The College Wage Premium vs the Marriage Wage Premium

She Did. He Did. They Are.

This is adapted from my article published by the Oklahoma Council of Public Affairs in their July Issue of the Perspective Magazine.

There is a lot of discussion in the mainstream media about the “college wage premium”—the benefit gained by earning a college diploma in terms of one’s long-term earning potential. Going to college provides many benefits to an employer, such as increased skills and a signal of work effort. In economic terms, college reshapes a person’s life by increasing his or her productivity, which higher productivity leads to higher earnings.

However, obtaining a college diploma is not the only life-altering event that can reshape a person’s life. Another major event is starting a family, which begins with marriage. After marriage, behavior often changes for the better, especially for men, as a person takes on the added responsibility of caring for a household. While harder to quantify, married people are more productive, as shown by higher earnings.

Unfortunately, the “marriage wage premium”—the earnings boost stemming from marriage—is not as widely discussed, or lauded, as the college wage premium.

We recently examined data from the U. S. Bureau of Labor Statistics (BLS) Current Population Survey as published in the October 2012 report, “Highlights of Women’s Earnings in 2012.” (PDF) The data in the two nearby tables show a significant boost in earnings from marriage. Indeed, for the majority of workers the boost exceeds that of going to college.

Table 1 shows the median weekly earnings of all workers in America in 2012. A person with a high school diploma earns $652 per week while a person with at least a bachelor’s degree earns $1,165 per week—a difference of 79 percent. The college premium is also higher for men than it is for women.

Table 1 also shows the median weekly earnings of people who have never been married at $609 per week while a married person earns $880 per week—a difference of 44 percent. The marriage premium is also higher for men than it is for women.

Table 1 Median Weekly Earnings by Characteristic

However, the majority of America’s employed work on an hourly basis (59 percent). These workers tend to be blue collar and thus middle class. For these workers, the situation is very different, as shown in Table 2.

A person with a high school degree earns $13.58 per hour while a person with at least a bachelor’s degree earns $18.18 per hour—a difference of 39 percent. The college premium is also higher for women than it is for men.

Table 2 also shows the median hourly earnings of people who have never been married at $10.16 per hour while a married person earns $14.99 per hour—a difference of 48 percent. The marriage premium is also higher for men than it is for women.

Table 2 Median Hourly Earnings by Characteristic

It is very interesting how the marriage premium, on a percentage basis, is actually higher for the majority of working Americans—yet marriage gets so little attention in the media. There is significant social and human capital formation that occurs within a marriage—interpersonal skills, dependability, reliability, integrity, flexibility, and motivation, to name just a few—that has tremendous economic value in the workplace (see the Energy Industry Competency Model).

To further illustrate the economic value of marriage, the data also show the impact on earnings from divorce. For both median weekly earnings and median hourly earnings, a person that has been through a divorce suffers a decline in economic productivity (-12 percent for weekly earnings and -5 percent for hourly earnings). In both cases, the negative impact is highest for men.

An important extension of this work would be to further disaggregate the data to better ensure an apples-to-apples comparison. The workers represented actually fall into each of these classifications in different proportions, thus biasing the results. (For instance, “never married” individuals likely represent a greater proportion of “high school graduates,” which makes it less clear which factor is driving the lower earnings.) Even so, these data from the BLS study are enlightening.

Many people lament the fading of the “American Dream” of living a solid middle-class lifestyle, but fail to connect the decline of the American Dream with dramatic increases in divorce and cohabitation. Both cases result in lower household earnings and erode the middle class. Society simply cannot discard the marriage earnings premium without expecting to pay a steep economic cost.

Reducing College Costs Is Crucial for Families

Graduation Girl

My latest article published at Oklahoma’s free-market think tank, The Oklahoma Council of Public Affairs here.

I recently attended a lecture where a gentleman discussed how my kids could obtain a college degree by age 18 at a fraction of the cost of attending a traditional university. So, not only would they have an additional four years of earning potential, I might save up to $116,000 per child (as the estimated costs to attend a private college are around $33,000 per year).

I immediately started thinking how families might adjust their decision-making if they knew about this option when planning for their children’s futures. Because right now, there are certainly many problems with the traditional way of financing a college education and the corresponding results we’re seeing in the economy.

Consider: two-thirds of the class of 2011 hold student loans upon graduation, with the average borrower owing $26,600. Moreover, as Mitt Romney pointed out on the campaign trail last year, more than 50 percent of college graduates are either unemployed or underemployed. It’s clear that the higher education system is broken.

There are numerous reasons for this, of course, but one is administrative bloat. A 2010 Goldwater Institute study found that between 1993 and 2007, the number of full-time administrators per 100 students at the University of Oklahoma grew by 52 percent, while the number of employees engaged in teaching, research, or service only grew by 26 percent.

Fortunately, there are some things we can do as parents to help our children obtain a college degree without being beholden to the current failed system. As I mentioned, I had the pleasure of listening to the CEO of an organization which helps high-school students earn college credit for the courses they’re already taking through CLEP exams and community college courses. The high-school students then finishes earning the credit for their B.A. degree through an accredited college for the final 12 to 18 months of their high-school experience. In addition to the unbelievable savings that can be realized, this type of option, over time, could change behavior to the extent that it impacts family formation.

Few people disagree that children have become more and more costly since World War II. Outside of providing necessities, it is the cost of daycare and education that most heavily weighs on a married couple’s assessment of the financial impact of having additional children.

As OCPA research fellow Vance Fried has been pointing out, there are encouraging signs all around that college is about to become drastically cheaper—so much so that a mother may choose more time with her children over more paid hours at work because the financial stress of paying for her child’s education has been significantly lifted. Additionally, couples may choose to have an additional child because they can now afford the education for that child. A potential savings of $100,000 per child is nothing to scoff at—it could significantly alter fertility.

Let’s consider the tradeoffs that women must make. With 70 percent of women in the workforce, most women must choose which domestic and child-rearing duties can be outsourced and which duties simply cannot be provided given their finite amount of time to be divided between their job and domestic life. Ultimately, women have a finite amount of time to allocate between their job, a husband, children, and leisure. How women value these things is what has changed over the last 40 years, albeit partly because of the increasing cost of educating a child.

These choices or tradeoffs women have to make are never easy and are often accompanied with regret, as evidenced by even the most successful women in America. Three very successful women, two of whom are very much in the public eye and among the first women to reach the highest level of their professions, have said things that contradict their public image as liberals and feminists.

Take, for example, Katie Couric, who browbeat the former Alaska governor (and mother of five) Sarah Palin with respect to her foreign-policy acumen. Couric told Good Housekeeping last year: “I love being around my kids. I’m not a particularly solitary person … I like a big, chaotic household—noise, commotion, laughter! Sometimes I think I should have had six kids. Or I wish I’d had one [more] at 37, but I was busy. My career.”

Another public personality, and the first female Secretary of State, Madeline Albright, made this statement: “We are who we are and, in large part, who we are is dictated by our biology. I believe women can do everything. They just can’t do it all at the same time.”   There again is the mention of a woman’s tradeoff between excelling in her job versus rearing children.

Finally, Erin Callan, the former chief financial officer of Lehman Brothers, recently wrote an op-ed in The New York Times admitting the great regret she has with regards to pouring herself into her work at the expense of her marriage, which ended in divorce and zero children. “I have spent several years now living a different version of my life, where I try to apply my energy to my new husband, Anthony, and the people whom I love and care about,” she wrote. “But I can’t make up for lost time. Most important, although I now have stepchildren, I missed having a child of my own. I am 47 years old, and Anthony and I have been trying in vitro fertilization for several years. We are still hoping.”

There is discontent among women who have to sacrifice time with their family for their jobs—even at the very highest levels of success. Family finances have a mammoth impact on a married couple’s decision to have an additional child.

The significant decline in the cost of college, over the long run, might bridge the financial gap needed for married couples to increase fertility.

College Kid Calls Mom and Dad: “Ate French Fries Off the Sidewalk and Went to the ER”

French Fries Go to the Park

An alarming statistic I just heard on John Tesh radio show of all places is that one-third of all ER visits by teenagers are alcohol-related.  The majority were males and of those males, the age breakdown was 53.4% of males ages 12 to 17 and 62.1% ages 18 to 20. (This data can be found in The DAWN Report (July 2010), published by the Office of Applied Studies, Substance Abuse and Mental Health Services Administration)).  But it gets even worse…read on.

Not only are prospects dim and getting dimmer that our college grads will find jobs upon graduation (2010 grads are competing with 2009 grads; we have compounding unemployment among the young white-collared)  Some are drinking away their brains as a recent study has shown that among the young, excessive drinking actually destroys neural stem cells in the brain impairing young people’s ability to learn and remember, a condition known as impaired neurogenesis.

So, you spend on average between $7k for public in-state tuition and fees and up to 26k for private college so your kids can further their mental capabilities and instead, in large numbers, they are actually destroying their ability to learn by drinking until they pass out.  Perhaps Obamacare’s extension of of coverage to children on their parents’ policies until age 26 is an attempt to absorb those graduates who won’t be employed with health coverage upon graduation as well as those who won’t have the capability to graduate because their brains don’t function properly.

This is no laughing matter but I have an incident to share that at the time was very funny…at least my boys who are 8 and 6 were very amused.  It was about 2am and we were waiting for my husband’s bus to arrive from Logan airport.  I arrived a half-hour early and thought the kids would either be asleep or bored silly.  Well, it turns out we had plenty of entertainment going on right outside our car windows.

We were parked close to the center of campus at Dartmouth College.  Some of the entertaining co-eds walking by were the girl carrying her shoes who would occasionally drop her shoe, keep walking and then 3 minutes later turn around and retrieve her shoe.  She did this about 5 times.  My boys’ favorite was the guy walking with his buddy who dropped his styrofoam container filled with a burger and fries on the sidewalk, fell down onto his knees and started eating the french fries off the sidewalk while his buddy was laughing so hard he fell on the grass.  The two of them carried on for about 5 minutes before they got the burger and remaining fries off the sidewalk and back into the box and were on their merry drunk way.  Annual cost to go to this Ivy party: $46k.

Parents with kids in college are either drunk or irrational (or both) because the money they’re spending on higher ed would be better utilized at the bottom of a birdcage.