gap in expected lifetime earnings between high school dropouts and their more educated peers, combined with Philadelphia’s consistently low graduation rates, has serious consequences for the local and regional economy.

Leaders across various sectors from business to higher education in Philadelphia acknowledged that there is work to be done. Sallie Glickman, CEO of the Philadelphia Workforce Investment Board, hopes the data will lend a new sense of urgency to the city’s efforts to stem the tide of dropouts. She stressed the need for “investment in K-12 in a way that emphasizes getting to the finish line,” and cited the School District’s work on a Secondary Education Blueprint with the Philadelphia Education Fund as a promising step in the right direction.

Steve Wray, executive director of the Economy League of Greater Philadelphia, added that “the educational attainment rate has to be an important part of any economic strategy” for the region.

Mark Schweiker, president and CEO of the Greater Philadelphia Chamber of Commerce (GPCC) and former Pennsylvania governor, said he remains hopeful that the region’s business sector can respond in meaningful ways to improve economic prospect for Philadelphia residents.

“Some [students] don’t see the promise of the workplace,” he said, explaining that one role for the business community is to “expose them to the rewards” of a career path.

Toward this end, the GPCC has been leading a campaign known as “Working Solutions,” which calls for hundreds of businesses to offer employer-paid summer internships to Philadelphia high school students. The number of participating students in this program, a component of the WorkReady Philadelphia system, more than doubled last year to over 1,000; this summer the goal is to place 2,000 teenagers in employer-paid internships in Philadelphia.
Calling on higher ed

Some hope the study’s findings will spur increased involvement by higher education institutions in searching for solutions. “It is no great surprise that research has confirmed that the lack of a high school diploma is an enormous obstacle to youth as they enter the workforce, both in terms of lifetime earnings, and the paucity of opportunities in the labor market,” said University of Pennsylvania President Amy Gutmann in response to the new data. She pointed to a role that universities can take in educational improvement through partnerships like those between Penn and its community schools in West Philadelphia.

Local leaders noted that there are Philadelphians of all ages wishing to return to school. “We need to build pathways back to high school for youth who have become disconnected, but also for adults,” Glickman said.

Finally, some stress that it is crucial for the data to reach those it most affects: the “investors” themselves. “The message has to be made clear through a variety of communication channels that no longer can you expect to be able to find jobs with family-sustaining wages without the educational background that is needed,” Steve Wray said.

Or as Harrington put it, “We need to encourage students, through community-based organizations who may receive the data, to act as informed investors in their futures.”