Wage Gap Between Degree and Non-Degree Holders Levels Off
Graduates with a four-year degree used to significantly out earn workers without one. However, a recent National Bureau of Economic Research study reveals that the wage premium has leveled off. While the amount earned by those with college degrees has been substantially higher in the past 35 years, from 2000 through 2010, the wage gap only increased modestly. From 2010 through 2015, there was no significant change in the wage premium for college grads.
Hourly Wages by Educational Attainment Level
|Less than 12 years||$14.19||$12.84||$12.47||$13.03||$13.22||$13.56|
|High School diploma||$16.33||$15.99||$15.87||$17.20||$17.77||$17.98|
The study’s author, Robert G. Valletta, proposes two reasons for this leveling off of the wage gap: polarization and skill downgrading.
Polarization and the wage gap
Wage stagnation is partially the result of the skill-based technological change, or SBTC, in labor markets. Routine jobs performed by workers in the middle of the wage spectrum are now being performed by automated equipment and processes.
Valletta categorizes occupations as follows:
|Broad Polarization Category||Major Occupation Groupings|
|Non-Routine Cognitive||· Management, business and financial operations|
|Routine Cognitive||· Sales and related|
|· Office and administrative support|
|Routine Manual||· Construction and extraction|
|Non-Routine Manual||· Healthcare support|
|· Protective services|
|· Food preparation and serving|
|· Building and grounds|
|· Personal care and service|
Anthony Carnevale, research professor and director of the Georgetown University Center on Education and the Workforce, provides examples of how automation has replaced some of the routine cognitive and routine manual jobs. “Traditional middle-skill clerical jobs, such as typists, personal secretaries, and file clerks, have been replaced with personal computers that can file and retrieve documents, schedule appointments, and send reminders,” Carnevale tells GoodCall. And the ability to send documents electronically has reduced the need for post office workers – another class of middle-skill workers. In addition, technology has reduced the need for such jobs as travel agents, bookkeepers, and accounting clerks.
Skill downgrading plays a factor
While advances in technology have decreased the need for – and subsequently the wages of – employees who perform routine work, technology is also affecting them in another way. Companies are no longer investing in IT with the same level of intensity, and this has decreased the demand for cognitive skills.
According to the report, “Once the level of organizational capital becomes sufficiently large for appropriate use of the new technology, the demand for cognitive tasks declines as their use is shifted from expanding organizational capital to maintaining it by offsetting depreciation.”
This results in what Valletta refers to as a demand reversal in which high-skilled workers slide down the occupational ladder and end up taking jobs from lower-skill workers. The lower-skill workers move further down the ladder, resulting in skill downgrading.
A recent Economic Policy Institute report reveals similar findings. Many graduates in the Class of 2016 found difficulty obtaining jobs that required a four-year degree, so these college grads are working low-quality, low-paying, non-degree jobs.
To be clear, there is a demand for lower-skill workers, but those jobs don’t pay well at all. For example, according to the U.S. Bureau of Labor Statistics, among the occupations with the most new openings, nursing is the only high-skill, high-paying job:
|Occupation||Projected New Jobs Through 2024||Median Pay|
|Personal care aides||458,100||$20,980|
|Registered nurses||439,300||$67, 490|
|Home health aides||348,400||$21,920|
|Combined food prep and serving workers (including fast food)||343,500||$18,910|
Another factor contributing to the flattening of wage premiums for college grads is the sheer number of employees with a college degree. According to Carnevale, for the first time in history, there are more college grads in the workforce than individuals with a high school diploma or less.
Since the recession, Carnevale explains that the job market does indeed favor workers with degrees. In fact, statistics from his organization show more than 11 million jobs were created since the recession, and almost 75% of those positions were filled by people with at least a bachelor’s degree.
However, since there are so many college grads, employers can engage in upcredentialing, which is the practice of requiring more education than previously required for a certain position. In other words, companies now hire college grads to perform work that used to be done by individuals with high school diplomas.
Everything is relative
However, Carnevale says that while the wage premium may have flattened for college grads in general, it all depends on the grad’s major. “For example, while college graduates with degrees in social work, the arts, or psychology may barely be over the $30,000 mark, and probably earn only $1,000 or more than the typical worker with a high school diploma, graduates in engineering can earn almost double that amount,” Carnevale says.
Also, the stagnant wages of college grads may not take into account other factors. For example, Brad Hershbein, an economist at the W.E. Upjohn Institute for Employment Research, tells GoodCall, “The gap does not include differences in benefits, such as access to good health insurance, retirement plans, and paid leave; college graduates receive more valuable benefits than high school grads, and this difference has been growing even as the wage gap appears to stall.” Once these perks are added in, he says the “wage gap” increases between the two groups.
“Some college graduates, with certain types of skills and in certain occupations, are seeing falling demand, and that keeps their wages down, even as other college grads – such as those with cognitive and social skills, and in managerial or communication roles – continue to see their wages rise,” Hershbein explains.
And he points out another – and perhaps the most important difference – between the two groups: college graduates are more likely than high school graduates to be employed.