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.

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Families, Not Government, Can Reduce Generational Poverty

Child

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

I have previously written about the mayor of a great city, a prize-winning economist, and an award-winning actor who all speak about the need for stable families.

In my previous post I discussed the inner-city woes of an “F” school in Tulsa and how the administration was attempting to deal with the behavioral problems the children brought with them to the classroom. Teachers and administrators commented that it was the unstable family life experienced by the children which was a primary factor driving the children’s undesirable behavior.

The mainstream notion about disadvantaged youth is that coming from a low-income family determines the effects on those disadvantaged children in adulthood. It is this notion that propels government anti-poverty policies. In a 2007 National Bureau of Economic Research working paper, economists Rajeev Dehejia, Thomas DeLeire, Erzo Luttmer, and Joshua Mitchell state (pdf):

“Many studies have documented the correlation between poverty and youth outcomes. Growing up in poverty is related to having worse physical health, lower levels of cognitive ability, lower levels of school achievement, and a greater level of emotional or behavioral problems.”

The authors also state that evidence shows that it is improbable that low income is the cause for all these adverse outcomes.

In addition to income, there is a significant amount of evidence that having an unmarried parent can help explain these effects. Economists Sara McLanahan and Gary Sandefur argue in their book “Growing up with a Single Parent” that:

“growing up with only one biological parent frequently deprives children of important economic, parental, and community resources, and these deprivations ultimately undermine their chances of future success.”

 

For instance, the highest percentage of single-headed households is among black mothers. In an interview with President Barack Obama, television host Bill O’Reilly stated that 72 percent of black babies are born out of wedlock. He asked the president why he and Mrs. Obama haven’t explicitly addressed this very serious problem.

According to federal health statistics, 24.6 percent of births to non-whites were to single mothers in 1964. (This includes blacks, Hispanics, and Asians—so the percentage of blacks was even lower than 24.6 percent.)

Fast forward to 2012, almost 50 years since LBJ’s War on Poverty began, and the percentage of births to unmarried black mothers was 72 percent. Despite 50 years of LBJ’s War on Poverty and $20 trillion spent, we are presented with one of the many perverse results of welfare policy. Clearly, the intent of welfare policy in 1964 was not to rip apart the structure of the American family.

In groundbreaking research in 1985, Harvard economist Richard Freeman (pdf) found that the background factors that most influence who escapes inner-city poverty are churchgoing, whether other members of the family work, and whether the family is on welfare.

In Oklahoma, 62 percent of children are born on Medicaid. The percentage nationwide ranges from a whopping 71 percent in Louisiana to a low of 27 percent in Virginia (with a median value of 45 percent). Unfortunately, Oklahoma is in the very high range, at fourth-highest in the country. In absolute numbers, that represents, on average, approximately 30,000 babies that are born into Oklahoma’s welfare system each and every year.

Unfortunately, as I recently pointed, this suggests Medicaid will continue to swell, as this next generation of newborns is very likely to be remain dependent on the program into adulthood like their parents. Economist Carolyn Moeling’s 2004 research (pdf) is a forewarning to those Oklahoma policymakers flirting with expanding public assistance:

“States that offered the most generous benefits to single mothers were the states that experienced the largest increases in single motherhood.”

Largely missing from mainstream conversation about what factors influence disadvantaged individuals’ ability to improve their financial trajectory is church going—despite robust evidence. Dehejia, et al.’s empirical results:

“show that religious organizations play an important role in shaping the lives of disadvantaged youth by mitigating at least some of the long-term consequences of disadvantage.”

More specifically, the results are strongest when disadvantage is measured by maternal education or youth’s level of education.

Similarly, Byron Johnson finds that church attendance has been found to influence youth’s inclination whether to commit serious crimes. In other words, when youth are actively involved in church, the linkage between neighborhood disorder and serious crime diminishes (where neighborhood or social disorder is characterized by visible cues like hanging out, drinking, taking drugs, and creating a sense of danger on the streets).

Research which confirms that welfare policy contributes to the ongoing existence of intergenerational poverty abounds—whereas factors like two-parent households and churchgoing have been shown to ameliorate intergenerational poverty. For liberal policymakers and media to argue that intact marriages and religion have negligible effects on the health of a community and an economy is to blatantly ignore the facts.

Are We Raising the Next Generation of Criminals?

Picture of a Prison

Recently, I read a fascinating account from a career federal prosecutor, Margaret McGaughey, in Maine who details her understanding of “How to Raise a Dangerous Criminal.” In her words:

During my 35 years as a federal prosecutor, I have been exposed to biographical information about some of the most dangerous drug and violent defendants in the American criminal justice system. What has consistently struck me is how similar these offenders’ backgrounds are. My experience has suggested that four features commonly combine in lethal fashion to create a dangerous criminal. They are:

* families that have fractured and re-configured repeatedly and consider criminal behavior to be an accepted element of family life;

* childhoods that are dominated by drugs, alcohol, physical abuse, verbal mistreatment, sexual predation, or all of those forms of abuse;

* upbringings that reflect no respect for education; and

* the absence of any influence of, or involvement in, religion.

Wow, I really appreciate such brutal honesty from someone who has been in the trenches.  What really surprised me was that she would even mention religion since that seems to be, in today’s world, irrelevant. Her article is rather lengthy so I encourage you to take the time tor read the whole thing.

Instead, I have a different purpose for this blog post. I will take everything that Margaret McGaughey says at face value–and I certainly have no reason not to–and analyze her suppositions through the lens of her home-state’s current socioeconomic status. The data is stunning in that it shows Maine may be heading for a dramatic rise in crime. Keep in mind, however, that while I’m discussing Maine, this analysis could easily apply to all of the New England states.

Currently, Maine is one of the safest states in America. According to the 2012 crime statistics complied by the Federal Bureau of Investigation (FBI), Maine has the lowest violent crime rate in the country (includes murder and non-negligent homicide, rape, robbery, and aggravated assault) and the 16th lowest property crime rate in the country (includes burglary, larceny-theft, and motor vehicle theft). However, a look at data suggests that Maine’s pristine criminal record may begin tarnishing.

While not all of the points made by Margaret McGaughey can be quantified, here is what we know. First, the institution of marriage has seriously eroded in Maine, especially among the lower and middle class. Of course, this is not unique to Maine as I pointed out in a previous post that marriage has been declining in American society. Nonetheless, the rate of declines is stunning.

I like using data from the Internal Revenue Service because compliance is mandatory, under criminal penalties, which makes it a “harder” source of data vis-a-vis survey data. IRS data for Maine in Chart 1 shows that overall between 1997 and 2011 the number of married tax filers as a percent of all filers fell by -8.5 percent to 40.5 percent from 44.2 percent.

Chart Showing Married Tax Returns as a Percent of All Tax Returns in Maine 1997 and 2011

However, the overall data hides the more distressing news that appears when looking at the data by income group. While marriage declined in all income groups, it dropped by a whopping 33 percent for those earning between $1 and $50,000 to a mere 22.7 percent in 2011 from 33.9 percent in 1997. In stark contrast, marriage hardly declined at all for taxpayers earning more than $100,000.

This steep decline in marriage particularly impacts children because 50 percent of all dependents (mostly children) are claimed by those earning between $1 and $50,000 as shown in Chart 2. Chart 2 also shows a small ray of sunshine in that the percentage of dependents in the upper income brackets have grown tremendously, albeit starting at very low levels, meaning more children growing up in married households (though this isn’t proof that they are stable, married households).

Chart Showing Percent of Dependents by Income Group

Overall, this marriage data suggests that the stability that marriage brings to a child is severely lacking. If 50 percent of Maine’s children are being raised in marriage-less, lower income households then the odds are high that there is a lot of fracturing and re-configuring of their family life. Even if it is only a small percentage of children that are exposed to this environment, that would still amount to tens of thousands of children.

Additionally, it does not appear that this dynamic will be changing anytime soon. According to data from the The Henry J. Kaiser Family Foundation, 39 percent of all births in 2009 in Maine were paid for by Medicaid. This situation exists on top of the fact that Maine is only one of two states where there were more deaths than births (xls) (West Virginia is the other). So, there are not only fewer children being born in Maine, but a significant number of them are being born right into the welfare system–a system that has already trapped 1 in 3 Mainers on welfare.

In terms of religion, Maine is one of the least religious states in the country. According to the Pew Research Center, only 42 percent of Mainers say that religion is very important to their lives–as it is in all of New England. So, statistically speaking, Maine children are less likely to be exposed to morality and religion which help curb criminal behavior.

The data paints a pretty bleak future in Maine and suggests that crime will be on the rise in the state that bills itself as “the way life should be.” This does not bode well economically either as a large part of Maine’s economy is centered around tourism. A spate of bad news on the crime front would do little to encourage tourism.

The one point I would disagree with Margaret McGaughey on is her solution to this problem. Naturally, since she is part of the institutional criminal justice system, her solution is very institutional. Put succinctly, she advocates for a more active judiciary which would remove children from abusive/negligent parents and put them into an institutional group homes–though she likens them more to “boarding schools.”

Unfortunately, she neglects to see the bigger picture as her solution is really more of a band-aid. Ultimately, the social status of the family unit will have to return to the loftier status it enjoyed in decades past. A stable, strong family will be one that emphasizes education and religion with positive feedbacks of education and religion stabilizing and strengthening families.

Yet, Maine is going through a spasm of negative family feedbacks. Maine has recently legalized same-sex marriage, expanded gambling (doc), and legalized marijuana in Portland–the state’s largest city. All of these developments only serve to weaken the family.

Instead, Maine needs to chart a very different course. Perhaps a solution can be found in Maine’s agrarian past–hint, hint. There are some ideas I’ve been tossing around, but this blog post is long enough already. Please stay tuned 🙂

photo by: Corey Leopold