Postsecondary education pays off financially

As students get ready for college and university, new research suggests that their degrees could keep them off the bread lines.

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      When Alexis Kho enrolled in the natural-resources conservation program in the UBC faculty of forestry, she didn’t focus on whether or not this would make her rich. Now about to begin her fourth year, she told the Georgia Straight by phone that it was more important to find an area of study that interested her. She has been able to study a wide range of topics, including ecology, forest biology, aquatic ecosystems, and biodiversity. After graduation, she hopes to find a job that enables her to enhance the natural environment.

      “It would be nice to work for the government,” Kho admitted. “Parks Canada has always interested me.”

      Alex Perelygin, a recent Simon Fraser University graduate in math and computer science, told the Straight by phone that he is also pursuing his passion. Next month, he’s moving to California to enter a master’s-degree program in computer science at Stanford University. He’s excited to be moving to the heart of the Silicon Valley.

      “It’s the birthplace of the modern computing industry and a lot of the companies are headquartered there,” Perelygin said. “So I figure it’s a prime location if I’m going to stay in this field.”

      Kho mentioned that people in her program are keenly interested in environmental issues, including climate change, and they don’t spend a great amount of time discussing how much they’ll make after graduation. Perelygin, on the other hand, said that quite a few students have told him that they’re motivated by money. “I’ve seen a mix,” he stated. “Some people are there out of academic interest. Some people are focused on, ‘I want a degree that will pay me out the best.’ ”

      What they and many other students don’t realize is that some recent research suggests they may make significantly more money over their lifetimes and face shorter periods of unemployment as a result of obtaining university degrees. In a journal called Labour Economics, UBC economist Craig Riddell and York University economist Xueda Song recently published a paper indicating that people with more education have a higher probability of finding a new job after becoming unemployed. Their research drew this conclusion after looking at Americans 12 months after losing a job and Canadians six months after losing a job. The effect was particularly pronounced for those who added one to four years of education beyond Grade 12.

      Riddell told the Straight by phone that economists have known for years that there is a correlation between education and employment. But this was the first time that anyone has demonstrated a “causal effect” between educational levels—after removing all other variables—and the duration of time out of work. “What the data tells us is, on average, people with more education do better than people with less education,” he said. “That’s not just a correlation; it’s a causal effect. The evidence is pretty clear on that.”

      As the project director of the Canadian Labour Market and Skills Researcher Network, Riddell has spent a great deal of time studying the relationship between postsecondary education and incomes. He, along with UBC’s Thomas Lemieux and University of Montreal’s Brahim Boudarbat, coauthored an exhaustive study last year called “The Evolution of the Returns to Human Capital in Canada, 1980-2005”. It relied on census data before concluding that “returns to education increased substantially for Canadian men” over the 25-year period, with most of this occurring in the early 1980s and after 1995. The gains were more modest for Canadian women.

      Riddell said that not surprisingly, professional programs—including law, dentistry, and medicine—yield the highest financial returns. In four-year programs, engineering tends to have a higher-than-average payoff over the course of a graduate’s career. “The lowest returns tend to be in the humanities,” he pointed out. “Basic science and social sciences are in between. There is nothing really shocking about that, but what is also noteworthy is that the differences by field of study are not enormous.”

      The income differential between men with a bachelor’s degree and people with a high-school diploma rose from 32 percent to 40 percent from 1980 to 2005. The earnings gap between men with a high-school diploma and postgraduate and professional degrees rose from 51 percent to 54 percent over the same period. The paper also noted that women with a bachelor’s degree earned 51 percent more than women with a high-school diploma in 2005, up from a differential of 45 percent in 1980.

      The researchers wrote that they took employees’ experience into account because older and more experienced workers are generally less well-educated than younger, less experienced colleagues. “Although we control for observed differences among educational groups, there may also be unobserved differences such as motivation, ability and perseverance that we cannot take into account with available data,” they wrote.

      Riddell said that he and his colleagues also examined the earnings of people with college diplomas or trades certificates. “The payoff is a little lower than for a university degree when you factor in the years of schooling,” he revealed. “They’ve invested two years on average in additional school beyond high school. University is four years. You would expect their income, if it was proportional, to be halfway between university graduates and high-school graduates. But it’s not quite halfway between. It’s still a good investment if you work out the rate of return.”

      SFU economist Krishna Pendakur has studied the earnings of aboriginal people and Canadian-born visible minorities. He pointed out that the income differential between aboriginal people and nonaboriginal people is huge, particularly for men, but that gap has narrowed in recent years. “Aboriginals are still dramatically less well off than everyone else, but the marginal impact of education is high for both aboriginal and nonaboriginal people,” Pendakur told the Straight by phone.

      The general trend for visible minorities is not good, though he didn’t feel that he had sufficient research at hand to comment on the impact of the “education premium” on them. “In 1970, Canadian-born visible-minority men had earnings about six percent lower than Canadian-born white men who had the same age, education, city of residence, stuff like that,” Pendakur said. By 2005, the differential grew to nearly 20 percent.

      In Vancouver, however, the differential was less than 10 percent for men in 2005, and Canadian-born visible-minority women in Vancouver had a higher average income than Canadian-born Caucasian women.

      That’s not to say that university dropouts can’t enjoy spectacular success. Steve Jobs is cofounder and CEO of Apple Inc., which recently became the most valuable company in the world. In a commencement address at Stanford in 2005, he confessed that he never graduated from college. And after being fired during his first stint running Apple, he said that the only thing that kept him going was the love that he had for what he was doing.

      “You’ve got to find what you love,” Jobs advised the students. “And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle.”

      It’s an approach that both Kho and Perelygin have intuitively grasped. And if it makes them more money and results in less unemployment during their careers, they’re not going to complain about that.

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