College Education ‘Opportunity Cost’ Depends on Where You Live
College Education ‘Opportunity Cost’ Depends on Where You Live
(Bloomberg) -- The Grammy Award-winning song from the 1960s “Do You Know the Way to San Jose?” may be more relevant today than ever -- at least for university graduates seeking to maximize their investment in education.
San Jose, California, is where graduates with bachelor degrees have the highest premium compared to those who maxed out with a high school diploma, according to a Bloomberg gauge that tracks “upward mobility” in nearly 400 U.S. metropolitan areas.
San Francisco; Stamford, Connecticut; Washington, D.C., and Raleigh, North Carolina, rounded out the top five.
To access the full data set, click HERE
Opportunity Cost
A key part of the ranking was based on breaking even. College graduates are behind in “opportunity cost” -- income theoretically given up to attend university while a peer with a high school diploma immediately joins the labor market. The ranking estimates the length of time needed for the two total earnings to converge.
In addition to wages by education level, “mobility” also takes into account how clustered each area’s labor force was with highly educated workers. Wages were adjusted for inflation, but school fees, student loans and living expenses weren’t included in the calculations. Graduating from college in four years and employment thereafter were assumed.
In San Jose, someone who invested four years to earn a bachelor’s degree would need to work just 2.9 years to catch-up to the overall earnings of a high school diploma-holder in the same city. That break-even period, fastest among metro areas, is based on a median salary of $81,401 for a new college graduate in 2017, compared with the $34,653 median for a high school graduate who entered the job market four years earlier.
Nationally, the break-even time is 5.7 years.
“As university qualifications become more commonplace, recruiters and employers will increasingly demand them, regardless of whether they are actually required for a specific job,” Tomas Chamorro-Premuzic, chief talent scientist at Manpowergroup Inc., and Becky Frankiewicz wrote earlier this year in a Harvard Business Review article, “Does Higher Education Still Prepare People for Jobs?”
The authors said hiring should be done with “more open-mindedness” because new technology puts a premium on “soft skills” that are hard for machines to emulate.
About 55% of the work force in San Jose and San Francisco had at least a bachelor’s degree in 2017. The U.S. average was 37%, with a high of 65% in Boulder, Colorado, and low of 15% in agriculture-centered Merced, California. The diploma-degree ratio is considered an indicator for potential upward mobility.
The New York City area ranked No. 8, with a break-even period of 4.4 years. About 46% of job holders had at least a bachelor’s degree. New grads earned $62,334 on average, a 94% premium to high school diploma-holders.
Midland, Michigan, was another standout at No. 6. Its 8.1% per capita economic growth average from 2014-2017 led all cities. University graduates can earn a premium going to work at Dow Inc.’s nearby chemical plants.
At the other end of the spectrum was Logan, Utah, where it would take a college grad 85 years -- about three generations -- to catch a high school-only cohort, as income premium was just 10 cents on the dollar.
College Towns
The premium on college education was also lower-than-average in some of America’s best-known college towns, where a vast supply of fresh graduates apply for jobs. The break-even amount was more than 10 years in Ithaca, New York, home of Cornell University; Auburn, Alabama; and the homes of leading state universities in Eugene, Oregon; Champaign, Illinois; and Bloomington, Indiana.
The vast majority (92%) of the nation’s college-educated, working-age population live in metropolitan areas.
Durham, North Carolina (Duke University), Austin, Texas, and Ann Arbor, Michigan, fared better than most of their university-city peers, as each ranked among the top 20. Jed Kolko, chief economist for job site Indeed Inc., said in a blog that the service-orientation jobs of Durham and Austin make those cities among the “most resilient” markets over the past 50 years.
“People who are disadvantaged in the labor market,” such as those who are less educated and ethnic minorities, lose ground during recessions but outpace more-educated cohorts during periods of robust growth, he said.
That helps explain why the break-even period increased to 5.7 years in 2017, versus 5.2 years for someone who graduated from college in 2014. During that period, wages for diploma-holders rose 2.3% annually, compared with 1.5% among those with graduate or professional school credentials, and just 0.4% for college-degree holders.
Here are the top 50:
METHODOLOGY: Research included all U.S. metropolitan areas. Final index included those with positive incremental pay premium by level of educational attainment and sufficient data for 2010-2017. A typical 2017 new bachelor’s degree holder was assumed to be able to immediately earn the MSA-based median pay for those with bachelor’s degree only; His/her hometown counterparts, having already accumulated four years of wages - the opportunity cost for those college-bound to gave up - will continue to earn the pay level for those with high school diplomas (including GED) only; All wages were escalated to 2017 level and incomes after 2017 were assumed to escalate at 2% per annum. ‘Degreed’ labor force refers to economically active civilian population, age 25-64, with a minimum of Bachelor’s degree |
To contact the reporters on this story: Lee Miller in Bangkok at lmiller@bloomberg.net;Wei Lu in New York at wlu30@bloomberg.net
To contact the editors responsible for this story: Alex Tanzi at atanzi@bloomberg.net, Virginia Van Natta
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