The Returns to Education and Training in the Sub-Baccalaureate Labor Market: Evidence from the Survey of Income and Program Participation 1984-1990

Publication May 1995

The value of formal schooling’s power to increase employment opportunities, wages, and earnings has been apparent for a long time. However, conventional wisdom regarding the economic benefits of education may not hold true for every type of education or for every group of students. In particular, the value of education in community colleges and technical institutes and, more generally, the effects of accumulating some education beyond the high school diploma but short of a baccalaureate have been unclear due to a lack of appropriate data. Since a slight majority of students receiving postsecondary education are enrolled in community colleges and technical institutes, and since about one quarter of the labor force could be included in a group described as having “some college,” the lack of information about the economic effects of a college education below the baccalaureate level is serious for both students and policymakers.

This monograph uses the Survey of Income and Program Participation, or SIPP, to present a comparison of the estimates of the benefits of education among different levels of education, including the group with some college, as well as those with less than a high school diploma, baccalaureate degrees, and graduate education. The SIPP data has some advantages compared to other data sets, particularly due to the fact that it includes individuals of all ages rather than a small range of ages. It suffers from disadvantages as well, particularly in the lack of information on individual ability or academic achievement. Another disadvantage is the fact that educational achievement is reported by individuals themselves rather than by transcripts. The SIPP also provides the information necessary to construct other independent variables that explain variations in earnings, including race and ethnicity, family background, region of the country, certain aspects of family (marriage and number of children), and several measures of labor market experience.

The results of estimating equations describing earnings as a function of education and other conventional independent variables yield the following results:

  • First and foremost, it is clear that the critics who claim that community colleges and other two-year institutions provide no economic benefits are incorrect. Both certificates and Associate degrees increase the earnings of those who receive them–not, of course, by as much as a baccalaureate degree, which requires between two and four times as many credits, but, still, by substantial and statistically significant amounts.
  • While there may be substantial economic returns from certificates and Associate degrees, it is equally clear that some kinds of postsecondary education provide no economic advantage at all; therefore, to simply recommend that individuals continue their education in community colleges and technical institutes is unwarranted. Obviously, short periods of time spent in postsecondary education have uncertain effects. Only those women who report that they have completed three or four years of college, but without having received any postsecondary credentials–consistent with substantial attendance at four-year colleges, not community colleges–have higher earnings than high school graduates. Longer durations of enrollment among noncompleters provide larger and more significant benefits among men than among women, but here too, the effects of shorter durations of college attendance–less than one year, which someone entering a community college for a short period of time might have–is usually too little to be statistically significant and is essentially zero for younger cohorts (ages 25-34 and 35-44). Although some men may benefit from small amounts of course-taking, the average effect is quite close to zero.
  • There appear to be “program effects.” In general, completion of a certificate is more beneficial than completion of one year of college without a credential. An Associate degree is more valuable than two years of college, and a baccalaureate degree increases earnings by more than four years of college without the credential. Once again, this suggests that obtaining credentials is the wisest course for most individuals.
  • Over the period 1984 to 1990, many students attending community colleges and technical institutes were older than “traditional” students, and it may seem possible that the economic returns for such older students would be lower than for others. However, this proves not to be true; indeed, for women, there is even evidence that the returns from Associate and baccalaureate degrees are higher for those who earn them at or after age 30.
  • As is well-known for baccalaureate degrees, the benefits of sub-baccalaureate credentials vary substantially by field of study. Even though small samples affect the inferences possible, some fields of study–business and health for women; business, engineering, technical fields, and perhaps public service for men–provide substantial benefits, while others either provide little earnings advantage or provide benefits that are highly variable. The fact that the most beneficial fields of study (except for business) are different for men and women–a result that is not generally true for baccalaureate degrees–suggests the extent of gender segregation in these programs and in the labor market for which they prepare students. It also suggests that the common recommendation to encourage women to enter nontraditional educational programs–in areas like engineering, computers, electronics, and other technical fields–may not benefit them in the ways that proponents of such gender equity imagine, unless something is done to reduce the apparent discrimination against women in such fields.
  • The effects of having a job related to an individual’s field of study are substantial. As one might expect, the returns to related employment are almost always higher than the returns to unrelated employment. This confirms the hypothesis that the job-specific nature of vocational education reduces its value in unrelated jobs. Second, while the returns to unrelated Associate and baccalaureate degrees are lower than to related degrees, they still tend to be significant. The implication is that occupational degrees do have some general components that enhance productivity and earnings, even in occupations unrelated to the field of the credentials. Third, in a substantial number of cases–and particularly among individuals with some college but no credentials–the coefficient for related employment is significant, but the coefficient for unrelated employment is not. These are particularly worrisome cases because they imply that the completion of coursework is necessary but not sufficient to realize economic benefit, and that placement in a related occupation is crucial.
  • In addition to information on education, the SIPP also asks individuals whether they have been in various short-term job training programs. By and large, the effects of job training on earnings are zero or even negative: only employer-sponsored training provides a consistent boost to earnings for both men and women, though training in trade schools and community colleges is beneficial to women if they find related employment. In addition, the effects of programs are generally greater if an individual’s current employment is related to the training he or she received–which is what one might expect, since short-term job training is almost, by definition, relatively job-specific. However, the vast array of government-sponsored job training programs do not increase earnings substantially. There are, of course, many explanations for this finding, principally that such programs enroll individuals with substantial barriers to employment–low skill levels, a lack of motivation or initiative, drug and alcohol abuse problems, physical disabilities–not otherwise described by this data but apparent to employers. Nonetheless, it is clear that most short-term job training programs have not been successful in returning their clients to the mainstream of the labor market.

The implications of these results for students are relatively clear. Because there is substantial variation in the returns to postsecondary education–depending on how much a student completes and the field of study–prospective students need to be well-informed about the economic consequences of their decisions. Since it is unclear that sufficient information is currently available, especially at the local level where students make their decisions, a recommendation for improved information about economic effects is warranted.

Similarly, state and federal policy has often operated without information about the effects of sub-baccalaureate education. Both states and the federal government have stressed increasing access to postsecondary education, rather than completion; yet there has been little attention to the quality of that education and its subsequent effects. But since many noncompleters fail to benefit from their education, and individuals in some fields of study do not benefit at all, simple access to postsecondary institutions is insufficient to guarantee any advantage in employment. Both state and federal policy should therefore consider the consequences of postsecondary education rather than simple access. Efforts now underway to develop performance measures in vocational education provide one example of the kind of information that would be helpful to state and federal policymakers, as well as to students, in deciding how to improve postsecondary education.

Grubb, W. N. (1995, May). The returns to education and training in the sub-baccalaureate labor market: Evidence from the survey of income and program participation 1984-1990. Berkeley, CA: National Center for Research in Vocational Education.

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